Prior to the consummation of the Spin-Off, Resideo’s operating results were included in Honeywell’s various consolidated U.S. federal and state income tax returns, as well as non-U.S. filings. For the purposes of the Company’s Consolidated and Combined Financial Statements for periods prior to the Spin-Off, Income tax expense and deferred tax balances have been recorded as if the Company filed tax returns on a standalone basis separate from Honeywell. The Separate Return Method applies the accounting guidance for income taxes to the standalone financial statements as if the Company was a separate taxpayer and a standalone enterprise prior to the separation from Honeywell.

	Years Ended December 31,
	2020			2019			2018
U.S.	$	(93	)	$	(83	)	$	(169	)
Non-U.S.		194			154			273
	$	101		$	71		$	104

	Years Ended December 31,
	2020		2019			2018
Tax expense (benefit) consists of:
Current:
U.S.	$	21	$	23		$	(26	)
Non-U.S.		21		37			48
	$	42	$	60		$	22
Deferred:
U.S.	$	11	$	(11	)	$	(15	)
Non-U.S.		11		(14	)		(308	)
		22		(25	)		(323	)
	$	64	$	35		$	(301	)

	Years Ended December 31,
	2020				2019				2018
The U.S. federal statutory income tax rate is reconciled to the Company’s effective income tax rate as follows:
U.S. federal statutory income tax rate		21.0		%		21.0		%		21.0		%
Impact of foreign operations		(5.4	)			(10.2	)			(11.6	)
U.S. state income taxes		6.4				6.6				6.4
U.S. Tax Reform and related items		-				-				(385.1	)
Non-deductible indemnification costs		29.0				28.0				75.4
Executive compensation over $1 million		2.5				0.6				-
Other non-deductible expenses		3.7				2.9				-
U.S. taxation of foreign earnings		3.5				5.3				6.0
Tax credits		(0.2	)			(2.6	)			(2.1	)
Change in tax rates		1.3				1.7				-
All other items – net		1.8				(4.7	)			0.6
		63.6		%		48.6		%		(289.4	)	%

The tax effects of temporary differences and tax carryforwards which give rise to future income tax benefits and payables are as follows:

	Years Ended December 31,
	2020			2019
Deferred tax assets:
Pension	$	37		$	27
Other asset basis differences		70			70
Operating lease liabilities		34			33
Accruals and reserves		61			61
Net operating and capital losses		47			32
Other		-			6
Gross deferred tax assets		249			229
Valuation allowance		(60	)		(32	)
Total deferred tax assets	$	189		$	197
Deferred tax liabilities:
Other intangible assets	$	(44	)	$	(42	)
Property, plant and equipment		(25	)		(22	)
Operating lease assets		(32	)		(32	)
Other		(13	)		(12	)
Total deferred tax liabilities		(114	)		(108	)
Net deferred tax asset	$	75		$	89

The Company maintains a valuation allowance of $60 million against a portion of the non-U.S. gross deferred tax assets. Valuation allowances principally relate to foreign net operating loss carryforwards where the future potential benefits do not meet the more-likely-than-not realization test. Changes in valuation allowance positions related to historic losses resulted in increases of $20 million and $3 million to tax expense in 2020 and 2019, respectively. The remaining changes in valuation allowances relate primarily to current year net operating losses on entities from which the company already maintains valuation allowances and does not expect to receive tax benefits. In the event the Company determines that it will not be able to realize its net deferred tax assets in the future, it will reduce such amounts through an increase to tax expense in the period such determination is made. Conversely, if the Company determines that it will be able to realize net deferred tax assets in excess of the carrying amounts, it will decrease the recorded valuation allowance through a reduction to tax expense in the period that such determination is made.

The Company has not provided deferred taxes on unremitted earnings of its foreign affiliates that exist at December 31, 2020 as the earnings are considered permanently reinvested. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of the Company’s approximately $1.6 billion of undistributed earnings from foreign subsidiaries to the United States. It is impracticable to calculate the tax cost of repatriating the Company’s unremitted earnings which are considered indefinitely reinvested.

As of December 31, 2020, the Company has federal tax credit carryforwards of $1 million, federal net operating loss carryforwards of $2 million, and foreign net operating loss carryforwards of $196 million. The federal tax credit carryforwards expire in 2029. The federal net operating loss carryforwards expire in 2027. $178 million of foreign net operating losses can be carried forward indefinitely with the remainder expiring between 2021 and 2030.

Many jurisdictions impose limitations on the timing and utilization of net operating loss carryforwards. In those instances where the net operating loss or tax credit carryforward will not be utilized in the carryforward period due to the limitation, the deferred tax asset and amount of the carryforward have been reduced.

As of December 31, 2020, 2019, and 2018 there were $10 million, $6 million, and $2 million of unrecognized tax benefits, respectively, that if recognized would be recorded as a component of Income tax expense. The change in unrecognized tax benefits resulted in increases (decreases) of $4 million, $4 million, and ($18) million to tax expense in 2020, 2019, and 2018, respectively. The decrease in 2018 was primarily driven by the reclassification of unrecognized tax benefits attributable to periods prior to the consummation of the Spin-Off to the indemnity payable to Honeywell under the terms of the Tax Matters Agreement.

As of December 31, 2020, 2019 and 2018 there were no unrecognized tax benefits related to examinations in progress. An immaterial amount of estimated interest and penalties related to the underpayment of income taxes is included in the liability for unrecognized tax benefits, both of which are included as a component of Income tax expense in the Consolidated and Combined Statements of Operations. The Company does not anticipate significant changes in total unrecognized tax benefits during the next twelve months.

The Company files income tax returns in the United States federal jurisdiction, all states, and various local and foreign jurisdictions. The Company’s US federal returns are no longer subject to income tax examinations for taxable years before 2016. With limited exception, state, local, and foreign income tax returns for taxable years before 2015 are no longer subject to examination.

On December 22, 2017, the U.S. government enacted U.S. Tax Reform, which included changes to the taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral rules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The U.S. Tax Reform also included a permanent reduction in the corporate tax rate, repeal of the corporate alternative minimum tax, expensing of capital investment, and limitation of the deduction for interest expense. Furthermore, as part of the transition to the new tax system, a one-time transition tax was imposed on a U.S. shareholder’s historical undistributed earnings of foreign affiliates.

As described in the Combined Financial Statements for the year ended December 31, 2017, the Company reasonably estimated certain effects of U.S. Tax Reform and, therefore, recorded provisional amounts, including the deemed repatriation transition tax and withholding taxes on undistributed earnings. For the year ended December 31, 2018, the Company recorded an adjustment to the provisional tax amount related to the deemed repatriation transition tax and taxes on undistributed earnings of $(85.4) million and $(234.7) million, respectively. This adjustment resulted in a decrease to the effective tax rate for the year ended December 31, 2018 of 307.8%. The adjustment reflects the revised determination of the fair value of assets and liabilities of legal entities included in the Company’s business. The accounting for the income tax effects of the U.S. Tax Reform was complete as of December 31, 2018.