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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 15.    Income Taxes:

For the years ended December 31, 2021, 2020 and 2019, domestic and foreign pretax income, before noncontrolling interests, were $1.5 billion and $93 million, $850 million and $73 million, and $857 million and $48 million, respectively.

Income taxes are summarized as follows:

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

(in millions)

 

Current:

 

 

 

 

 

 

 

 

 

 

 

Federal

$

244

 

 

$

191

 

 

$

167

 

State

 

37

 

 

 

27

 

 

 

4

 

Foreign

 

20

 

 

 

12

 

 

 

8

 

 

 

301

 

 

 

230

 

 

 

179

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

Federal

 

65

 

 

 

(18

)

 

 

11

 

State

 

24

 

 

 

1

 

 

 

2

 

Foreign

 

3

 

 

 

10

 

 

 

3

 

 

 

92

 

 

 

(7

)

 

 

16

 

 

$

393

 

 

$

223

 

 

$

195

 

 

The Company’s actual income taxes differ from the amounts computed by applying the federal income tax rate of 21% for the years ended December 31, 2021, 2020 and 2019.  A reconciliation of these differences is as follows:

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

(dollars in millions)

 

Taxes calculated at federal rate

$

345

 

 

 

21.0

%

 

$

194

 

 

 

21.0

%

 

$

190

 

 

 

21.0

%

State taxes, net of federal benefit

 

48

 

 

 

2.9

 

 

 

22

 

 

 

2.4

 

 

 

18

 

 

 

2.0

 

Change in liability for tax positions

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(14

)

 

 

(1.5

)

Foreign income taxed at different rates

 

1

 

 

 

0.1

 

 

 

5

 

 

 

0.6

 

 

 

1

 

 

 

0.1

 

Unremitted foreign earnings

 

1

 

 

 

0.1

 

 

 

(2

)

 

 

(0.2

)

 

 

3

 

 

 

0.3

 

Other items, net

 

(2

)

 

 

(0.2

)

 

 

4

 

 

 

0.3

 

 

 

(3

)

 

 

(0.3

)

 

$

393

 

 

 

23.9

%

 

$

223

 

 

 

24.1

%

 

$

195

 

 

 

21.6

%

 

The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were 23.9%, 24.1%, and 21.6% for the years ended December 31, 2021, 2020, and 2019, respectively.  The effective tax rates differ from the federal statutory rate as a result of state and foreign income taxes for which the Company is liable, as well as permanent differences between amounts reported for financial statement purposes and taxable income.  The effective tax rates for 2021 and 2020 reflect benefits related to foreign tax law changes.  The effective tax rate for 2020 also reflects the impairment of nondeductible goodwill relating to the Company’s property and casualty insurance business.  The effective tax rate for 2019 reflects the resolution of state tax matters from prior years.

The primary components of temporary differences that give rise to the Company’s net deferred tax liability are as follows:

 

December 31,

 

 

2021

 

 

2020

 

 

(in millions)

 

Deferred tax assets:

 

 

 

 

 

 

 

Deferred revenue

$

11

 

 

$

9

 

Employee benefits

 

102

 

 

 

95

 

Bad debt reserves

 

7

 

 

 

7

 

Pension

 

30

 

 

 

34

 

Net operating loss carryforward

 

10

 

 

 

11

 

Foreign tax credit

 

4

 

 

 

7

 

Operating lease liabilities

 

58

 

 

 

66

 

Payroll taxes

 

5

 

 

 

12

 

Other

 

6

 

 

 

5

 

 

 

233

 

 

 

246

 

Valuation allowance

 

(8

)

 

 

(9

)

 

 

225

 

 

 

237

 

Deferred tax liabilities:

 

 

 

 

 

 

 

Depreciable and amortizable assets

 

274

 

 

 

271

 

Claims and related salvage

 

89

 

 

 

90

 

Investments in affiliates

 

63

 

 

 

7

 

Securities

 

65

 

 

 

75

 

Operating lease assets

 

52

 

 

 

59

 

Unremitted foreign earnings

 

13

 

 

 

12

 

 

 

556

 

 

 

514

 

Net deferred tax liability

$

331

 

 

$

277

 

 

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law in 2020, allows employers to defer payment of a portion of payroll taxes otherwise due on wages paid between the enactment date and December 31, 2020 and remit the deferred payroll taxes on December 31, 2021 and December 31, 2022.  Under this provision of the CARES Act, the Company deferred $49 million in payroll taxes for 2020 and has recorded the tax impact of $12 million as a deferred tax asset.  In 2021, the Company remitted $22 million of deferred payroll taxes and, as of December 31, 2021, its remaining deferred tax asset was $5 million.

The vesting of RSUs represent a tax benefit that has been reflected as a reduction of income taxes payable and a reduction of income tax expense for the years ended December 31, 2021, 2020 and 2019.  The benefits recorded were $2 million, $4 million and $3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

At December 31, 2021, the Company had available a $4 million foreign tax credit carryover, net of a valuation allowance.  The Company expects to utilize this credit within the carryover period.

At December 31, 2021, the Company had available net operating loss carryforwards for income tax purposes totaling $63 million, consisting of state and foreign losses of $31 million and $32 million, respectively.  Of the aggregate net operating losses, $23 million has an indefinite expiration and the remaining $40 million expires at various times beginning in 2022.

The Company evaluates the realizability of its deferred tax assets by assessing the valuation allowance and makes adjustments to the allowance as necessary.  The factors used by the Company in assessing the likelihood of realization of its deferred tax assets include forecasts of future taxable income and available tax planning strategies that could be implemented.  The Company’s ability or failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of its deferred tax assets.  At December 31, 2021 and 2020, the Company carried a valuation allowance of $8 million and $9 million, respectively.  Of this amount, $7 million and $8 million, respectively, related to net operating losses; the remaining $1 million related to other deferred tax assets.  The decrease in the overall valuation allowance during 2021 was primarily due to the reversal of the allowance previously provided against certain foreign net operating losses and other deferred tax assets.  Based on future operating results in certain jurisdictions, it is possible that the current valuation allowance positions of those jurisdictions could be adjusted during the next 12 months.

As of December 31, 2021, 2020 and 2019, the liability for income taxes associated with uncertain tax positions was $8 million, $7 million and $1 million, respectively.  The increases in the liabilities during 2021 and 2020 were primarily attributable to positions taken on the Company’s tax returns for prior years, and the net decrease in the liability during 2019 was primarily the result of the resolution of state tax matters from prior years.  The liabilities could be reduced by $3 million and $2 million as of December 31, 2021 and 2020, respectively, due to offsetting tax benefits associated with the correlative effects of potential adjustments, including timing adjustments and state income taxes.  The offsetting tax benefits associated with the correlative effects of potential adjustments, including timing adjustments and state income taxes was not material as of December 31, 2019.  The net liability, if recognized, would favorably affect the Company’s effective income tax rate.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019 is as follows:

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

(in millions)

 

Unrecognized tax benefits—beginning balance

$

7

 

 

$

1

 

 

$

13

 

Gross increases (decreases)—prior period tax positions

 

—

 

 

 

5

 

 

 

(9

)

Gross increases—current period tax positions

 

1

 

 

 

1

 

 

 

1

 

Settlements with taxing authorities

 

—

 

 

 

—

 

 

 

(4

)

Unrecognized tax benefits—ending balance

$

8

 

 

$

7

 

 

$

1

 

The Company’s continuing practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense.  Accrued interest and penalties, net of tax benefits, related to uncertain tax positions were not material as of December 31, 2021, 2020 and 2019.

The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and various non-U.S. jurisdictions.  The primary non-federal jurisdictions are California, Canada, India and the United Kingdom.  As of December 31, 2021, the Company is generally no longer subject to income tax examinations for U.S. federal, state and non-U.S. jurisdictions for years prior to 2018, 2016, and 2014, respectively.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions may increase or decrease within the next 12 months.  Any such change may be the result of ongoing audits or the expiration of federal and state statutes of limitations for the assessment of taxes.

The Company records a liability for potential tax assessments based on its estimate of the potential exposure.  New tax laws and new interpretations of laws and rulings by tax authorities may affect the liability for potential tax assessments.  Due to the subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from estimates.  To the extent that the Company’s estimates differ from actual payments or assessments, income tax expense is adjusted.  The Company’s income tax returns in several jurisdictions are being examined by various taxing authorities.  The Company believes that adequate amounts of tax and related interest, if any, from any adjustments that may result from these examinations have been provided for.