Income Taxes

12 Months Ended

Dec. 31, 2019

Our income tax expense (benefit) consisted of the following for the years ended December 31 (in millions):



	2019		2018			2017
Deferred:
Federal	$	119	$	82		$	(356	)
State	20		7			24
Foreign	—		1			23
Deferred income tax expense (benefit)	139		90			(309		)
Current:
Federal	36		(61		)	94
State	19		(5		)	18
Foreign	5		6			(25		)
Current income tax expense (benefit)	60		(60		)	87
Total income tax expense (benefit)	$	199	$	30		$	(222	)

The Tax Cuts and Jobs Act, or The Act, was enacted on December 22, 2017. The Act made significant changes to the federal tax code, including a reduction in the federal corporate statutory tax rate from 35% to 21%. At December 31, 2017, the Company was able to make a reasonable estimate of the tax effects of enactment of The Act as written, on the existing deferred tax balances. As a result of these estimates, the Company recognized a provisional benefit in the amount of $551 million. During 2018, the Company continued to refine the calculations as we gained a more thorough understanding of The Act, including those related to the deductibility of purchased assets, state tax treatment, deferred revenue, as well as changes in interpretations of The Act and additional regulatory guidance that was issued. The calculations of measurement period adjustments of $28 million were completed by December 22, 2018. As discussed in Note 1 to our consolidated financial statements, we adopted the requirements of ASU 2016-02, Leases (Topic 842) of the Codification as of January 1, 2019 utilizing the modified retrospective method of transition, which recast amounts previously reported for 2018 and 2017. This adoption also increased our previously reported benefit from the enactment of The Act from $551 million to $564 million for 2017.

The effective tax rate on income before income taxes differed from the federal income tax statutory rate for the years ended December 31 for the following reasons (in millions):



	2019			2018			2017
Income tax expense at statutory rate	$	161		$	45		$	322
State income tax, net of federal benefit	31			8			28
Adjustment of net deferred tax liability from enacted tax rate change	—			(28		)	(564		)
Nondeductible expenses	8			5			3
Foreign rate differential	(3		)	(2		)	(7		)
Other, net	2			2			(4		)
Total income tax expense (benefit)	$	199		$	30		$	(222	)

The components of our deferred tax assets and liabilities as of December 31 are as follows (in millions):



	2019			2018
Deferred tax assets:
Deferred revenue/gains	$	127		$	106
Employee benefits	47			35
Foreign tax credit	42			32
Net operating loss carryforward	31			28
Operating lease liabilities	212			241
Rent expense	17			20
Total deferred tax assets	476			462
Valuation allowance	(31		)	(21		)
Deferred tax assets, net	445			441
Deferred tax liabilities:
Accelerated depreciation	(1,423		)	(1,270		)
Operating lease assets	(236		)	(266		)
Other	(37		)	(17		)
Total deferred tax liabilities	(1,696		)	(1,553		)
Net deferred tax liability	$	(1,251	)	$	(1,112	)

We have a U.S. foreign tax credit carryforward of $3 million which expires in 2028.

In evaluating the realizability of the deferred tax assets, we assess whether it is more likely than not that some portion, or all, of the deferred tax assets, will be realized. We consider, among other things, the generation of future taxable income (including reversals of deferred tax liabilities) during the periods in which the related temporary differences will become deductible. At December 31, 2019, we provided a $31 million valuation allowance to reduce the deferred tax assets to an amount that we consider is more likely than not to be realized. The $10 million net change in our valuation allowance during 2019 relates to foreign NOL carryforwards.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):



	2019			2018			2017
Unrecognized tax benefits at January 1,	$	33		$	31		$	26
Increases for tax positions taken during a prior period	—			—			2
Increases for tax positions taken during the period	6			5			6
Decreases for tax positions taken during a prior period	(3		)	(3		)	(3		)
Unrecognized tax benefits December 31,	$	36		$	33		$	31

Interest and penalties accrued on unrecognized tax benefits were not significant. If recognized, $15 million of the unrecognized tax benefits as of December 31, 2019 would impact our effective tax rate. We do not expect any significant change in the amount of the unrecognized tax benefits within the next twelve months. As a result of net operating losses and statute of limitations in our major tax jurisdictions, years 2004 through 2018 remain subject to examination by the relevant tax authorities.