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Income Taxes | 12 Months Ended
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Aug. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes CHS is a nonexempt agricultural cooperative and files a consolidated federal income tax return within our tax return period. We are subject to tax on income from nonpatronage sources, nonqualified patronage distributions and undistributed patronage-sourced income. Income tax expense (benefit) is primarily the current tax payable for the period and the change during the period in certain deferred tax assets and liabilities. Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized under U.S. GAAP and such amounts recognized for federal and state income tax purposes, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. The provision for (benefit from) income taxes for the years ended August 31, 2024, 2023 and 2022 is as follows:
| 2024 |  | 2023 |  | 2022
| (Dollars in thousands)
Current: |  |  |  |  |
Federal | $ | 21,608 |  |  | $ | 66,672 |  |  | $ | 56,582 |
State | 23,750 |  |  | 36,925 |  |  | 24,224 |
Foreign | 30,338 |  |  | 3,735 |  |  | 9,833 |
Total current | 75,696 |  |  | 107,332 |  |  | 90,639 |
Deferred: |  |  |  |  |
Federal | (63,605) |  |  | 7,799 |  |  | 41,710 |
State | (15,686) |  |  | (7,661) |  |  | 491 |
Foreign | (1,277) |  |  | 185 |  |  | (724) |
Total deferred | (80,568) |  |  | 323 |  |  | 41,477 |
Total | $ | (4,872) |  |  | $ | 107,655 |  |  | $ | 132,116 |
Domestic income before income taxes was $1.0 billion, $2.0 billion and $1.8 billion for the years ended August 31, 2024, 2023 and 2022, respectively. Foreign income (loss) before income taxes was $66.9 million, $55.4 million and ($4.9) million for the years ended August 31, 2024, 2023 and 2022, respectively. Deferred tax assets and liabilities as of August 31, 2024 and 2023, are as follows:
| 2024 |  | 2023
| (Dollars in thousands)
Deferred tax assets: |  |  |
Accrued expenses | $ | 56,062 |  |  | $ | 51,960 |
Postretirement health care and deferred compensation | 58,866 |  |  | 51,635 |
Tax credit carryforwards | 91,114 |  |  | 97,730 |
Loss carryforwards | 88,887 |  |  | 111,963 |
Nonqualified equity | 533,784 |  |  | 467,519 |
Lease obligations | 52,980 |  |  | 62,225 |
Capitalized research and development | 69,556 |  |  | 17,941 |
Other | 19,592 |  |  | 25,223 |
Deferred tax assets valuation allowance | (166,590) |  |  | (182,466) |
Total deferred tax assets | 804,251 |  |  | 703,730 |
Deferred tax liabilities: |  |  |
Pension costs | 7,003 |  |  | 10,596 |
Investments | 130,171 |  |  | 129,683 |
Property, plant and equipment | 618,419 |  |  | 625,403 |
Lease right of use assets | 51,872 |  |  | 60,501 |
Total deferred tax liabilities | 807,465 |  |  | 826,183 |
Net deferred tax liabilities | $ | 3,214 |  |  | $ | 122,453 |
We had total gross loss carryforwards of $275.5 million, as of August 31, 2024, of which $62.8 million will expire over periods ranging from fiscal 2025 to fiscal 2035. The remainder will carry forward indefinitely. Based on estimates of future taxable profits and losses in certain foreign tax jurisdictions, as well as consideration of other factors, we assessed whether a valuation allowance was necessary to reduce specific foreign loss carryforwards to amounts we believe are more likely than not to be realized as of August 31, 2024. If our estimates prove inaccurate, adjustments to the valuation allowances may be required in the future with gains or losses being charged to income in the period such determination is made. Our McPherson refinery's gross state tax credit carryforwards for income tax were approximately $115.3 million and $116.6 million as of August 31, 2024 and 2023, respectively. The refinery's valuation allowance on Kansas state credits is necessary due to the limited amount of taxable income generated in Kansas by the combined group on an annual basis. Our state tax credits of $115.3 million will begin to expire during fiscal 2025. The reconciliation of the statutory federal income tax rates to the effective tax rates for the years ended August 31, 2024, 2023 and 2022 is as follows:
| 2024 |  | 2023 |  | 2022
Statutory federal income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State and local income taxes, net of federal income tax benefit | 0.5 |  |  | 1.1 |  |  | 1.1 |
Patronage earnings | (12.6) |  |  | (13.0) |  |  | (13.6) |
Domestic production activities deduction | (6.8) |  |  | (3.2) |  |  | (3.2) |
Export activities at rates other than the U.S. statutory rate | 1.4 |  |  | (0.2) |  |  | 0.4 |
Intercompany transfer of business assets | — |  |  | — |  |  | (0.1) |
Increase in unrecognized tax benefits | 2.7 |  |  | — |  |  | — |
Valuation allowance | (0.1) |  |  | — |  |  | 0.2 |
Tax credits | (6.2) |  |  | — |  |  | — |
Other | (0.3) |  |  | (0.3) |  |  | 1.5 |
Effective tax rate | (0.4) | % |  | 5.4 | % |  | 7.3 | %
Primary drivers of fiscal 2024 income tax benefit were decreased nonpatronage earnings compared to fiscal 2023, recognition of research and development tax credits and the current Domestic Production Activities Deduction ("DPAD") benefit. Primary drivers of the fiscal 2023 and 2022 income tax expense were increased nonpatronage earnings and other nondeductible items, which were partially offset by the current DPAD benefit. We file income tax returns in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions. Our uncertain tax positions are affected by the tax years that are under audit or remain subject to examination by the relevant taxing authorities. Fiscal years 2017 and 2019 remain subject to examination for certain issues. Reserves are recorded against unrecognized tax benefits when we believe certain fully supportable tax return positions are likely to be challenged and we may or may not prevail. If we determine that a tax position is more likely than not to be sustained upon audit, based on the technical merits of the position, we recognize the benefit by measuring the amount that is greater than 50% likely of being realized. We reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit, or derecognize a previously recorded tax benefit, when there is (i) completion of a tax audit, (ii) effective settlement of an issue, (iii) a change in applicable tax law including a tax case or legislative guidance, or (iv) expiration of the applicable statute of limitations. Significant judgment is required in accounting for tax reserves. A reconciliation of the gross beginning and ending amounts of unrecognized tax benefits for the periods is presented as follows:
| 2024 |  | 2023 |  | 2022
| (Dollars in thousands)
Balance at beginning of period | $ | 125,853 |  |  | $ | 124,959 |  |  | $ | 122,149 |
Additions attributable to current year tax positions | 2,027 |  |  | — |  |  | — |
Additions attributable to prior year tax positions | 32,569 |  |  | 894 |  |  | 2,810 |
Reductions attributable to prior year tax positions | (85,513) |  |  | — |  |  | — |
Reductions attributable to statute expiration | (9,821) |  |  | — |  |  | — |
Balance at end of period | $ | 65,115 |  |  | $ | 125,853 |  |  | $ | 124,959 |
If we were to prevail on all positions taken in relation to uncertain tax positions, $65.1 million of the unrecognized tax benefits would ultimately benefit our effective tax rate. It is reasonably possible that the total amount of unrecognized tax benefits could significantly change in the next 12 months. We recognize interest and penalties related to unrecognized tax benefits in our provision for income taxes. We recognized benefits of $2.1 million, $0.8 million and $0.7 million for interest and penalties related to unrecognized tax benefits in our Consolidated Statements of Operations for the years ended August 31, 2024, 2023 and 2022, respectively, and a related $6.2 million and $3.7 million interest payable on our Consolidated Balance Sheets as of August 31, 2024 and 2023, respectively.

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