Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 21 – Income Taxes

Components of the federal and state income tax provisions for the periods indicated are as follows:

	2022		2021		2020
Current expense (benefit)	$	6.7	$	2.7	$	(15.4	)
Deferred expense (benefit)		125.1		12.1		(232.7	)
Total income tax expense (benefit)	$	131.8	$	14.8	$	(248.1	)

Our deferred income tax assets and liabilities as of December 31, 2022 and 2021 consist of recognition differences related to certain types of costs as follows:

	2022			2021
Deferred tax assets:
Net operating loss	$	1,568.5		$	1,411.3
Disallowed business interest expense carryforward		10.3			3.8
Deferred tax assets before valuation allowance		1,578.8			1,415.1
Valuation allowance		(36.9	)		(214.4	)
Deferred tax assets		1,541.9			1,200.7
Deferred tax liabilities:
Investments (1)		(1,842.0	)		(1,323.0	)
Property, plant, and equipment		(4.2	)		(4.1	)
Other		(23.4	)		(9.6	)
Deferred tax liabilities		(1,869.6	)		(1,336.7	)
Net deferred tax asset (liability)	$	(327.7	)	$	(136.0	)
Net deferred tax asset (liability)
Federal	$	(290.5	)	$	(106.7	)
State		(37.2	)		(29.3	)
Long-term deferred tax liability, net	$	(327.7	)	$	(136.0	)

(1)Our deferred tax liability attributable to investments reflects the differences between the book and tax carrying values of our investment in the Partnership.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted. The CARES Act provided corporate taxpayers an expanded five-year net operating loss (“NOL”) carryback period for losses generated in tax years 2018 through 2020. Additionally, the CARES Act allowed corporate taxpayers to request an immediate refund of alternative minimum tax credits. We requested a cash refund from the Internal Revenue Service (“IRS”) of approximately $44 million related to the CARES Act provisions and received the refund in the second quarter of 2020.

On October 6, 2021 and April 7, 2022, we received notice from the IRS that it intends to audit three direct and indirectly wholly-owned subsidiaries of the Company (Targa Resources Partners LP, Targa Downstream LLC and Targa Midstream Services LLC) treated as partnerships for federal tax purposes for the 2019 and 2020 tax years. We are responding to the information requests from the IRS on these audits. The Company is not aware of any potential audit findings that would give rise to adjustments to taxable income and does not anticipate material changes related to these audits.

All federal statutes of limitations for returns filed in 2019 (for calendar year 2018) have expired. For Texas, the statute of limitations has expired for 2018 returns (for calendar year 2017). Similarly, the statute of limitations expired on substantially all 2018 state income tax returns that were filed prior to October 15, 2019. However, tax authorities have the ability to review and adjust carryover attributes (e.g., NOLs) generated in a closed tax year if utilized in an open tax year.

During the preparation of the Company's 2021 consolidated financial statements, the Company identified errors related to its 2020 state tax provision. The Company does not believe these errors are material to its previously issued historical consolidated financial statements for any of the periods impacted and accordingly, has not adjusted the historical financial statements. In 2021, the Company recorded an additional $23.3 million of income tax expense in the Consolidated Statements of Operations and corresponding increase to its deferred tax liabilities in the Consolidated Balance Sheets.

As of December 31, 2022, we have total NOL carryforwards of $6.8 billion, $1.4 billion of which will expire between 2036 and 2037. The remaining $5.4 billion NOL will not expire, but is limited to offsetting 80% of taxable income per year. During 2020, we recorded a federal tax-effected valuation allowance of $194.2 million against our deferred tax assets, primarily due to the tax consequences of the impairment of long-lived assets. See Note 5 – Property Plant and Equipment and Intangible Assets. As of December 31, 2022, our tax effected valuation allowance was $36.9 million, a decrease of $177.5 million from December 31, 2021. Of this valuation allowance, $6.4 million of the valuation allowance is federal, and the remaining $30.5 million is state.

Set forth below is the reconciliation between our Income tax provision (benefit) computed at the United States statutory rate on income before income taxes and the income tax provision in our Consolidated Statements of Operations for the periods indicated:

Income tax reconciliation:	2022			2021			2020
Income (loss) before income taxes	$	1,663.2		$	436.9		$	(1,573.1	)
Less: Net income attributable to noncontrolling interest		(335.9	)		(350.9	)		(228.9	)
Income attributable to Targa Resources Corp. before income taxes		1,327.3			86.0			(1,802.0	)
Federal statutory income tax rate		21	%		21	%		21	%
Provision for federal income taxes		278.7			18.1			(378.4	)
Valuation allowance		(177.5	)		(46.2	)		194.2
State income taxes, net of federal tax benefit		33.6			(5.4	)		(51.2	)
CARES Act NOL carryback		—			—			(16.9	)
State tax provision error correction		—			23.3			—
Return-to-provision		(0.6	)		(1.3	)		—
Change in statutory income tax rate		(1.7	)		21.0			—
Permanent adjustments		5.6			4.1			4.5
Stock compensation shortfall/(windfall)		(6.3	)		1.4			—
Other, net		—			(0.2	)		(0.3	)
Income tax provision (benefit)	$	131.8		$	14.8		$	(248.1	)

We have not identified any uncertain tax positions. We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material adverse effect on our financial condition, results of operations or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “IRA”) which, among other things, introduced a corporate alternative minimum tax (the “CAMT”), imposed a 1% excise tax on stock buybacks and tax incentives to promote clean energy. Under the CAMT, a 15% minimum tax will be imposed on certain financial statement income of “applicable corporations.” The IRA treats a corporation as an applicable corporation in for any taxable year in which the “average annual adjusted financial statement income” of such corporation for the three taxable year period ending prior to such taxable year exceeds $1 billion.

On December 27, 2022, the Department of the Treasury and the IRS issued guidance on the application of the CAMT which may be relied upon until final regulations are released. Based on our interpretation of the IRA, the CAMT and related guidance and a number of operational, economic, accounting and regulatory assumptions, we do not anticipate qualifying as an “applicable corporation” in the near term, but we are likely to become an applicable corporation in a subsequent tax year. If we become an applicable corporation and our CAMT liability is greater than our regular U.S. federal income tax liability for any particular tax year, the CAMT liability would effectively accelerate our future U.S. federal income tax obligations, reducing our cash available for distribution in that year, but provide an offsetting credit against our regular U.S. federal income tax liability for a future year. As a result, our current expectation is that the impact of the CAMT is limited to timing differences in future tax years. Given the complexities of the IRA and the CAMT, we will continue to monitor and evaluate the potential future impact to our financial statements.

Subsequent Events

In January 2023, the IRS notified us that it completed the examination of Targa’s NOL carryback and associated refund previously claimed under the CARES Act with no exceptions.

Additionally, in January 2023, we received notice from the IRS that it intends to audit an indirectly wholly-owned subsidiary of the Company (Targa Badlands Holdings LLC) which is treated as a partnership for federal tax purposes for the 2020 tax year.