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Income Taxes
 6 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

7.Income Taxes

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Earnings (loss) from continuing operations

    before income taxes

 

$

304

 

 

$

(680

)

 

$

272

 

 

$

(2,787

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current income tax expense (benefit)

 

$

19

 

 

$

(3

)

 

$

14

 

 

$

(109

)

Deferred income tax expense (benefit)

 

 

24

 

 

 

—

 

 

 

(219

)

 

 

(311

)

Total income tax expense (benefit)

 

$

43

 

 

$

(3

)

 

$

(205

)

 

$

(420

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. statutory income tax rate

 

 

21

%

 

 

21

%

 

 

21

%

 

 

21

%

State income taxes

 

 

0

%

 

 

0

%

 

 

1

%

 

 

1

%

Subsidiary reorganization

 

 

6

%

 

 

0

%

 

 

7

%

 

 

0

%

Deferred tax asset valuation allowance

 

 

(19

%)

 

 

(20

%)

 

 

(116

%)

 

 

(8

%)

Other

 

 

6

%

 

 

(1

%)

 

 

12

%

 

 

1

%

Effective income tax rate

 

 

14

%

 

 

0

%

 

 

(75

%)

 

 

15

%

 

The deferred income tax benefit recognized in the first six months of 2021 primarily relates to the Merger. As shown in Note 2, Devon recognized $254 million of deferred tax liabilities to account for the Merger. The recognition of these deferred tax liabilities

caused a decrease to Devon’s net deferred tax assets and a corresponding decrease to the valuation allowance Devon has recognized on its U.S. Federal deferred tax assets.

As of June 30, 2021, Devon continued to maintain a valuation allowance against materially all U.S. deferred tax assets. Devon continues to assess its valuation allowance position every quarter. Absent any additional objective negative evidence, and with the addition of subjective evidence such as forecasted taxable income, Devon may adjust the valuation allowance on its deferred tax assets in future periods.

In the table above, the “other” effect is composed primarily of permanent differences related to costs incurred in connection with the Merger. Such items represent $18 million of income tax expense in the first six months of 2021.

In the fourth quarter of 2020, Devon recorded a deferred tax asset representing the deductible outside basis difference in its investment in a consolidated subsidiary. In the second quarter of 2021, Devon realized this deferred tax asset, increasing its U.S. federal net operating loss carryforwards by $1.8 billion.