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):


	2021		2020
Excess of tax over book depreciation	$	1,145	$	1,126
Intangibles - net	19		15
Operating lease assets	351		342
Other - net	76		106
Deferred tax liabilities	1,591		1,589

Mileage Plan	(416)		(385)
Inventory obsolescence	(17)		(17)

Employee benefits	(127)		(215)
Net operating losses	(25)		(27)
Operating lease liabilities	(374)		(381)
Leasehold maintenance	(40)		(73)
Other - net	(34)		(103)
Deferred tax assets	(1,033)		(1,201)
Valuation allowance	20		19
Net deferred tax liabilities	$	578	$	407

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. During 2021, all remaining NOLs acquired through the acquisition of Virgin America were utilized to offset federal taxable income.

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 $20 million for that portion as of December 31, 2021. 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.


	2021		2020		2019
Current income tax expense (benefit):
Federal	$	40	$	(212)	$	26
State	16		(11)		13
Total current income tax expense (benefit)	56		(223)		39

Deferred income tax expense (benefit):
Federal	80		(246)		175
State	15		(47)		33
Total deferred income tax expense (benefit)	95		(293)		208
Income tax expense (benefit)	$	151	$	(516)	$	247


	2021			2020			2019
Income (loss) before income tax	$	629		$	(1,840)		$	1,016

Expected tax expense (benefit)	132			(386)			213
Nondeductible expenses	10			9			9
State income taxes	20			(62)			36
Tax law changes	(14)			(93)			(9)
Valuation allowance	1			18			—
Other - net	2			(2)			(2)
Actual tax expense (benefit)	$	151		$	(516)		$	247

Effective tax rate	24.0		%	28.0		%	24.3		%

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 2020
Alaska			2015 to 2020
California			2007 to 2020
Oregon			2003 to 2020

Changes in the liability for gross unrecognized tax benefits during 2021, 2020 and 2019 are as follows (in millions):


	2021		2020		2019
Balance at January 1,	$	35	$	40	$	40
Additions related to prior years	3		1		—
Releases related to prior years	—		(1)		(1)
Additions related to current year activity	3		—		2

Releases due to settlements	—		(4)		—
Releases due to lapse of statute of limitations	—		(1)		(1)
Balance at December 31,	$	41	$	35	$	40

As of December 31, 2021, the Company had $41 million of accrued tax contingencies, of which $34 million, if fully recognized, would increase the effective tax rate. As of December 31, 2021, 2020 and 2019, the Company has accrued interest and penalties, net of federal income tax benefit, of $8 million, $6 million, and $7 million. In 2021, the Company recognized an expense of $2 million, compared to a benefit of $1 million in 2020, and expense of $1 million in 2019, for interest and penalties, net of federal income tax benefit. At December 31, 2021, the Company has unrecognized tax benefits recorded as a liability. The Company increased its reserves for uncertain tax positions in 2021 by $6 million, primarily due to current year activity and amended returns. 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, 2021.