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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Tax Cuts and Jobs Act (the “Act”) On December 22, 2017, the Act was signed into law resulting in significant changes from previous tax law. Some of the more meaningful provisions which affected us are:
• | a reduction in the U.S. federal corporate tax rate from 35% to 21%;
• | limitation on the deduction of certain interest expense;
• | full expense deduction for certain business capital expenditures;
• | limitation on the utilization of NOLs arising after December 31, 2017; and
• | a system of taxing foreign-sourced income from multinational corporations.
In December 2017, the SEC issued Staff Accounting Bulletin No. 118 “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” which allows a company up to one year to finalize and record the tax effects of the Act. We finalized the tax effect of the transition tax as of December 31, 2017 which did not have a material effect on our financial condition, results of operations or cash flows. During the year ended December 31, 2018, we finalized and recorded the remaining tax effects of the Act which did not have a material effect on our financial condition, results of operations or cash flows. Income Tax Expense (Benefit) The jurisdictional components of income from continuing operations before income tax expense (benefit), attributable to Calpine, for the years ended December 31, 2019, 2018 and 2017, are as follows (in millions):
| 2019 |  | 2018 |  | 2017
U.S. | $ | 836 |  |  | $ | 47 |  |  | $ | (358 | )
International | 32 |  |  | 27 |  |  | 27 |
Total | $ | 868 |  |  | $ | 74 |  |  | $ | (331 | )
The components of income tax expense from continuing operations for the years ended December 31, 2019, 2018 and 2017, consisted of the following (in millions):
| 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
Federal | $ | (2 | ) |  | $ | — |  |  | $ | (10 | )
State | 2 |  |  | 20 |  |  | 18 |
Foreign | 3 |  |  | (3 | ) |  | (14 | )
Total current | 3 |  |  | 17 |  |  | (6 | )
Deferred: |  |  |  |  |
Federal | 66 |  |  | (1 | ) |  | 5 |
State | 28 |  |  | (6 | ) |  | 6 |
Foreign | 1 |  |  | 54 |  |  | 3 |
Total deferred | 95 |  |  | 47 |  |  | 14 |
Total income tax expense | $ | 98 |  |  | $ | 64 |  |  | $ | 8 |
For the years ended December 31, 2019, 2018 and 2017, our income tax rates did not bear a customary relationship to statutory income tax rates, primarily as a result of the effect of our NOLs, valuation allowances and state income taxes. A reconciliation of the federal statutory rate of 21% and, prior to 2018, 35% to our effective rate from continuing operations for the years ended December 31, 2019, 2018 and 2017, is as follows:
| 2019 |  | 2018 |  | 2017
Federal statutory tax rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
State tax expense, net of federal benefit | 2.8 |  |  | 17.0 |  |  | (6.0 | )
Change in tax rate of net deferred tax asset | — |  |  | — |  |  | (168.8 | )
Valuation allowances offsetting tax rate change | — |  |  | — |  |  | 168.8 |
Valuation allowances against future tax benefits | (11.2 | ) |  | (31.7 | ) |  | (33.0 | )
Valuation allowance related to foreign taxes | — |  |  | (138.3 | ) |  | 0.5 |
Decrease in foreign NOL due to change in ownership | — |  |  | 202.3 |  |  | — |
Distributions from foreign affiliates and foreign taxes | 0.2 |  |  | 6.6 |  |  | (2.0 | )
Change in unrecognized tax benefits | — |  |  | (8.0 | ) |  | 5.1 |
Disallowed compensation | — |  |  | 7.7 |  |  | (0.6 | )
Stock-based compensation | — |  |  | (1.5 | ) |  | (0.9 | )
Equity earnings | 0.1 |  |  | 1.4 |  |  | (0.8 | )
Merger Related Fees/Expenses | — |  |  | 12.7 |  |  | — |
Depletion in excess of basis | (0.3 | ) |  | (4.0 | ) |  | — |
Other differences | (1.3 | ) |  | 1.3 |  |  | 0.3 |
Effective income tax rate | 11.3 | % |  | 86.5 | % |  | (2.4 | )%
Deferred Tax Assets and Liabilities The components of deferred income taxes as of December 31, 2019 and 2018, are as follows (in millions):
| 2019 |  | 2018
Deferred tax assets: |  |  |
NOL and credit carryforwards | $ | 1,731 |  |  | $ | 1,595 |
Taxes related to risk management activities and derivatives | 18 |  |  | 7 |
Reorganization items and impairments | 73 |  |  | 166 |
Other differences | 62 |  |  | 101 |
Deferred tax assets before valuation allowance | 1,884 |  |  | 1,869 |
Valuation allowance | (873 | ) |  | (1,000 | )
Total deferred tax assets | 1,011 |  |  | 869 |
Deferred tax liabilities: |  |  |
Property, plant and equipment | (1,125 | ) |  | (890 | )
Total deferred tax liabilities | (1,125 | ) |  | (890 | )
Net deferred tax asset (liability) | (114 | ) |  | (21 | )
Less: Non-current deferred tax liability | (116 | ) |  | (22 | )
Deferred income tax asset, non-current | $ | 2 |  |  | $ | 1 |
Intraperiod Tax Allocation — In accordance with U.S. GAAP, intraperiod tax allocation provisions require allocation of a tax expense (benefit) to continuing operations due to current OCI gains (losses) with an offsetting amount recognized in OCI. The intraperiod tax allocation included in continuing operations is nil, $1 million and $6 million for the years ended December 31, 2019, 2018 and 2017. NOL Carryforwards — As of December 31, 2019, our NOL carryforwards consisted primarily of federal NOL carryforwards of approximately $7.1 billion, of which the majority expire between 2024 and 2037, and NOL carryforwards in 25 states and the District of Columbia totaling approximately $3.2 billion, which expire between 2020 and 2039. A substantial portion of our federal and state NOLs are offset with a valuation allowance. Certain of the state NOL carryforwards may be subject to limitations on their annual usage. As a result of the ownership change associated with the Merger, our ability to utilize the NOL carryforwards are subject to limitations. Additionally, our state NOLs available to offset future state income could materially decrease which would be offset by an equal and offsetting adjustment to the existing valuation allowance. Given the offsetting adjustments to the existing valuation allowance, the ownership change is not expected to have a material adverse effect on our Consolidated Financial Statements. As a result of the Merger, our Canadian NOLs, which comprised all of our foreign NOLs, are no longer available to us. This resulted in a decrease of approximately $58 million in the deferred tax asset and a related charge to deferred tax expense during the year ended December 31, 2018. Income Tax Audits — We remain subject to periodic audits and reviews by taxing authorities; however, we do not expect these audits will have a material effect on our tax provision. Any NOLs we claim in future years to reduce taxable income could be subject to IRS examination regardless of when the NOLs were generated. Any adjustment of state or federal returns could result in a reduction of deferred tax assets rather than a cash payment of income taxes in tax jurisdictions where we have NOLs. We are currently under various state income tax audits for various periods. Valuation Allowance — U.S. GAAP requires that we consider all available evidence, both positive and negative, and tax planning strategies to determine whether, based on the weight of that evidence, a valuation allowance is needed to reduce the value of deferred tax assets. Future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback or carryforward periods available under the tax law. Due to our history of losses, we were unable to assume future profits; however, we are able to consider available tax planning strategies. As of December 31, 2019, we have provided a valuation allowance of approximately $873 million on certain federal and state tax jurisdiction deferred tax assets to reduce the amount of these assets to the extent necessary to result in an amount that is more likely than not to be realized. The net change in our valuation allowance was a decrease of $127 million for the year ended December 31, 2019. Limitation on Deductions of Net Business Interest Expense — On November 26, 2018, the U.S. Treasury Department released proposed regulations which would limit the current deductibility of net business interest expense. The proposed regulations would be applicable for taxable years ending after the date on which the regulations become final. Companies have the discretion to apply the proposed regulations, but must apply all such provisions of the proposed regulations on a consistent basis. As of December 31, 2019, we have not elected to apply the proposed regulations for the 2018 or 2019 tax years and we do not expect the application of the final regulations will have a material effect on our Consolidated Financial Statements. Unrecognized Tax Benefits At December 31, 2019, we had unrecognized tax benefits of $29 million. If recognized, $17 million of our unrecognized tax benefits could affect the annual effective tax rate and $12 million, related to deferred tax assets, could be offset against the recorded valuation allowance resulting in no effect to our effective tax rate. We had accrued interest and penalties of $3 million and $2 million for income tax matters at December 31, 2019 and 2018, respectively. We recognize interest and penalties related to unrecognized tax benefits in income tax expense (benefit) on our Consolidated Statements of Operations and recorded $1 million, $(2) million and $(8) million for the years ended December 31, 2019, 2018 and 2017, respectively. A reconciliation of the beginning and ending amounts of our unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017, is as follows (in millions):
| 2019 |  | 2018 |  | 2017
Balance, beginning of period | $ | (28 | ) |  | $ | (38 | ) |  | $ | (59 | )
Increases related to prior year tax positions | — |  |  | (7 | ) |  | — |
Decreases related to prior year tax positions | — |  |  | 17 |  |  | 11 |
Increases related to current year tax positions | (1 | ) |  | — |  |  | (2 | )
Decreases related to change in tax rate of net deferred tax asset | — |  |  | — |  |  | 12 |
Balance, end of period | $ | (29 | ) |  | $ | (28 | ) |  | $ | (38 | )

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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