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INCOME TAXES | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Deferred Income Taxes Deferred income taxes reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes. The Company has a net deferred tax liability, primarily due to differences in depreciation rates for federal income tax purposes and for financial reporting purposes. Deferred tax (assets) and liabilities comprise the following (in millions):
| 2020 |  | 2019
Excess of tax over book depreciation | $ | 1,126 |  |  | $ | 1,233 |
Intangibles - net | 15 |  |  | 16 |
Operating lease assets | 342 |  |  | 416 |
Other - net | 106 |  |  | 58 |
Deferred tax liabilities | 1,589 |  |  | 1,723 |
Mileage Plan™ | (385) |  |  | (337) |
Inventory obsolescence | (17) |  |  | (15) |
Employee benefits | (215) |  |  | (179) |
Net operating losses | (27) |  |  | (13) |
Operating lease liabilities | (381) |  |  | (417) |
Leasehold maintenance | (73) |  |  | — |
Other - net | (103) |  |  | (48) |
Deferred tax assets | (1,201) |  |  | (1,009) |
Valuation allowance | 19 |  |  | 1 |
Net deferred tax liabilities | $ | 407 |  |  | $ | 715 |
The CARES Act, among other things, permits federal Net Operating Loss (NOL) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company also carried back a portion of NOLs incurred in 2018 as allowed by the CARES Act and has received a refund for those losses. At December 31, 2020, the Company had federal NOLs of approximately $644 million, the majority of which will be carried back under the CARES Act to be applied against previous years' taxable income. The Company has recorded a receivable of $225 million associated with the federal carry back. The remaining NOL, which resulted from the 2016 Virgin America merger, must be carried forward and will expire in 2036. The Company also has state NOLs of approximately $562 million that expire beginning in 2021 and continuing through 2040. Of these state NOLs, approximately $85 million may be used to offset previous years’ state taxable income due to states’ conformity to the Internal Revenue Code or state specific carryback provisions. Virgin America experienced multiple “ownership changes” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the most recent being its acquisition by the Company. Section 382 of the Code imposes an annual limitation on the utilization of pre-ownership change NOLs. Any unused annual limitation may, subject to certain limits, be carried over to later years. The combined Company’s ability to use the NOLs will also depend on the amount of taxable income generated in future periods. Valuation allowances are provided to reduce the related deferred income tax assets to an amount which will, more likely than not, be realized. The Company has determined it is more likely than not that a portion of the state NOL carryforward will not be realized and, therefore, has provided a valuation allowance of $19 million for that portion as of December 31, 2020. The Company has likewise concluded it is more likely than not that all of its federal and the remaining state deferred income tax assets will be realized and thus no additional valuation allowance has been recorded. The Company reassesses the need for a valuation allowance each reporting period. Components of Income Tax Expense (Benefit) The components of income tax expense (benefit) are as follows (in millions):
| 2020 |  | 2019 |  | 2018
Current income tax expense (benefit): |  |  |  |  |
Federal | $ | (212) |  |  | $ | 26 |  |  | $ | (5) |
State | (11) |  |  | 13 |  |  | 9 |
Total current income tax expense (benefit) | (223) |  |  | 39 |  |  | 4 |
Deferred income tax expense (benefit): |  |  |  |  |
Federal | (246) |  |  | 175 |  |  | 125 |
State | (47) |  |  | 33 |  |  | 19 |
Total deferred income tax expense (benefit) | (293) |  |  | 208 |  |  | 144 |
Income tax expense (benefit) | $ | (516) |  |  | $ | 247 |  |  | $ | 148 |
Income Tax Rate Reconciliation Income tax expense (benefit) reconciles to the amount computed by applying the 2020 U.S. federal rate of 21% to income (loss) before income tax and for deferred taxes as follows (in millions):
| 2020 |  | 2019 |  | 2018
Income (loss) before income tax | $ | (1,840) |  |  | $ | 1,016 |  |  | $ | 585 |
Expected tax expense (benefit) | (386) |  |  | 213 |  |  | 123 |
Nondeductible expenses | 9 |  |  | 9 |  |  | 9 |
State income tax expense (benefit) | (62) |  |  | 36 |  |  | 21 |
Tax law changes | (93) |  |  | (9) |  |  | (7) |
Valuation allowance | 18 |  |  | — |  |  | — |
Other - net | (2) |  |  | (2) |  |  | 2 |
Actual tax expense (benefit) | $ | (516) |  |  | $ | 247 |  |  | $ | 148 |
Effective tax rate | 28.0 | % |  | 24.3 | % |  | 25.3 | %
As a result of tax changes signed into law during 2017, with final regulations issued in 2019, the Company recorded a current tax benefit of $9 million in 2019. The Company recorded a current tax benefit of $93 million in 2020 as a result of provisions outlined in the CARES Act. Uncertain Tax Positions The Company has identified its federal tax return and its state tax returns in Alaska, Oregon and California as “major” tax jurisdictions. A summary of the Company's jurisdictions and the periods that are subject to examination are as follows:
Jurisdiction | Period
Federal | 2007 to 2019
Alaska | 2015 to 2019
California | 2007 to 2019
Oregon | 2003 to 2019
Certain tax years are open to the extent of net operating loss carryforwards. Changes in the liability for gross unrecognized tax benefits during 2020, 2019 and 2018 are as follows (in millions):
| 2020 |  | 2019 |  | 2018
Balance at January 1, | $ | 40 |  |  | $ | 40 |  |  | $ | 43 |
Additions related to prior years | 1 |  |  | — |  |  | 1 |
Releases related to prior years | (1) |  |  | (1) |  |  | (4) |
Additions related to current year activity | — |  |  | 2 |  |  | 2 |
Releases due to settlements | (4) |  |  | — |  |  | (1) |
Releases due to lapse of statute of limitations | (1) |  |  | (1) |  |  | (1) |
Balance at December 31, | $ | 35 |  |  | $ | 40 |  |  | $ | 40 |
As of December 31, 2020, the Company had $35 million of accrued tax contingencies, of which $29 million, if fully recognized, would increase the effective tax rate. As of December 31, 2020, 2019 and 2018, the Company has accrued interest and penalties, net of federal income tax benefit, of $6 million, $7 million, and $6 million. In 2020, the Company recognized a benefit of $1 million, compared to the recognition of expense of $1 million in 2019, and $1 million in 2018, for interest and penalties, net of federal income tax benefit. At December 31, 2020, the Company has unrecognized tax benefits recorded as a liability and some reducing deferred tax assets. The Company reduced $5 million of reserves for uncertain tax positions in 2020, primarily due to settlements on state income taxes and statute lapses on reserved amounts. These uncertain tax positions could change as a result of the Company's ongoing audits, settlement of issues, new audits and status of other taxpayer court cases. The Company cannot predict the timing of these actions. Due to the positions being taken in various jurisdictions, the amounts currently accrued are the Company's best estimate as of December 31, 2020.

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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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