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Income Taxes
 9 Months Ended
Sep. 30, 2025
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
For the third quarter of 2025, we recorded income tax expense of $1,464 million on loss before income taxes of $733 million. For the first nine months of 2025, we recorded income tax expense of $1,501 million on loss before income taxes of $297 million. Income tax expense for the three and nine months ended September 30, 2025 includes net discrete tax expense of $1,450 million and $1,446 million, respectively. Discrete tax expense for both periods was primarily related to the establishment of a full valuation allowance on our net deferred tax assets in the U.S.
For the third quarter of 2024, we recorded income tax expense of $9 million on loss before income taxes of $27 million. For the first nine months of 2024, we recorded income tax expense of $75 million on income before income taxes of $42 million. Income tax expense for the three and nine months ended September 30, 2024 includes net discrete tax expense of $7 million and $6 million, respectively.
We record taxes based on overall estimated annual effective tax rates. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three and nine months ended September 30, 2025 is mainly impacted by the establishment of a full valuation allowance on our net deferred tax assets of $1.4 billion in the U.S. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three and nine months ended September 30, 2024 primarily relates to losses in foreign jurisdictions in which no tax benefits are recorded and the discrete items noted above.
We consider both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable information. We give operating results during the most recent three-year period a significant weight in our analysis. We perform scheduling exercises to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. We also consider prudent tax planning strategies (including an assessment of their feasibility) to accelerate taxable income if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized.
In the U.S., we have a cumulative loss for the three-year period ending September 30, 2025 primarily driven by non-recurring items such as goodwill and intangible asset impairments, rationalization charges, pension curtailments and settlements, and one-time costs associated with the Goodyear Forward plan. For the quarter ended September 30, 2025, due to industry disruption and various macroeconomic factors such as the impact of tariff, transportation, labor and energy costs, our U.S. operating results and future forecasted U.S. earnings have declined. In addition, the One Big Beautiful Bill Act ("OBBBA") was enacted in the third quarter, which reinstates the business interest expense limitation. The reduction in current and expected future earnings in the third quarter, as a result of industry disruption, represents significant negative evidence in the assessment of the realizability of our deferred tax assets. We concluded that as of September 30, 2025, it is more likely than not that our U.S. net deferred tax assets will not be fully realized and recorded a non-cash charge of $1.4 billion to establish a full valuation allowance in the U.S. We intend to maintain a valuation allowance until sufficient positive evidence exists to support realization of these deferred tax assets.
At September 30, 2025 and December 31, 2024, we had approximately $1.4 billion and $1.3 billion, respectively, of U.S. federal, state and local net deferred tax assets, and related valuation allowances totaling $1.4 billion and $26 million, respectively. As of September 30, 2025, approximately $1.2 billion of these U.S. net deferred tax assets had unlimited lives and approximately $200 million had limited lives, and the majority do not start to expire until 2030. As of December 31, 2024, approximately $1.1 billion of these U.S. net deferred tax assets had unlimited lives and approximately $200 million had limited lives, and the majority do not start to expire until 2030.
At September 30, 2025 and December 31, 2024, we also had approximately $1.6 billion and $1.5 billion, respectively, of foreign net deferred tax assets and related valuation allowances of approximately $1.3 billion and $1.2 billion, respectively. Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of these net foreign deferred tax assets. Most notably, in Luxembourg, we maintain a valuation allowance of approximately $1.1 billion on all of our net deferred tax assets. Each reporting period, we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. We do not believe that sufficient positive evidence required to release valuation allowances on our foreign deferred tax assets having a significant impact on our financial position or results of operations will exist within the next twelve months.
On July 4, 2025, OBBBA was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of tax treatment for certain business provisions. We do not expect a material impact from OBBBA on our 2025 operating tax rates. We will continue to assess the impact on us as regulations develop in the future.
The Organisation for Economic Co-operation and Development ("OECD") have published the Pillar Two model rules which adopt a global corporate minimum tax of 15% for multinational enterprises with average revenue in excess of €750 million. Certain jurisdictions in which we operate enacted legislation consistent with one or more of the OECD Pillar Two model rules effective in 2024. The model rules include minimum domestic top-up taxes, income inclusion rules, and undertaxed profit rules all aimed to ensure that multinational corporations pay a minimum effective corporate tax rate of 15% in each jurisdiction in which they operate. We do not expect the Pillar Two model rules to materially impact our annual effective tax rate in 2025. However, we are continuing to evaluate the Pillar Two model rules and related legislation and their potential impact on future periods.
For the nine months ended September 30, 2025, changes to our unrecognized tax benefits did not, and for the full year of 2025 are not expected to, have a significant impact on our financial position or results of operations.
We are open to examination in the United States from 2021 onward and in Germany from 2018 onward. Generally, for our remaining tax jurisdictions, years from 2020 onward are still open to examination.
Following an audit by the Internal Revenue Service ("IRS"), we received a Notice of Proposed Adjustment ("NOPA") during the second quarter of 2025 related to an intercompany sale of certain intellectual property in 2021. The IRS proposes to disallow income recognition totaling $1.5 billion associated with this transaction. The federal tax charge related to that income recognition was fully offset by the utilization of $315 million of then-existing deferred tax assets, including tax loss carryforwards and foreign tax credits.
We disagree with the IRS’s position as stated in the NOPA and plan to challenge the proposed adjustments through the established IRS administrative procedures. Based on the information currently available, we believe that it is more likely than not that our tax position will be sustained upon review; therefore, no changes have been made to our reserve for uncertain tax positions relating to the NOPA. In addition, our U.S. deferred tax assets are in a full valuation allowance as of September 30, 2025. The ultimate resolution of this matter is uncertain, and if the income recognition associated with the transaction is disallowed, we will not be able to use a portion of the deferred tax assets that we utilized to offset the related federal taxes.