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INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

21.  INCOME TAXES

Net deferred tax assets and liabilities consist of the following as of December 31, 2022 and 2021 (in millions):

​	​	​	​	​	​	​	​
​		As of December 31,
​	​	2022			2021		​
Deferred tax assets:	​	​	​	​	​	​	​
Accrued compensation and benefits	​	$	16.1	​	$	14.7	​
Property, equipment and technology, net	​		16.0	​		2.8	​
Investments	​	​	95.1	​	​	—	​
Operating leases	​	​	37.1	​	​	33.5	​
Other	​		75.7	​		54.4	​
Subtotal	​	​	240.0	​	​	105.4	​
Valuation allowance	​	​	(17.5)	​	​	(12.2)	​
Total deferred tax assets	​		222.5	​		93.2	​
Deferred tax liabilities:	​		​	​		​	​
Intangibles	​	​	(390.1)	​		(372.4)	​
Property, equipment and technology, net	​	​	(20.4)	​		(19.8)	​
Investments	​	​	—	​		(44.3)	​
Prepaid expenses or assets	​	​	(4.4)	​	​	(4.7)	​
Operating leases	​	​	(28.2)	​	​	(24.7)	​
Total deferred tax liabilities	​		(443.1)	​		(465.9)	​
Net deferred tax liabilities	​	$	(220.6)	​	$	(372.7)	​

​

The Company provides a valuation allowance against deferred tax assets if, based on management’s assessment of historical and projected future operating results and other available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. A valuation allowance of $17.5 million and $12.2 million was recorded against gross deferred tax assets for certain investments, net operating and capital losses as of December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company has capital loss carryforwards of $9.4 million, which, if unused, will expire in 2024.

The Company considers its non-U.S. earnings to be indefinitely reinvested outside of the U.S. to the extent these earnings are not subject to U.S. income tax under an anti-deferral tax regime. As of December 31, 2022, the cumulative amount of undistributed earnings in these subsidiaries is $84.4 million. Given our intent to reinvest these earnings for an indefinite period of time, the Company has not accrued a deferred tax liability on these earnings. A determination of an unrecognized deferred tax liability related to these earnings is not practicable.

The provision for income taxes for the years ended December 31, 2022, 2021 and 2020 consists of the following (in millions):

​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,								​
​		2022			2021			2020
Current tax expense:	​	​	​	​	​	​	​	​	​	​
Federal	​	$	210.4	​	$	148.4	​	$	143.7	​
State	​		130.2	​		83.4	​		70.5	​
Foreign	​		13.0	​		14.2	​		8.9	​
Total current tax expense	​		353.6	​		246.0	​		223.1	​
Deferred income tax (benefit) expense:	​	​	​	​	​	​	​	​	​	​
Federal	​	​	(126.2)	​	​	(24.3)	​	​	(25.2)	​
State	​	​	(22.7)	​	​	(7.3)	​	​	(9.1)	​
Foreign	​		(6.8)	​		12.7	​		3.4	​
Total deferred income tax benefit	​		(155.7)	​		(18.9)	​		(30.9)	​
Total	​	$	197.9	​	$	227.1	​	$	192.2	​

​

For the years ended December 31, 2022, 2021, and 2020, income before taxes consists of the following (in millions):

​	​	​	​	​	​	​	​	​	​	​
​		Year Ended December 31,
​	​	2022			2021			2020		​
U.S. operations	​	$	401.3	​	$	714.0	​	$	601.9	​
Foreign operations	​		31.6	​		42.1	​		58.5	​
Total	​	$	432.9	​	$	756.1	​	$	660.4	​

​

A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31, 2022, 2021, and 2020 is as follows:

​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,							​	​
​	​	2022	​		2021	​		2020	​	​
Statutory U.S. federal income tax rate	​	21.0	%	​	21.0	%	​	21.0	%	​
Impact of federal, state and local tax law & rate changes, net	​	(0.5)	%	​	1.9	%	​	(0.2)	%	​
State taxes, net of federal benefit	​	4.5	%	​	4.3	%	​	4.2	%	​
Uncertain tax positions	​	20.6	%	​	3.2	%	​	2.9	%	​
Deduction for foreign-derived intangible income	​	(1.0)	%	​	(0.6)	%	​	(1.1)	%	​
Valuation allowance	​	0.6	%	​	—	%	​	0.8	%	​
Other, net		0.5	%	​	0.2	%	​	1.5	%	​
Effective income tax rate		45.7	%	​	30.0	%	​	29.1	%	​

​

A reconciliation of the beginning and ending unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):

​	​	​	​	​	​	​	​	​	​	​
​	​	2022			2021			2020		​
Balance as of January 1	​	$	162.1	​	$	138.6	​	$	116.7	​
Gross increases on unrecognized tax benefits in prior period	​	​	21.8	​	​	3.4	​	​	3.3	​
Gross decreases on unrecognized tax benefits in prior period	​	​	—	​	​	(0.2)	​	​	—	​
Gross increases on unrecognized tax benefits in current period	​	​	32.9	​	​	26.5	​	​	24.3	​
Settlements	​	​	(3.7)	​	​	—	​	​	—	​
Lapse of statute of limitations	​	​	(1.0)	​	​	(6.2)	​	​	(5.7)	​
Balance as of December 31		$	212.1	​	$	162.1	​	$	138.6	​

​

As of December 31, 2022, 2021 and 2020, the Company had $177.1 million, $162.1 million, and $137.4 million, respectively, of unrecognized tax benefits, net of federal benefit, which, if recognized in the future, would affect the effective income tax rate. Reductions to unrecognized tax benefits from the lapse of the applicable statutes of limitations and potential audit settlements during the next twelve months are estimated to be approximately $52.4 million.

Estimated interest costs and penalties are classified as part of the provision for income taxes in the Company's consolidated statements of income and were $39.1 million, $9.7 million, and $6.9 million, for the periods ended December 31, 2022, 2021 and 2020, respectively. Accrued interest and penalties were $74.4 million, $35.8 million and $26.1 million as of December 31, 2022, 2021 and 2020, respectively.

The following table summarizes the tax years that are either currently under audit or remain open and subject to examination by the tax authorities in the most significant jurisdictions in which Cboe operates:

​

​	​	​
U.S. Federal		2008-2016, 2019-2022
California	​	2015-2022
Illinois		2019-2022
New York		2015-2022
New York City	​	2015-2022
United Kingdom		2019-2022
Netherlands		2016-2022

​

The Company petitioned the U.S. Tax Court on January 13, 2017, May 7, 2018, and November 29, 2018 for a redetermination of IRS notices of deficiency for Cboe and certain of its subsidiaries for tax years 2011 through 2015 related to its Section 199 deduction claims. These petitions resulted in the establishment of three cases before the U.S. Tax Court. The Company also filed a complaint on October 9, 2018 with the Court of Federal Claims for a refund of Section 199 claims related to tax years 2008 through 2010, the complaint resulted in the establishment of a single case before the Court of Federal Claims.

The first case that went to trial involved certain subsidiaries related to electronic trading for tax years 2011 through 2013. The U.S. Tax Court held the trial remotely from May 24, 2021 to June 1, 2021. On March 31, 2022, the U.S. Tax Court issued its decision rejecting the Company’s basis for its Petition (the “Section 199 Opinion”). On May 26, 2022, the U.S. Tax Court entered its decision, which gave effect to the Section 199 Opinion. On August 12, 2022, the Company filed a notice of appeal with the U.S. Court of Appeals for the 10th Circuit, and briefing is underway. Two cases remain pending in U.S. Tax Court, as does the case pending before the Court of Federal Claims. Trial dates in those cases have not been established. One of the two cases pending before the U.S. Tax Court involves certain subsidiaries (different from those that were involved in the first case that went to trial) related to trading for tax years 2011 through 2013. On August 26, 2022, the IRS filed a motion for partial summary judgment, and briefing has concluded. On February 2, 2023, the U.S. Tax Court issued an order denying the IRS’s motion for partial summary judgement.

As a result of the Section 199 Opinion, the Company’s Section 199 positions no longer meet the recognition threshold provided by ASC 740–10. Accordingly, in the first quarter of 2022, the Company increased its provision for income taxes in order to fully reserve for the expected aggregate amount of additional liabilities that the Company currently expects would result from these cases if they were all decided against the Company.

Tax measures contained in the IRA, among other items, a corporate alternative minimum tax of 15%. The new 15% corporate alternative minimum tax is based on the “adjusted financial statement income” of certain large corporations reporting at least $1 billion average adjusted pre-tax net income on their consolidated financial statements for tax years beginning after December 31, 2022. This new tax is not expected to result in a material impact to the Company.

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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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