Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

Components of earnings (loss) before income taxes:

(In millions)	2021		2020		2019
United States	$	3,400	$	(1,303)	$	(381)
Foreign	944		(4)		(71)
Earnings (loss) before income taxes	$	4,344	$	(1,307)	$	(452)

At the end of both 2021 and 2020, U. S. Steel does not have any undistributed foreign earnings and profits for which U.S. deferred taxes have not been provided.

Income tax provision (benefit):

	2021						2020						2019
(In millions)	Current		Deferred		Total		Current		Deferred		Total		Current		Deferred		Total
Federal	$	(7)	$	8	$	1	$	(10)	$	(95)	$	(105)	$	(18)	$	196	$	178
State and local	50		(71)		(21)		(3)		(24)		(27)		—		23		23
Foreign	179		11		190		1		(11)		(10)		(6)		(17)		(23)
Total	$	222	$	(52)	$	170	$	(12)	$	(130)	$	(142)	$	(24)	$	202	$	178

A reconciliation of the federal statutory tax rate of 21 percent to total provision (benefit) follows:

(In millions)	2021		2020		2019
Statutory rate applied to earnings (loss) before income taxes	$	912	$	(275)	$	(95)
Valuation allowance	(633)		367		334
Tax accounting benefit related to increase in OCI	—		(138)		—
Excess percentage depletion	(66)		(31)		(46)
Capital loss generated	(139)		—		—
State and local income taxes after federal income tax effects	83		(47)		(36)
Effects of foreign operations	191		(10)		(23)
U.S. impact of foreign operations	4		1		25
Impact of tax credits	(173)		(18)		5
Adjustment of prior years' federal income taxes	(5)		12		7
Other	(4)		(3)		7
Total provision (benefit)	$	170	$	(142)	$	178

Included in the 2021 provision is a benefit of $715 million related to the reversal of a portion of the valuation allowance recorded against the Company’s net domestic deferred tax asset, partially offset by the addition of a valuation allowance of $82 million, the majority of which relates to an unused capital loss carryforward.

The 2020 tax benefit includes a $138 million benefit related to recording a loss from continuing operations and income from other comprehensive income categories and expense of $13 million for an updated estimate to tax reserves related to an unrecognized tax benefit. Due to the full valuation allowance on our domestic deferred tax assets, the tax benefit in 2020 does not reflect any additional tax benefit for domestic pretax losses.

In 2019, the tax benefit differs from the domestic statutory rate of 21 percent primarily due to the fact that it does not reflect any tax benefit in the U.S. as a valuation allowance was recorded against the Company's net domestic deferred tax asset (excluding a portion of a deferred tax liability related to an asset with an indefinite life, as well as a deferred tax asset related to refundable Alternative Minimum Tax (AMT) credits).

Deferred taxes

Deferred tax assets and liabilities resulted from the following:

	December 31,
(In millions)	2021		2020
Deferred tax assets:
Federal tax loss carryforwards (no expiration)	$	20	$	269
Federal tax loss carryforwards (expiring in 2035 through 2037)	—		174
Federal capital loss carryforwards (expiring 2026)	66		—
State tax credit carryforwards (expiring in 2022 through 2030)	11		16
State tax loss carryforwards (expiring in 2022 through 2040)	150		182
State capital loss carryforwards (expiring in 2026 through 2036)	16		—
General business credit carryforwards (expiring in 2027 through 2041)	94		103
Foreign tax loss and credit carryforwards (expiring in 2022 through 2031)	244		171
Employee benefits	—		71
Contingencies and accrued liabilities	78		52
Operating lease liabilities	47		51
Section 59(e) amortization	15		27
Receivables, payables and debt	33		—
Inventory	—		21
Other temporary differences	34		46
Valuation allowance	(162)		(796)
Total deferred tax assets	646		387
Deferred tax liabilities:
Property, plant and equipment	379		244
Operating right-of-use assets	45		49
Investments in subsidiaries and equity investees	121		23
Inventory	112		—
Employee benefits	70		—
Receivables, payables and debt	6		22
Indefinite-lived intangible assets	—		19
Other temporary differences	3		19
Total deferred tax liabilities	736		376
Net deferred tax (liability) asset	$	(90)	$	11

U. S. Steel recognizes deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The realization of deferred tax assets is assessed quarterly based on several interrelated factors. These factors include U. S. Steel’s expectation to generate sufficient future taxable income and the projected time period over which these deferred tax assets will be realized.

Each quarter U. S. Steel analyzes the likelihood that our deferred tax assets will be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized.

At June 30, 2021, U. S. Steel determined, based upon weighing all positive and negative evidence, that a full valuation allowance for the domestic deferred tax assets was no longer required. Accordingly, we reversed all of the domestic valuation allowance except for a portion of the domestic valuation allowance related to certain state net operating losses and state tax credits.

During the year ended December 31, 2021, we realized a non-cash net benefit of $715 million related to the valuation allowance release, which was partially offset by the addition of a valuation allowance of $82 million, the majority of which relates to an unused capital loss generated in the fourth quarter of 2021.

At December 31, 2021, the net domestic deferred tax liability was $88 million, net of an established valuation allowance of $159 million. At December 31, 2020, the net domestic deferred tax liability was $7 million, net of an established valuation allowance of $793 million.

At December 31, 2021, the net foreign deferred tax liability was $2 million, net of an established valuation allowance of $3 million. At December 31, 2020, the net foreign deferred tax asset was $18 million, net of an established valuation allowance

of $3 million. The net foreign deferred tax asset will fluctuate as the value of the U.S. dollar changes with respect to the euro.

U. S. Steel will continue to monitor the realizability of its deferred tax assets on a quarterly basis. In the future, if we determine that realization is more likely than not for a deferred tax asset with a valuation allowance, the related valuation allowance will be reduced, and we will record a non-cash benefit to earnings.

Unrecognized tax benefits

Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken, in a tax return and the benefit recognized for accounting purposes pursuant to the guidance in ASC Topic 740 on income taxes. The total amount of unrecognized tax benefits was $3 million, $16 million and $3 million as of December 31, 2021, 2020 and 2019, respectively.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $2 million and $15 million as of December 31, 2021, and 2020, respectively.

U. S. Steel records interest related to uncertain tax positions as a part of net interest and other financial costs in the Consolidated Statements of Operations. Any penalties are recognized as part of selling, general and administrative expenses. U. S. Steel had accrued liabilities of $2 million for interest and penalties related to uncertain tax positions as of both December 31, 2021, and 2020.

A tabular reconciliation of unrecognized tax benefits follows:

(In millions)	2021		2020		2019
Unrecognized tax benefits, beginning of year	$	16	$	3	$	35
Increases – tax positions taken in prior years	—		13		—
Decreases – tax positions taken in prior years	(13)		—		—
Settlements	—		—		(32)
Lapse of statute of limitations	—		—		—
Unrecognized tax benefits, end of year	$	3	$	16	$	3

Tax years subject to examination

Below is a summary of the tax years open to examination by major tax jurisdiction:

U.S. Federal – 2017 and forward

U.S. States – 2015 and forward

Slovakia – 2011 and forward

Status of Internal Revenue Service (IRS) examinations

The IRS audit of U. S. Steel’s 2017-2018 federal consolidated tax returns began in 2020 and is ongoing. The IRS completed its audit of the Company's 2014-2016 tax returns in 2020.