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INCOME TAXES | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | 12. INCOME TAXES The following table sets forth the components of income before income taxes by jurisdiction:
| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
|  |  | (In thousands) |  |
United States | $ | 396,769 |  |  | $ | 26,031 |  |  | $ | 198,566 |
Foreign | 185,143 |  |  | 96,811 |  |  | 83,495 |
Income before income taxes | $ | 581,912 |  |  | $ | 122,842 |  |  | $ | 282,061 |
The following table sets forth the components of the provision for income taxes:
| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
|  |  | (In thousands) |  |
Current income taxes: |  |  |  |  |
Federal | $ | 107,919 |  |  | $ | 25,605 |  |  | $ | 31,695 |
State | 30,206 |  |  | 11,322 |  |  | 8,616 |
Foreign | 55,670 |  |  | 19,414 |  |  | 6,347 |
Total current income taxes | 193,795 |  |  | 56,341 |  |  | 46,658 |
Deferred income taxes: |  |  |  |  |
Federal | (62,302) |  |  | (17,913) |  |  | 6,774 |
State | (12,327) |  |  | (7,264) |  |  | 1,846 |
Foreign | (3,656) |  |  | (8,361) |  |  | 4,585 |
Total deferred income taxes | (78,285) |  |  | (33,538) |  |  | 13,205 |
Provision for income taxes | $ | 115,510 |  |  | $ | 22,803 |  |  | $ | 59,863 |
The following table sets forth the reconciliation between the federal statutory income tax rate and the effective tax rate:
| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes, net of federal income tax benefit | 2.0 |  |  | 1.4 |  |  | 3.1 |
Deemed repatriation of undistributed foreign earnings | — |  |  | — |  |  | (1.3) |
Tax effect of intercompany financing | (3.2) |  |  | (13.4) |  |  | (5.5) |
Unrecognized tax benefits | 2.5 |  |  | 2.1 |  |  | (0.4) |
Nondeductible expenses | 0.6 |  |  | 5.7 |  |  | 0.7 |
Change in valuation allowance | (2.8) |  |  | 1.8 |  |  | 0.6 |
Other | (0.2) |  |  | — |  |  | 3.0 |
Effective tax rate | 19.9 | % |  | 18.6 | % |  | 21.2 | %
The undistributed earnings of the Company's foreign subsidiaries amounted to approximately $1,851.6 million at December 31, 2021. Most of these earnings have been taxed in the U.S. under either the one-time transition tax or the GILTI tax regime imposed by the TCJA. Future distributions of previously taxed earnings by the Company's foreign subsidiaries should, therefore, result in minimal U.S. taxation. Wesco has elected to pay the transition tax in installments over eight years. As of December 31, 2021, the Company's liability for the transition tax was $60.7 million, which is recorded as components of other current and noncurrent liabilities in the Consolidated Balance Sheet. The Company continues to assert that the remaining undistributed earnings of its foreign subsidiaries are indefinitely reinvested. The distribution of earnings by Wesco's foreign subsidiaries in the form of dividends, or otherwise, may be subject to additional taxation. The Company estimates that additional taxes of approximately $82.2 million would be payable upon the remittance of all previously undistributed foreign earnings as of December 31, 2021, based upon the laws in effect on that date. The Company believes that it is able to maintain sufficient liquidity for its domestic operations and commitments without repatriating cash from Wesco's foreign subsidiaries. The following table sets forth deferred tax assets and liabilities:
| As of December 31,
| 2021 |  | 2020
|  |  | (In thousands) |  |
| Assets |  | Liabilities |  | Assets |  | Liabilities
Accounts receivable | $ | 18,612 |  |  | $ | — |  |  | $ | 17,560 |  |  | $ | — |
Inventories | 13,302 |  |  | — |  |  | 14,793 |  |  | — |
Depreciation of property, buildings and equipment | — |  |  | 45,397 |  |  | — |  |  | 60,687 |
Operating leases | 142,964 |  |  | 141,686 |  |  | 134,377 |  |  | 136,477 |
Amortization of intangible assets | — |  |  | 549,536 |  |  | — |  |  | 540,520 |
Employee benefits | 36,410 |  |  | — |  |  | 53,040 |  |  | — |
Stock-based compensation | 12,281 |  |  | — |  |  | 14,061 |  |  | — |
Prepaid royalty payments | 34,866 |  |  | — |  |  | — |  |  | — |
Disallowed business interest expense(1) | 11,163 |  |  | — |  |  | 2,755 |  |  | — |
Tax loss carryforwards | 39,876 |  |  | — |  |  | 36,923 |  |  | — |
Foreign tax credit carryforwards | 51,632 |  |  | — |  |  | 55,637 |  |  | — |
Other(1) | 26,666 |  |  | 8,137 |  |  | 24,888 |  |  | 6,286 |
Deferred income taxes before valuation allowance | 387,772 |  |  | 744,756 |  |  | 354,034 |  |  | 743,970 |
Valuation allowance | (46,269) |  |  | — |  |  | (60,629) |  |  | — |
Total deferred income taxes | $ | 341,503 |  |  | $ | 744,756 |  |  | $ | 293,405 |  |  | $ | 743,970 |
(1) The deferred income tax asset of $2.8 million related to disallowed business interest expense as of December 31, 2020 was previously reported as a component of Other. This amount has been reclassified to conform to the current period's presentation. Wesco had deferred tax assets of $35.5 million and $34.5 million as of December 31, 2021 and 2020, respectively, related to foreign net operating loss carryforwards. These net operating loss carryforwards expire beginning in 2022 through 2041, while some may be carried forward indefinitely. The Company has determined that certain foreign net operating loss carryforwards will not be realized before they expire. Accordingly, the Company has recorded a valuation allowance of $22.1 million and $22.3 million against deferred tax assets related to certain foreign net operating loss carryforwards at December 31, 2021 and 2020, respectively. Additionally, these foreign jurisdictions had deferred tax assets of $6.9 million and $8.2 million as of December 31, 2021 and 2020, respectively, related to other future deductible temporary differences. The Company has recorded a full valuation allowance against these amounts as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, Wesco had deferred tax assets of $4.4 million and $2.4 million, respectively, related to state net operating loss carryforwards. These carryforwards expire beginning in 2024 through 2040, while some may be carried forward indefinitely. The deferred tax assets related to disallowed business interest expense as of December 31, 2021 includes $4.7 million and $6.4 million for Federal and state income tax purposes, respectively. The carryforward period for disallowed business interest expense is indefinite. As of December 31, 2021 and 2020, Wesco had deferred tax assets of $51.6 million and $55.6 million, respectively, related to foreign tax credit carryforwards. The foreign tax credit carryforwards expire beginning in 2027 through 2031. The Company has determined that certain foreign tax credit carryforwards will not be realized before they expire. Accordingly, the Company has recorded a valuation allowance of $17.3 million and $30.1 million against these deferred tax assets at December 31, 2021 and 2020, respectively. Wesco’s ability to realize its deferred tax assets related to foreign tax credit carryforwards may be impacted by U.S. tax legislation, our ability to generate sufficient foreign source taxable income, and tax planning strategies that the Company may implement. The impact of these items, if any, on Wesco's assessment of the realizability of these deferred tax assets will be recorded as a discrete item in the period in which the Company's assessment changes. The Company is under examination by tax authorities in various jurisdictions and remains subject to examination until the applicable statutes of limitation expire. The statutes of limitation for the material jurisdictions in which the Company files income tax returns remain open as follows:
United States — Federal |  | 2017 and forward
United States — Material States |  | 2017 and forward
Canada |  | 2012 and forward
UK |  | 2016 and forward
Australia |  | 2017 and forward
The following table sets forth the reconciliation of gross unrecognized tax benefits:
| As of December 31,
| 2021 |  | 2020 |  | 2019
| (In thousands)
Beginning balance January 1 | $ | 68,075 |  |  | $ | 54 |  |  | $ | 1,293 |
Additions for current year tax positions | 39,841 |  |  | 14,009 |  |  | — |
Additions for prior year tax positions | 8,422 |  |  | — |  |  | — |
Additions for acquired tax positions | — |  |  | 68,048 |  |  | — |
Reductions for prior year tax positions | (3,853) |  |  | (43) |  |  | — |
Settlements | (118) |  |  | — |  |  | (1,290) |
Lapse in statute of limitations | (3,837) |  |  | (15,886) |  |  | — |
Foreign currency exchange rate changes | (1,239) |  |  | 1,893 |  |  | 51 |
Ending balance December 31 | $ | 107,291 |  |  | $ | 68,075 |  |  | $ | 54 |
The total amount of unrecognized tax benefits were $107.3 million and $68.1 million as of December 31, 2021 and 2020, respectively. The amount of unrecognized tax benefits that would affect the effective tax rate if recognized in the consolidated financial statements for the years ended December 31, 2021, 2020 and 2019 were $36.1 million, $29.1 million, and $0.1 million, respectively. Within the next twelve months, the amount of unrecognized tax benefits is expected to decrease by $14.3 million due to the expiration of statutes of limitation. Such change would result in a $3.2 million reduction in income tax expense. The Company classifies interest related to unrecognized tax benefits as a component of interest expense, net in the Consolidated Statement of Income and Comprehensive Income. The Company recognized interest expense on unrecognized tax benefits of $0.9 million and $0.3 million for the years ended December 31, 2021 and 2020, respectively. In 2019, the Company recognized interest income on unrecognized tax benefits of $0.8 million. As of December 31, 2021 and 2020, Wesco had a liability of $6.4 million and $5.5 million, respectively, for interest expense related to unrecognized tax benefits. The Company classifies penalties related to unrecognized tax benefits as part of income tax expense. For the year ended December 31, 2021, penalties recorded in income tax expense were $3.4 million. Penalties recorded in income tax expense for 2020 and 2019 were immaterial. As of December 31, 2021 and 2020, Wesco had a liability of $4.9 million and $1.5 million, respectively, for penalties related to unrecognized tax benefits. On October 22, 2021, one of the Company's Mexican affiliates received a tax assessment from the Mexican tax authorities related to its 2012 income tax return in the amount of approximately $26.0 million. The Company believes the assessment is without merit and has appealed it. The Company expects any potential liability remaining after availing itself of available administrative and judicial appeals to be immaterial to its consolidated financial statements and, accordingly, has not recorded a reserve.

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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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