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INCOME TAXES | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
PROVISION FOR INCOME TAXES | INCOME TAXESComponents 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) | 2022 |  | 2021 |  | 2020
Earnings before income taxes |  |  |  |  |
United States | $ | 205 |  |  | $ | 645 |  |  | $ | 164 |
Outside the United States | 772 |  |  | 437 |  |  | 366 |
Total | $ | 977 |  |  | $ | 1,082 |  |  | $ | 530 |
Provision for income taxes |  |  |  |  |
United States Federal |  |  |  |  |
Current | $ | 179 |  |  | $ | 114 |  |  | $ | 70 |
Deferred | (76) |  |  | 18 |  |  | (96) |
Outside the United States |  |  |  |  |
Current | 105 |  |  | 115 |  |  | 77 |
Deferred | (10) |  |  | (42) |  |  | (14) |
State and other |  |  |  |  |
Current | 33 |  |  | 24 |  |  | 5 |
Deferred | (50) |  |  | (14) |  |  | (1) |
Total | $ | 181 |  |  | $ | 215 |  |  | $ | 41 |
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) | 2022 |  | 2021 |  | 2020
Defined benefit pension and other postretirement benefit plans | $ | (7) |  |  | $ | (10) |  |  | $ | (7) |
Derivatives and hedging | (1) |  |  | 21 |  |  | (4) |
Total | $ | (8) |  |  | $ | 11 |  |  | $ | (11) |
Total income tax expense (benefit) included in the consolidated financial statements was composed of the following:
| For years ended December 31,
(Dollars in millions) | 2022 |  | 2021 |  | 2020
Earnings before income taxes | $ | 181 |  |  | $ | 215 |  |  | $ | 41 |
Other comprehensive income | (8) |  |  | 11 |  |  | (11) |
Total | $ | 173 |  |  | $ | 226 |  |  | $ | 30 |
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) | 2022 |  | 2021 |  | 2020
Amount computed using the statutory rate | $ | 205 |  |  | $ | 225 |  |  | $ | 109 |
State income taxes, net | (27) |  |  | (4) |  |  | 2 |
Foreign rate variance | (16) |  |  | (28) |  |  | (49) |
Change in reserves for tax contingencies | 27 |  |  | (39) |  |  | 4 |
General business credits | (44) |  |  | (21) |  |  | (39) |
U.S. tax on foreign earnings, net of credits | (17) |  |  | 2 |  |  | 13 |
Divestitures | 37 |  |  | 89 |  |  | — |
Tax law changes and tax loss from outside-U.S. entity reorganizations | — |  |  | (15) |  |  | — |
Other | 16 |  |  | 6 |  |  | 1 |
Provision for income taxes | $ | 181 |  |  | $ | 215 |  |  | $ | 41 |
Effective income tax rate | 19 | % |  | 20 | % |  | 8 | %
The 2022 provision for income taxes include a $32 million decrease related to the release of a state valuation allowance and a $37 million increase to reflect the tax implications of the business divestitures, including an increase related to non-deductible losses. The 2021 provision for income taxes includes a $78 million decrease primarily related to previously unrecognized tax positions resulting from finalization of prior years' income tax audits, partially offset by current year increases. Additionally, the 2021 provision for income taxes includes impacts of the divestiture of rubber additives, including an increase related to non-deductible losses partially offset by a decrease from the revaluation of deferred tax liabilities. The 2020 provision for income taxes includes a $27 million decrease as a result of a decrease in previously unrecognized tax positions and a $7 million decrease related to adjustments to certain prior year tax returns. 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 2022, 2021, or 2020. The significant components of deferred tax assets and liabilities follow:
| December 31,
(Dollars in millions) | 2022 |  | 2021
Deferred tax assets |  |  |
Post-employment obligations | $ | 150 |  |  | $ | 176 |
Net operating loss carryforwards | 645 |  |  | 637 |
Tax credit carryforwards | 236 |  |  | 212 |
Environmental contingencies | 64 |  |  | 67 |
Capitalized research and development expenses | 139 |  |  | — |
Other | 239 |  |  | 224 |
Total deferred tax assets | 1,473 |  |  | 1,316 |
Less: Valuation allowance | 258 |  |  | 339 |
Deferred tax assets less valuation allowance | $ | 1,215 |  |  | $ | 977 |
Deferred tax liabilities |  |  |
Property, plant, and equipment | $ | (849) |  |  | $ | (843) |
Intangible assets | (272) |  |  | (288) |
Investments | (441) |  |  | (369) |
Other | (201) |  |  | (171) |
Total deferred tax liabilities | $ | (1,763) |  |  | $ | (1,671) |
Net deferred tax liabilities | $ | (548) |  |  | $ | (694) |
As recorded in the Consolidated Statements of Financial Position: |  |  |
Other noncurrent assets | $ | 123 |  |  | $ | 116 |
Deferred income tax liabilities | (671) |  |  | (810) |
Net deferred tax liabilities | $ | (548) |  |  | $ | (694) |
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, 2022, unremitted earnings of subsidiaries outside the U.S. totaled approximately $3.0 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. At December 31, 2022, foreign net operating loss carryforwards totaled $2.4 billion. Of this total, $900 million will expire in 1 to 20 years and $1.5 billion have no expiration date. A valuation allowance of approximately $131 million has been provided against such net operating loss carryforwards and other foreign deferred income tax balances. At December 31, 2022, there were no federal net operating loss carryforwards available to offset future taxable income. At December 31, 2022, foreign tax credit carryforwards of approximately $66 million were available to reduce possible future U.S. income taxes, which expire from 2023 to 2032. As a result of the 2017 Tax Cuts and Jobs Act ("Tax Reform Act"), the Company may no longer be able to utilize certain U.S. foreign tax credit carryforwards. A valuation allowance of $54 million has been established on a portion of deferred tax assets as of December 31, 2022. At December 31, 2022, a partial valuation allowance of $28 million has been provided against state tax credits that the Company may not be able to utilize. A partial valuation allowance of $42 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. The Tax Reform Act eliminated the option to deduct research and development ("R&D") expenses in the period incurred and requires R&D expenses to be capitalized and amortized beginning in 2022. Amounts due to and from tax authorities as recorded in the Consolidated Statements of Financial Position:
| December 31,
(Dollars in millions) | 2022 |  | 2021
Miscellaneous receivables | $ | 35 |  |  | $ | 173 |
Payables and other current liabilities | $ | 95 |  |  | $ | 68 |
Other long-term liabilities | 174 |  |  | 130 |
Total income taxes payable | $ | 269 |  |  | $ | 198 |
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(Dollars in millions) | 2022 |  | 2021 |  | 2020
Balance at January 1 | $ | 200 |  |  | $ | 257 |  |  | $ | 202 |
Adjustments based on tax positions related to current year | 11 |  |  | 6 |  |  | 14 |
Adjustments based on tax positions related to prior years | 24 |  |  | 2 |  |  | 63 |
Lapse of statute of limitations | — |  |  | (45) |  |  | (22) |
Settlements | — |  |  | (20) |  |  | — |
Balance at December 31 (1) | $ | 235 |  |  | $ | 200 |  |  | $ | 257 |
(1)Approximately $229 million of the unrecognized tax benefits as of December 31, 2022, 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) | 2022 |  | 2021 |  | 2020
Balance at January 1 | $ | 13 |  |  | $ | 13 |  |  | $ | 13 |
Expense for interest, net of tax | 9 |  |  | 9 |  |  | 5 |
Income for interest, net of tax | — |  |  | (9) |  |  | (5) |
Balance at December 31 | $ | 22 |  |  | $ | 13 |  |  | $ | 13 |
Accrued penalties related to unrecognized tax positions were immaterial as of December 31, 2022, 2021, and 2020. 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 2017. With few exceptions, Eastman is no longer subject to foreign, state, and local income tax examinations by tax authorities for years before 2015. Solutia and related subsidiaries are no longer subject to state and local income tax examinations for years before 2002. 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 $55 million.

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