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INCOME TAXES | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
PROVISION FOR INCOME TAXES | INCOME TAXES Components of earnings before income taxes and the provision for U.S. and other income taxes from operations follow:
| For years ended December 31,
(Dollars in millions) | 2020 |  | 2019 |  | 2018
Earnings before income taxes |  |  |  |  |
United States | $ | 164 |  |  | $ | 454 |  |  | $ | 718 |
Outside the United States | 366 |  |  | 448 |  |  | 592 |
Total | $ | 530 |  |  | $ | 902 |  |  | $ | 1,310 |
Provision for income taxes |  |  |  |  |
United States Federal |  |  |  |  |
Current | $ | 70 |  |  | $ | 55 |  |  | $ | 161 |
Deferred | (96) |  |  | 19 |  |  | (11) |
Outside the United States |  |  |  |  |
Current | 77 |  |  | 62 |  |  | 86 |
Deferred | (14) |  |  | (32) |  |  | (22) |
State and other |  |  |  |  |
Current | 5 |  |  | — |  |  | 30 |
Deferred | (1) |  |  | 36 |  |  | (18) |
Total | $ | 41 |  |  | $ | 140 |  |  | $ | 226 |
The following represents the deferred tax (benefit) charge recorded as a component of "Accumulated other comprehensive income (loss)" ("AOCI") in the Consolidated Statements of Financial Position:
| For years ended December 31,
(Dollars in millions) | 2020 |  | 2019 |  | 2018
Defined benefit pension and other postretirement benefit plans | $ | (7) |  |  | $ | (10) |  |  | $ | (10) |
Derivatives and hedging | (4) |  |  | (2) |  |  | 3 |
Total | $ | (11) |  |  | $ | (12) |  |  | $ | (7) |
Total income tax expense (benefit) included in the consolidated financial statements was composed of the following:
| For years ended December 31,
(Dollars in millions) | 2020 |  | 2019 |  | 2018
Earnings before income taxes | $ | 41 |  |  | $ | 140 |  |  | $ | 226 |
Other comprehensive income | (11) |  |  | (12) |  |  | (7) |
Total | $ | 30 |  |  | $ | 128 |  |  | $ | 219 |
Differences between the provision for income taxes and income taxes computed using the U.S. Federal statutory income tax rate follow:
| For years ended December 31,
(Dollars in millions) | 2020 |  | 2019 |  | 2018
Amount computed using the statutory rate | $ | 109 |  |  | $ | 189 |  |  | $ | 274 |
State income taxes, net | 2 |  |  | 36 |  |  | 6 |
Foreign rate variance | (49) |  |  | (68) |  |  | (52) |
Change in reserves for tax contingencies | 4 |  |  | 36 |  |  | 21 |
General business credits | (39) |  |  | (52) |  |  | (60) |
U.S. tax on foreign earnings | 13 |  |  | (17) |  |  | 10 |
Foreign tax credits | — |  |  | — |  |  | (12) |
Tax law changes and tax loss from outside-U.S. entity reorganizations | — |  |  | 7 |  |  | 20 |
Other | 1 |  |  | 9 |  |  | 19 |
Provision for income taxes | $ | 41 |  |  | $ | 140 |  |  | $ | 226 |
Effective income tax rate | 8 | % |  | 16 | % |  | 17 | %
The 2020 effective tax rate includes a $27 million decrease to the provision for income taxes as a result of a decrease in previously unrecognized tax positions and a $7 million decrease to the provision for income taxes related to adjustments to certain prior year tax returns. The 2019 effective tax rate includes a $7 million increase to the provision for income taxes resulting from adjustments to the net tax benefit recognized in fourth quarter 2017 resulting from tax law changes, primarily the 2017 Tax Cuts and Jobs Act (the "Tax Reform Act"). The 2019 effective tax rate also includes adjustments to the tax provision to reflect finalization of prior year's income tax returns and an increase to state income taxes related to additional valuation allowance provided against state income tax credits. The 2018 effective tax rate included the impact of the U.S. corporate tax rate reduction resulting from the Tax Reform Act and the repeal of the domestic manufacturing deduction. The 2018 effective tax rate also included a $20 million increase to the provision for income taxes resulting from adjustments to the net tax benefit recognized in fourth quarter 2017 resulting from tax law changes, primarily the Tax Reform Act. These adjustments related to the one-time transition tax on deferred foreign income and changes in valuation of deferred tax assets associated with tax law changes and outside-U.S. entity reorganizations as part of the formation of an international treasury services center. Income tax incentives, in the form of tax holidays, have been granted to the Company in certain jurisdictions to attract investment and encourage industrial development. The expiration of these tax holidays varies by country. The tax holidays are conditional on the Company meeting certain requirements, including employment and investment thresholds; determination of compliance with these conditions may be subject to challenge by tax authorities in those jurisdictions. No individual tax holiday had a material impact to the Company’s earnings in 2020, 2019, or 2018. The significant components of deferred tax assets and liabilities follow:
| December 31,
(Dollars in millions) | 2020 |  | 2019
Deferred tax assets |  |  |
Post-employment obligations | $ | 280 |  |  | $ | 247 |
Net operating loss carryforwards | 619 |  |  | 606 |
Tax credit carryforwards | 216 |  |  | 239 |
Environmental contingencies | 68 |  |  | 68 |
Unrealized derivative loss | 22 |  |  | 18 |
Other | 213 |  |  | 173 |
Total deferred tax assets | 1,418 |  |  | 1,351 |
Less: Valuation allowance | 393 |  |  | 453 |
Deferred tax assets less valuation allowance | $ | 1,025 |  |  | $ | 898 |
Deferred tax liabilities |  |  |
Property, plant, and equipment | $ | (893) |  |  | $ | (895) |
Intangible assets | (388) |  |  | (439) |
Investments | (305) |  |  | (235) |
Other | (175) |  |  | (178) |
Total deferred tax liabilities | $ | (1,761) |  |  | $ | (1,747) |
Net deferred tax liabilities | $ | (736) |  |  | $ | (849) |
As recorded in the Consolidated Statements of Financial Position: |  |  |
Other noncurrent assets | $ | 112 |  |  | $ | 66 |
Deferred income tax liabilities | (848) |  |  | (915) |
Net deferred tax liabilities | $ | (736) |  |  | $ | (849) |
All foreign earnings, with the exception of short-term liquid assets on certain foreign subsidiaries, including basis differences, continue to be considered indefinitely reinvested. As of December 31, 2020, unremitted earnings of subsidiaries outside the U.S. totaled approximately $2.7 billion of which a substantial portion has already been subject to U.S. tax. The Company has not determined the deferred tax liability associated with these unremitted earnings and basis differences, as such determination is not practicable. For certain consolidated foreign subsidiaries, income and losses directly flow through to taxable income in the U.S. These entities are also subject to taxation in the foreign tax jurisdictions. Net operating loss carryforwards exist to offset future taxable income in foreign tax jurisdictions and valuation allowances are provided to reduce deferred related tax assets if it is more likely than not that this benefit will not be realized. Changes in the estimated realizable amount of deferred tax assets associated with net operating losses for these entities could result in changes in the deferred tax asset valuation allowance in the foreign tax jurisdiction. At the same time, because these entities are also subject to tax in the U.S., a deferred tax liability for the expected future taxable income will be established concurrently. Therefore, the impact of any reversal of valuation allowances on consolidated income tax expense will be only to the extent that there are differences between the U.S. statutory tax rate and the tax rate in the foreign jurisdiction. A valuation allowance of $29 million at December 31, 2020 has been provided against the deferred tax asset resulting from these operating loss carryforwards. At December 31, 2020, foreign net operating loss carryforwards totaled $2.2 billion. Of this total, $700 million will expire in 1 to 20 years and $1.5 billion have no expiration date. A valuation allowance of approximately $217 million has been provided against such net operating loss carryforwards. At December 31, 2020, federal net operating loss carryforwards of $3 million were available to offset future taxable income, which expire from 2028 to 2030. At December 31, 2020, foreign tax credit carryforwards of approximately $56 million were available to reduce possible future U.S. income taxes and which expire from 2021 to 2030. As a result of the Tax Reform Act, the Company may no longer be able to utilize certain U.S. foreign tax credit carryforwards. A valuation allowance of $24 million has been established on a portion of deferred tax assets as of December 31, 2020. At December 31, 2020, a partial valuation allowance of $72 million has been provided against state tax credits that the Company may not be able to utilize. A partial valuation allowance of $47 million has been established for the Solutia, Inc. ("Solutia") state net operating loss carryforwards. The valuation allowance will be retained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized, or the related statute expires. Amounts due to and from tax authorities as recorded in the Consolidated Statements of Financial Position:
| December 31,
(Dollars in millions) | 2020 |  | 2019
Miscellaneous receivables | $ | 311 |  |  | $ | 211 |
Payables and other current liabilities | $ | 147 |  |  | $ | 36 |
Other long-term liabilities | 83 |  |  | 139 |
Total income taxes payable | $ | 230 |  |  | $ | 175 |
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(Dollars in millions) | 2020 |  | 2019 |  | 2018
Balance at January 1 | $ | 202 |  |  | $ | 182 |  |  | $ | 142 |
Adjustments based on tax positions related to current year | 14 |  |  | 25 |  |  | 9 |
Adjustments based on tax positions related to prior years | 63 |  |  | (3) |  |  | 35 |
Lapse of statute of limitations | (22) |  |  | (2) |  |  | (4) |
Balance at December 31 (1) | $ | 257 |  |  | $ | 202 |  |  | $ | 182 |
(1)All of the unrecognized tax benefits would, if recognized, impact the Company's effective tax rate. A reconciliation of the beginning and ending amounts of accrued interest related to unrecognized tax positions is as follows:
(Dollars in millions) | 2020 |  | 2019 |  | 2018
Balance at January 1 | $ | 13 |  |  | $ | 10 |  |  | $ | 6 |
Expense for interest, net of tax | 5 |  |  | 5 |  |  | 4 |
Income for interest, net of tax | (5) |  |  | (2) |  |  | — |
Balance at December 31 | $ | 13 |  |  | $ | 13 |  |  | $ | 10 |
Accrued penalties related to unrecognized tax positions were immaterial as of December 31, 2020, 2019, and 2018. Eastman files federal income tax returns in the U.S. and income tax returns in various state and foreign jurisdictions. The Company is no longer subject to U.S. Federal income tax examinations by tax authorities for years before 2012 for Eastman legal entities and years before 2002 for Solutia legal entities. With few exceptions, Eastman is no longer subject to state and local income tax examinations by tax authorities for years before 2012. Solutia and related subsidiaries are no longer subject to state and local income tax examinations for years before 2000. With few exceptions, the Company is no longer subject to foreign income tax examinations by tax authorities for tax years before 2012. It is reasonably possible that, as a result of the resolution of federal, state, and foreign examinations and appeals, and the expiration of various statutes of limitation, unrecognized tax benefits could decrease within the next twelve months by up to $120 million.

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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=84230637&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=116825942&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=84230637&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=116825942&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=84230637&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 + Details
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