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Income Taxes | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income taxes are determined using the liability method of accounting for income taxes, under which deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. If, based upon all available evidence, both positive and negative, it is more likely than not that such DTAs will not be realized, a valuation allowance is recorded. As more fully described in Note 1, on September 27, 2021, we entered into a definitive agreement to sell our Sports Betting business to Endeavor in a taxable cash and stock transaction, expected to close in the second quarter of 2022, subject to applicable regulatory approvals and customary conditions. Although we remain in a three-year cumulative loss position in the U.S., the taxable gain to be recognized upon disposition of our Sports Betting business led us to conclude that a portion of our net U.S. federal and certain state DTAs are more likely than not to be realized. Accordingly, to the extent that we expect to realize deferred tax assets in relation to this divestiture, we recorded a $181 million income tax benefit and reversed a portion of our valuation allowances on our U.S. DTAs during the three months ended September 30, 2021. On October 27, 2021, we entered into a definitive agreement to sell our Lottery business to Brookfield in a taxable cash transaction for total consideration of $6.05 billion (see Note 1 for additional details). As a result of the anticipated taxable gain on this transaction, which is now expected to close by the end of March 2022, subject to applicable regulatory approvals and customary conditions, we reversed an additional $71 million of valuation allowances on our U.S. federal and state DTAs. We continue to maintain other valuation allowances for certain U.S. and non-U.S. jurisdictions with cumulative losses. Management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of existing DTAs in each taxpaying jurisdiction. On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $60 million has been recorded to recognize only the portion of the DTAs that are more likely than not to be realized; however, the amount of the DTAs considered realizable could be adjusted if estimates of future taxable income during the carry forward period change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for future growth. As discussed in Note 1, the COVID-19 disruptions significantly impacted certain segments of our business. We considered the COVID-19 disruptions in our ability to realize deferred tax assets in the future and determined that such conditions did not change our overall valuation allowance positions. Additionally, we continue to monitor and evaluate the tax implications resulting from any existing and forthcoming legislation passed in response to COVID-19 in the federal, state, and foreign jurisdictions where we have an income tax presence. We apply a recognition threshold and measurement attribute related to uncertain tax positions taken or expected to be taken on our tax returns. We recognize a tax benefit for financial reporting of an uncertain income tax position when it has a greater than 50% likelihood of being sustained upon examination by the taxing authorities. We measure the tax benefit of an uncertain tax position based on the largest benefit that has a greater than 50% likelihood of being ultimately realized including evaluation of settlements. The components of net loss from continuing operations before income taxes are as follows:
|  | Year Ended December 31,
|  | 2021 |  | 2020 |  | 2019
United States |  | $ | (309) |  |  | $ | (631) |  |  | $ | (361) |
Foreign |  | 15 |  |  | (173) |  |  | (16) |
Net loss from continuing operations before income tax expense |  | $ | (294) |  |  | $ | (804) |  |  | $ | (377) |
The components of income tax expense (benefit) are as follows:
|  | Year Ended December 31,
|  | 2021 |  | 2020 |  | 2019
Current |  |  |  |  |  |
U.S. Federal |  | $ | (58) |  |  | $ | 6 |  |  | $ | (47) |
U.S. State |  | 1 |  |  | (1) |  |  | (7) |
Foreign |  | 10 |  |  | 6 |  |  | 14 |
Total |  | (47) |  |  | 11 |  |  | (40) |
Deferred |  |  |  |  |  |
U.S. Federal |  | (222) |  |  | (4) |  |  | (3) |
U.S. State |  | (46) |  |  | (4) |  |  | (2) |
Foreign |  | (3) |  |  | (6) |  |  | (2) |
Total |  | (271) |  |  | (14) |  |  | (7) |
Total income tax benefit |  | $ | (318) |  |  | $ | (3) |  |  | $ | (47) |
The reconciliation of the U.S. federal statutory tax rate to the actual tax rate is as follows:
| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Statutory U.S. federal income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Foreign earnings at rates different than U.S. federal rate | (2.9) | % |  | 0.3 | % |  | (0.6) | %
Valuation allowance adjustments | 86.3 | % |  | (17.1) | % |  | (8.7) | %
Permanent items | (0.5) | % |  | (1.9) | % |  | (3.0) | %
Change in UTBs | — | % |  | 0.2 | % |  | 1.7 | %
Goodwill impairments | — | % |  | (1.5) | % |  | — | %
Other | 4.5 | % |  | (0.5) | % |  | 2.1 | %
Effective income tax rate | 108.4 | % |  | 0.5 | % |  | 12.5 | %
Our 2021 and 2020 effective tax rates were impacted by changes in global valuation allowances totaling $(253) million and $138 million, respectively, against net DTAs in various jurisdictions. In 2020 we recorded a $54 million goodwill impairment for our U.K. Gaming reporting unit, which resulted in a (1.5)% decrease in our effective tax rate. In 2019, we recorded an income tax benefit of $50 million in continuing operations as a result of the exception provision within ASC 740-20-45-7, which states that a company must consider all sources of income in determining the tax benefit resulting from a loss from continuing operations. This exception no longer applies as of January 1, 2020, as we early-adopted ASU 2019-12, which removes this exception. Deferred income taxes reflect the net tax effects of temporary differences between the carrying values of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred income tax balances are established using the enacted statutory tax rates and are adjusted for changes in such rates in the period of change.
| As of December 31, |
| 2021 |  | 2020 |
Deferred tax assets: |  |  |  |
Reserves and other accrued expenses | $ | 99 |  |  | $ | 84 |  |
Net operating loss carry forwards | 352 |  |  | 436 |  |
Tax credit carry forwards | 48 |  |  | 42 |  |
Interest limitation carry forwards | 66 |  |  | 20 |  |
Differences in financial reporting and tax basis for: |  |  |  |
Other | 70 |  |  | 51 |  |
Less: Valuation allowance | (60) |  |  | (298) |  |
Realizable deferred tax assets | 575 |  |  | 335 |  |
Deferred tax liabilities: |  |  |  |
Differences in financial reporting and tax basis for: |  |  |  |
Identifiable intangible assets | (190) |  |  | (217) |  |
Property and equipment | (47) |  |  | (49) |  |
Other | (24) |  |  | (9) |  |
Total deferred tax liabilities | (261) |  |  | (275) |  |
Net deferred tax asset on balance sheet | $ | 314 |  |  | $ | 60 |  |
At December 31, 2021, we had the following NOL, interest limitation, R&D credit, and state tax credit carry forwards:
| December 31, 2021
| Federal |  | State |  | Foreign
NOL carry forwards | $ | 1,240 |  |  | $ | 1,335 |  |  | $ | 110 |
Interest limitation carry forwards | 240 |  |  | 269 |  |  | — |
R&D and state credit carry forwards | 49 |  |  | 1 |  |  | — |
The federal, state and foreign NOL carry forwards can be carried forward for periods that vary from three years to indefinitely. R&D tax credit carry forwards will expire through 2041, and state tax credits expire through 2025. The interest limitation carry forwards can be carried forward indefinitely in all jurisdictions in which we have them available. Certain of our U.S. federal, state, and foreign tax attributes may be subject to annual limitations under Internal Revenue Code Section 382 (“Section 382”) (or comparable provisions of state or foreign law) in the event that certain changes in ownership were to occur. Tax attributes that exceed the Section 382 limitation in any year continue to be allowed as carry forwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. Given the Company’s significant U.S. tax attributes, we continuously monitor potential ownership changes under Section 382. In the fourth quarter of 2020, we experienced a change in control event, triggering the application of Section 382. We do not currently expect any resulting Section 382 limitations to have a significant impact on the use of our tax attributes. At December 31, 2021 and 2020, we had the following valuation allowances:
|  | December 31,
|  | 2021 |  | 2020
Federal |  | $ | 15 |  |  | $ | 223 |
State |  | 22 |  |  | 53 |
Foreign |  | 23 |  |  | 22 |
Undistributed earnings of subsidiaries are accounted for as a temporary difference, except that DTLs are not recorded for undistributed earnings of foreign subsidiaries that are deemed to be indefinitely reinvested in foreign jurisdictions. The Tax Act required the Company to compute a tax on previously undistributed earnings and profits of its foreign subsidiaries upon transition from a worldwide tax system to a territorial tax system during the year ended December 31, 2017. The repatriation of such amounts in the future should generally be exempt from income taxes in the U.S. (as a result of the Tax Act) and in those jurisdictions that have a similar territorial system of taxation. Substantially all of our current year foreign cash flows are not intended to be indefinitely reinvested offshore, and therefore the tax effects of repatriation (including applicable withholding taxes) of such cash flows are provided for in our financial reporting. Unrecognized Tax Benefits The total amount of unrecognized tax benefits (“UTBs”) as of December 31, 2021 was $29 million. Of this amount, $29 million, if recognized, would be included in our Consolidated Statements of Operations and have an impact on our effective tax rate. We do not expect any material changes in unrecognized tax benefits before December 31, 2022. We recognize interest and penalties for unrecognized tax benefits in income tax expense. The amounts recognized for interest and penalties during the years ended December 31, 2021, 2020 and 2019 were not material. We file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. We are generally not subject to examination for periods prior to December 31, 2017; however as we utilize our net operating losses, prior periods can be subject to examination. There are no ongoing material U.S. federal, state, local or non-U.S. examinations by tax authorities. The Company had the following activity for unrecognized tax benefits:
|  | Year Ended December 31,
|  | 2021 |  | 2020 |  | 2019
Balance at beginning of period |  | $ | 30 |  |  | $ | 28 |  |  | $ | 34 |
Tax positions related to current year additions |  | — |  |  | 1 |  |  | 1 |
Additions for tax positions of prior years |  | — |  |  | 2 |  |  | — |
Tax positions related to prior years reductions |  | (1) |  |  | — |  |  | — |
Reductions due to lapse of statute of limitations on tax positions |  | — |  |  | (1) |  |  | (7) |
Balance at end of period |  | $ | 29 |  |  | $ | 30 |  |  | $ | 28 |

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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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