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INCOME TAXES | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The Company is responsible for filing consolidated U.S., foreign and combined, unitary or separate state income tax returns. The Company is responsible for paying the taxes relating to such returns, including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities. The components of the income before income taxes for the Company’s domestic and foreign operations for the years ended December 31 are provided below:
|  | For the year ended December 31,
In millions |  | 2021 |  | 2020 |  | 2019
Domestic |  | $ | 253 |  |  | $ | 78 |  |  | $ | 118 |
Foreign |  | 484 |  |  | 479 |  |  | 329 |
Income before income taxes |  | $ | 737 |  |  | $ | 557 |  |  | $ | 447 |
The consolidated provision for income taxes included in the Consolidated Statements of Income consisted of the following:
|  | For the year ended December 31,
In millions |  | 2021 |  | 2020 |  | 2019
Current tax expense (benefit) |  |  |  |  |  |
Federal |  | $ | (81) |  |  | $ | 6 |  |  | $ | 5 |
State |  | 27 |  |  | 17 |  |  | 1 |
Foreign |  | 138 |  |  | 93 |  |  | 141 |
|  | 84 |  |  | 116 |  |  | 147 |
Deferred tax expense (benefit) |  |  |  |  |  |
Federal |  | 87 |  |  | 36 |  |  | 20 |
State |  | 10 |  |  | (2) |  |  | 3 |
Foreign |  | (9) |  |  | (5) |  |  | (50) |
|  | 88 |  |  | 29 |  |  | (27) |
Total provision |  | $ | 172 |  |  | $ | 145 |  |  | $ | 120 |
A reconciliation of the United States federal statutory income tax rate to the effective income tax rate on operations for the years ended December 31 is provided below:
|  | For the year ended December 31,
In millions |  | 2021 |  | 2020 |  | 2019
U.S. federal statutory rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State taxes |  | 0.3 |  |  | 2.6 |  |  | 0.8 |
Foreign |  | 3.3 |  |  | 4.4 |  |  | (0.4) |
Research and development credit |  | (0.8) |  |  | (1.3) |  |  | (1.7) |
U.S. net operating loss carryback |  | (3.4) |  |  | — |  |  | — |
Changes in valuation allowance |  | 3.0 |  |  | (2.0) |  |  | 3.5 |
U.S. tax reform provision |  | 0.7 |  |  | 1.3 |  |  | 2.0 |
Transaction costs related to acquisitions |  | 0.1 |  |  | — |  |  | 1.0 |
Other, net |  | (1.0) |  |  | — |  |  | 0.7 |
Effective rate |  | 23.2 | % |  | 26.0 | % |  | 26.9 | %
The decrease in the effective tax rate is primarily the result of filing amended federal and state income tax returns in 2021. The Company amended the 2019 federal tax return to incorporate changes in tax regulations which generated a net operating loss that was carried back to tax years 2014 to 2016, which were at a higher federal tax rate. Other, net includes the impact of amended state returns reflecting changes in apportioned state income. These amendments resulted in a current year tax benefit. In addition, there was a decrease in the US tax reform provision resulting from the provisions of the Tax Cut and Jobs Act, a decrease in state tax expense and a decrease in foreign tax expense due to mix of taxable income which were partially offset by an increase in valuation allowances. Components of deferred tax assets and liabilities were as follows:
|  | December 31,
In millions |  | 2021 |  | 2020
Deferred income tax assets: |  |  |  |
Accrued expenses and reserves |  | $ | 44 |  |  | $ | 39 |
Warranty reserve |  | 53 |  |  | 51 |
Deferred compensation/employee benefits |  | 62 |  |  | 43 |
Right-of-use asset |  | 76 |  |  | 70 |
Pension and postretirement obligations |  | 24 |  |  | 26 |
Property, plant & equipment |  | — |  |  | 48 |
Inventory |  | 46 |  |  | 45 |
Net operating loss carry forwards |  | 102 |  |  | 83 |
Other |  | 102 |  |  | 46 |
Gross deferred income tax assets |  | 509 |  |  | 451 |
Less: Valuation allowance |  | (64) |  |  | (42) |
Total deferred income tax assets |  | 445 |  |  | 409 |
Deferred income tax liabilities: |  |  |  |
Property, plant & equipment |  | 85 |  |  | — |
Right-of-use liability |  | 78 |  |  | 69 |
Intangibles |  | 503 |  |  | 444 |
Total deferred income tax liabilities |  | 666 |  |  | 513 |
Net deferred income tax liability |  | $ | 221 |  |  | $ | 104 |
A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2021, the valuation allowance for certain foreign deferred tax asset carryforwards was $(64) million primarily in China, Denmark, France, the Netherlands, South Africa, and the United States. The increase in valuation allowance in 2021 is primarily related to state net operating loss carry-forwards that are not expected to be realized. The Company has net operating loss carry-forwards in the amount of $311 million, of which $192 million are indefinite lived, $66 million expire within ten years and $53 million expire in various periods between December 31, 2032 to December 31, 2041. As of December 31, 2021, the liability for income taxes associated with unrecognized tax benefits was $32 million, of which $18 million, if recognized, would favorably affect the Company’s effective income tax rate. As of December 31, 2020, the liability for income taxes associated with unrecognized tax benefits was $16 million, of which $15 million, if recognized, would favorably affect the Company’s effective income tax rate. A reconciliation of the beginning and ending amount of the liability for income taxes associated with unrecognized tax benefits follows:
In millions |  | 2021 |  | 2020 |  | 2019
Gross liability for unrecognized tax benefits at beginning of year |  | $ | 16 |  |  | $ | 17 |  |  | $ | 9 |
Gross increases - unrecognized tax benefits in prior periods |  | 19 |  |  | 4 |  |  | 10 |
Gross decreases - audit settlement during year |  | (1) |  |  | (5) |  |  | — |
Gross decreases - expiration of audit statute of limitations |  | (2) |  |  | — |  |  | (2) |
Gross liability for unrecognized tax benefits at end of year |  | $ | 32 |  |  | $ | 16 |  |  | $ | 17 |
The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2021 and 2020, the total interest and penalties accrued was approximately $5 million. With limited exception, the Company is no longer subject to examination by various U.S. and foreign taxing authorities for years before 2016. At this time, the Company believes that it is reasonably possible that unrecognized tax benefits of approximately $5 million may change within the next 12 months due to the expiration of statutory review periods and current examinations.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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