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Income Taxes
 9 Months Ended
Sep. 30, 2022
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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Earnings before income taxes

 

$

2,465

 

 

$

964

 

 

$

6,222

 

 

$

1,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current income tax expense

 

$

120

 

 

$

1

 

 

$

475

 

 

$

15

 

Deferred income tax expense (benefit)

 

 

445

 

 

 

119

 

 

 

914

 

 

 

(100

)

Total income tax expense (benefit)

 

$

565

 

 

$

120

 

 

$

1,389

 

 

$

(85

)

 

U.S. statutory income tax rate

 

 

21

%

 

 

21

%

 

 

21

%

 

 

21

%

State income taxes

 

 

2

%

 

 

0

%

 

 

1

%

 

 

0

%

Deferred tax asset valuation allowance

 

 

0

%

 

 

(9

%)

 

 

0

%

 

 

(33

%)

Other

 

 

0

%

 

 

0

%

 

 

0

%

 

 

5

%

Effective income tax rate

 

 

23

%

 

 

12

%

 

 

22

%

 

 

(7

%)

 

On August 16, 2022 the Inflation Reduction Act was signed into law with an effective date beginning 2023. Devon does not expect any immediate material impacts to its income tax provision but will monitor guidance as released.

 

Prior to December 31, 2021, Devon maintained a valuation allowance against all U.S. federal deferred tax assets. Devon recognized approximately $250 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 had recognized on its U.S. federal deferred tax assets in the first quarter of 2021.

Due to significant increases in commodity pricing and projections of future income, in the fourth quarter of 2021, Devon reassessed its evaluation of the realizability of deferred tax assets in future years and determined that a U.S. federal valuation allowance was no longer necessary at December 31, 2021.