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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes 12. INCOME TAXES
Income (loss) before income taxes and income tax expense (benefit) are as follows:
(In thousands)202320222021
Income (loss) before income taxes:
Domestic$(175,510)$3,259 $22,774 
Foreign15,480 29,585 44,336 
Total$(160,030)$32,844 $67,110 
Current income tax expense (benefit):
Federal$19 $2 $1,232 
State— 772 764 
Foreign1,954 3,071 13,521 
Total1,973 3,845 15,517 
Deferred income tax expense (benefit):
Federal(57,220)24 (7,862)
State(280)(537)125 
Foreign1,402 1,057 1,504 
Total(56,098)544 (6,233)
Total income tax expense (benefit)$(54,125)$4,389 $9,284 
The significant differences between the U.S. federal statutory rate and the effective income tax rate are as follows:
202320222021
(In thousands, except percentages)Amount%Amount%Amount%
Income tax expense (benefit) at federal statutory rate$(33,622)21.0 $6,882 21.0 $14,116 21.0 
Stranded taxes released with termination of pension(21,912)13.7 — — — — 
Changes in estimates related to prior year tax provision(1,322)0.8 (175)(0.5)(383)(0.6)
Brazilian tax incentive(876)0.5 (3,873)(11.8)(7,019)(10.4)
Research and development tax credit(766)0.5 (1,489)(4.5)(928)(1.4)
Tax on Prodepe tax incentive(488)0.3 (1,024)(3.1)2,858 4.3 
State taxes, net of federal income tax benefit(437)0.3 48 0.1 933 1.4 
Foreign currency translation variation on intercompany loans— — — — 1,374 2.0 
Dividend received deduction net of foreign withholding tax— — — — (109)(0.2)
Foreign derived intangible income deduction— — (763)(2.3)— — 
Tax contingency accruals and tax settlements1 — 88 0.3 202 0.3 
Changes in federal valuation allowance237 (0.1)— — (5,415)(8.1)
Non-deductible other594 (0.4)381 1.2 1,053 1.6 
Foreign rate differences1,746 (1.1)2,924 8.9 8,269 12.3 
U.S. tax on foreign branch income2,720 (1.7)1,390 4.1 (5,667)(8.4)
    Income tax expense (benefit) at effective income tax rate$(54,125)33.8 $4,389 13.4 $9,284 13.8 
Provision (benefit) for income taxes for the year ended December 31, 2023 was $(54.1) million compared to $4.4 million for the year ended December 31, 2022. The effective tax rates for the years ended December 31, 2023 and 2022 were 33.8% and 13.4%, respectively. The change in effective tax rate is primarily attributed to tax benefits previously recorded in other comprehensive income (loss) that were released as a result of the pension plan termination, partially offset by a reduction in Brazilian tax incentives as a percentage of income. The stranded taxes released with the termination of the pension plan represent the effect of the change in federal and state tax rates on pension-related deferred tax items initially recorded in other comprehensive income. The related stranded taxes were released in full in 2023.
The effective tax rate in 2022 was impacted by a large discrete benefit recorded in the first quarter of 2022, resulting from the implementation of new U.S. tax regulations associated with foreign tax credits published by the U.S. Treasury and Internal Revenue Service (“IRS”) on January 4, 2022. These regulations overhauled various components of the foreign tax credit regime including the determination of creditable foreign taxes and limit the amount of foreign taxes that are creditable against U.S. income taxes. As the result of these regulations, future Brazilian income tax under Brazil tax law in place at that time
would have been deductible, but not creditable, in the U.S. The accounting rules require a reduction of the U.S. deferred tax liability previously established related to anticipated future income from Brazil. The IRS released guidance in 2023 that provides temporary relief for tax years after 2021 from the regulations published by the U.S. Treasury and Internal Revenue Service on January 4, 2022. As a result of the IRS guidance released in 2023, the reduction in the first quarter of 2022 of the U.S. deferred tax liability previously established related to anticipated future income from Brazil was reversed in 2023.
The effective tax rate in 2021 was impacted by the strong earnings of Terphane Ltda, which are included in Tredegar’s U.S. consolidated tax return and, the tax impact of the local statutory tax rates of Tredegar’s foreign subsidiaries being higher than the current U.S. tax rate of 21%, the benefit of tax incentives in Brazil and the release of the valuation allowance for capital loss carryforwards.
Tredegar accrues U.S. federal income taxes on unremitted earnings of all foreign subsidiaries where required. However; Tredegar will only record U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. Because of the accumulation of significant losses related to foreign currency translations at Terphane Ltda., there were no deferred income tax liabilities associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Ltda.’s undistributed earnings as of December 31, 2023 and 2022.
The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social contribution on income). Terphane’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate levied on the operating profit of its products. These incentives produce a current tax rate of 15.25% for Terphane (6.25% of income tax and 9.0% social contribution on income). The incentives were originally granted for a 10-year period commencing January 1, 2015 and expiring at the end of 2024. Terphane Brazil has been granted an additional three years of tax incentives through the end of 2027. The benefit from the tax incentives was $0.9 million, $3.9 million and $7.0 million in 2023, 2022 and 2021, respectively.
Deferred income tax assets and deferred income tax liabilities at December 31, 2023 and 2022, are as follows:
(In thousands)20232022
Deferred income tax assets:
Pension and other postretirement obligations$— $7,535 
Employee benefits5,821 7,558 
Basis difference in capital assets2,131 2,098 
Inventory2,643 3,952 
Asset write-offs, divestitures and environmental accruals1,025 1,075 
U.S. federal and state NOL and credit carryforwards33,247 24,914 
Capitalized R&D expenditures6,543 4,874 
Other2,364 1,220 
Lease liabilities2,711 3,328 
Interest expense limitation2,592 — 
Foreign currency translation gain adjustment591 1,224 
Deferred income tax assets before valuation allowance59,668 57,778 
Less: Valuation allowance15,078 13,807 
Total deferred income tax assets44,590 43,971 
Deferred income tax liabilities:
Goodwill and identifiable intangibles$3,392 $10,533 
Property, plant and equipment10,330 14,950 
Foregone tax credits on foreign branch income1,880 719 
Right-of-use leased assets2,409 3,147 
Other1,545 722 
Total deferred income tax liabilities19,556 30,071 
Net deferred income tax assets (liabilities)$25,034 $13,900 
Amounts recognized in the consolidated balance sheets:
Deferred income tax assets (noncurrent)$25,034 $13,900 
Deferred income tax liabilities (noncurrent)— — 
Net deferred income tax assets (liabilities)$25,034 $13,900 
Except as noted below, the Company believes that it is more likely than not that future taxable income will exceed future tax-deductible amounts thereby resulting in the realization of deferred income tax assets the Company had U.S. federal and state tax credits of $16.7 million, net operating loss carryforwards of $16.5 million and a deferred interest limitation of $2.6 million at December 31, 2023. The Company had U.S. federal and state tax credits of $15.3 million and net operating loss carryforwards of $9.6 million at December 31, 2022. The U.S. federal net operating loss and deferred interest limitation can be carried forward indefinitely. The U.S. federal foreign tax credits will expire between 2027-2033 and the U.S. federal research and development tax credits will expire by 2044. The U.S. state carryforwards expire at different points over the next 20 years.
Valuation allowances of $12.9 million, $10.3 million and $9.4 million at December 31, 2023, 2022 and 2021, respectively, are recorded against the tax benefit on U.S. federal and state tax credits and net operating loss carryforwards generated by domestic subsidiaries that may not be recoverable in the carryforward period. The valuation allowance for unrealized capital losses from investments and other related items was $0.7 million at December 31, 2022 and 2021. The amount of the deferred income tax asset considered realizable, however, could be adjusted in the near term if estimates of the fair value of certain investments during the carry-forward period change. As circumstances and events warrant, allowances will be reversed when it is more likely than not that future taxable income will exceed deductible amounts, thereby resulting in the realization of deferred income tax assets. Valuation allowances of $2.2 million, $2.8 million and $2.5 million at December 31, 2023, 2022 and 2021, respectively, were recorded against certain deferred state tax assets.
A reconciliation of the Company’s unrecognized uncertain tax positions since January 1, 2021, is shown below:
 Years Ended December 31,
(In thousands)202320222021
Balance at beginning of period$628 $648 $628 
Increase (decrease) due to tax positions taken in:
Current period25 2 — 
Prior period23 44 40 
Reductions due to lapse of statute of limitations(17)(66)(20)
Balance at end of period$659 $628 $648 
Additional information related to unrecognized uncertain tax positions since January 1, 2021 is summarized below:
 Years Ended December 31,
(In thousands)202320222021
Gross unrecognized tax benefits on uncertain tax positions (reflected in
current income tax, other noncurrent liability accounts, or deferred tax assets in the balance sheet)
$659 $628 $648 
Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions (reflected in deferred income tax accounts in the balance sheet)98 143 48 
Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized757 771 696 
Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $20, $16 and $26 reflected in income tax expense in the income statement in 2023, 2022 and 2021, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet)
169 149 133 
Related deferred income tax assets recognized on interest and penalties(39)(34)(31)
Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized130 115 102 
Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized$887 $886 $798 
Tredegar, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and jurisdictions outside the U.S. With few exceptions, Tredegar is no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2020. The Company anticipates that it is reasonably possible that Federal and state income tax audits or statutes may settle or close within the next 12 months and are not expected to result in a material change in unrecognized tax positions, including any payments that may be made.