The following table presents Devon’s total income tax expense (benefit) and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Earnings (loss) from continuing operations before income taxes	$	(193	)	$	190		$	(2,980	)	$	(88	)

Current income tax expense (benefit)	$	(90	)	$	2		$	(199	)	$	1
Deferred income tax expense (benefit)		—			52			(311	)		2
Total income tax expense (benefit)	$	(90	)	$	54		$	(510	)	$	3

U.S. statutory income tax rate		21	%		21	%		21	%		21	%
State income taxes		0	%		6	%		1	%		(2	%)
Change in tax legislation		4	%		0	%		3	%		0	%
Unrecognized tax benefits		18	%		0	%		0	%		(2	%)
Other		0	%		1	%		(1	%)		(20	%)
Deferred tax asset valuation allowance		4	%		0	%		(7	%)		0	%
Effective income tax rate		47	%		28	%		17	%		(3	%)

Devon estimates its annual effective income tax rate to record its quarterly provision for income taxes in the various jurisdictions in which it operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) became law on March 27, 2020. The CARES Act allows net operating losses generated in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back five years to offset taxable income and recoup previously paid taxes. As a result, Devon intends to carry back net operating losses generated in 2019 and 2020 to 2014 and 2015, respectively, and recorded a $105 million income tax benefit through the first nine months of 2020.

On July 28, 2020, the Department of Treasury issued final regulations regarding the provision of the Tax Cuts and Jobs Act that limits the deduction for business interest expense. Prior to the issuance of these final regulations, Devon had reduced its CARES Act income tax benefit by $34 million due to the business interest expense limitation. With the regulatory update, Devon was able to reverse the $34 million in the third quarter of 2020 and recognize the full $105 million of benefit under the CARES Act.

Throughout 2019, Devon maintained a valuation allowance against certain deferred tax assets, including certain tax credits and state net operating losses. Since then, reduced demand from the COVID-19 pandemic has caused an unprecedented downturn in the commodity price environment. As a result, Devon recorded significant impairments during the first quarter of 2020 and is now in a net

deferred tax asset position. Consequently, Devon reassessed its position and recorded a 100% valuation allowance against all net deferred tax assets and has maintained a full valuation allowance position throughout 2020.

In the table above, the “other” effect is composed of permanent differences primarily related to stock compensation for which dollar amounts do not increase or decrease in relation to the change in pre-tax earnings. Such items have an insignificant impact on Devon’s effective income tax rate unless pre-tax earnings or losses are relatively small in amount. In total, “other” represents $18 million of income tax expense in the first nine months of 2019.