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Income Taxes

12 Months Ended

Dec. 31, 2020

Note 23 – Income Taxes

Components of the federal and state income tax provisions for the periods indicated are as follows:

	2020			2019			2018
Current expense (benefit)	$	(15.4	)	$	—		$	—
Deferred expense (benefit)		(232.7	)		(87.9	)		5.5
Total income tax expense (benefit)	$	(248.1	)	$	(87.9	)	$	5.5

Our deferred income tax assets and liabilities at December 31, 2020 and 2019 consist of differences related to the timing of recognition of certain types of costs as follows:

	2020			2019
Deferred tax assets:
Net operating loss	$	1,573.5		$	1,235.6
Other	—				2.3
Deferred tax assets before valuation allowance		1,573.5			1,237.9
Valuation allowance		(196.5	)		(2.3	)
Deferred tax assets		1,377.0			1,235.6
Deferred tax liabilities:
Investments (1)		(1,519.4	)		(1,647.7	)
Property, plant, and equipment		(4.0	)		(15.6	)
Other		(5.7	)		(6.5	)
Deferred tax liabilities		(1,529.1	)		(1,669.8	)
Net deferred tax asset (liability)	$	(152.1	)	$	(434.2	)

Net deferred tax asset (liability)
Federal	$	(148.3	)	$	(363.5	)
Foreign		0.6			0.6
State		(4.4	)		(71.3	)
Long-term deferred tax liability, net	$	(152.1	)	$	(434.2	)

(1)	Our deferred tax liability attributable to investments reflects the differences between the book and tax carrying values of our investment in the Partnership.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which significantly changed United States corporate income tax laws beginning, generally, in 2018. These changes included, among others, (1) a permanent reduction of the United States corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%; (2) elimination of the corporate alternative minimum tax ("AMT"); (3) immediate deductions for certain new investments instead of deductions for depreciation expense over time, (4) limitation on the tax deduction for interest expense to 30% of adjusted taxable income; (5) limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks; and (6) elimination of many business deductions and credits, including the domestic production activities deduction, and the deduction for entertainment expenditures.

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. We included provisional impacts of the Tax Act in the fourth quarter of 2017. We completed the accounting for the 2017 provisional items in 2018 as outlined below:

•

We reclassified $4.2 million of AMT credits from deferred tax assets to long term assets. We expect to receive this amount as a refund in 2019 - 2021.

•

The Tax Act reduced the corporate tax rate to 21%, effective January 1, 2018. We recorded a provisional deferred tax benefit of $269.5 million for the year ended December 31, 2017.

•

In the year ended December 31, 2017, we recorded a provisional tax depreciation expense of $1.9 billion which did not include full expensing of all qualifying capital expenditures. In the year ended December 31, 2018, we completed our analysis of capital expenditures that qualify for bonus expensing and recorded an additional tax depreciation expense of $286.4 million.

•

Congress enacted several modifications to the compensation deduction limitation for covered employees under IRC Section 162(m). The modifications do not apply to compensation agreements entered into on or before November 2, 2017. Targa’s covered employees’ compensation is attributable to compensation agreements entered into on or before November 2, 2017. Consequently, we determined the Act’s modifications do not impact Targa’s covered employees’ compensation agreements, and we did not record any adjustments.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. The CARES Act provides corporate taxpayers an expanded five-year net operating loss carryback period for losses earned in tax years 2018 through 2020. Additionally, the CARES Act allows corporate taxpayers to request an immediate refund of alternative minimum tax credits. We requested a cash refund from the Internal Revenue Service (“IRS”) of approximately $44 million related to the CARES Act provisions and received the refund in the second quarter of 2020.

As of December 31, 2020, we have total net operating loss carryforwards of $6.6 billion, $1.7 billion of which will expire between 2036 and 2037. The remaining $4.9 billion net operating loss will not expire, but is limited to offset 80% of taxable income per year. We established a pre-tax valuation allowance of $924.8 million against our deferred tax assets, primarily due to the tax consequences of the impairment of long-lived assets. See Note 5 – Property Plant and Equipment and Intangible Assets.

Set forth below is the reconciliation between our income tax provision (benefit) computed at the United States statutory rate on income before income taxes and the income tax provision in our Consolidated Statements of Operations for the periods indicated:

Income tax reconciliation:	2020			2019			2018
Income (loss) before income taxes	$	(1,573.1	)	$	(46.7	)	$	65.9
Less: Net income attributable to noncontrolling interest		(228.9	)		(250.4	)		(58.8	)
Income attributable to TRC before income taxes		(1,802.0	)		(297.1	)		7.1
Federal statutory income tax rate		21	%		21	%		21	%
Provision for federal income taxes		(378.4	)		(62.4	)		1.5
Valuation allowance		194.2			—			—
State income taxes, net of federal tax benefit		(51.2	)		(5.8	)		2.5
State rate re-measurement		—			(14.4	)		—
CARES Act NOL carryback		(16.9	)		—			—
Permanent adjustments		4.5			(6.3	)		—
Other, net		(0.3	)		1.0			1.5
Income tax provision (benefit)	$	(248.1	)	$	(87.9	)	$	5.5

We have not identified any uncertain tax positions. We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material adverse effect on our financial condition, results of operations or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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