Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 22 – Income Taxes

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

	2021		2020			2019
Current expense (benefit)	$	2.7	$	(15.4	)	$	—
Deferred expense (benefit)		12.1		(232.7	)		(87.9	)
Total income tax expense (benefit)	$	14.8	$	(248.1	)	$	(87.9	)

Our deferred income tax assets and liabilities as of December 31, 2021 and 2020 consist of recognition differences related to certain types of costs as follows:

	2021			2020
Deferred tax assets:
Net operating loss	$	1,411.3		$	1,573.5
Other		—			—
Deferred tax assets before valuation allowance		1,411.3			1,573.5
Valuation allowance		(210.6	)		(196.5	)
Deferred tax assets		1,200.7			1,377.0
Deferred tax liabilities:
Investments (1)		(1,323.0	)		(1,519.4	)
Property, plant, and equipment		(4.1	)		(4.0	)
Other		(9.6	)		(5.7	)
Deferred tax liabilities		(1,336.7	)		(1,529.1	)
Net deferred tax asset (liability)	$	(136.0	)	$	(152.1	)
Net deferred tax asset (liability)
Federal	$	(106.7	)	$	(147.7	)
State		(29.3	)		(4.4	)
Long-term deferred tax liability, net	$	(136.0	)	$	(152.1	)

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

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.

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.

All federal statutes of limitations for returns filed in 2018 (for calendar year 2017) have expired. For Texas, the statute of limitations has expired for 2017 returns (for calendar year 2016). Similarly, the statute of limitations expired on substantially all other 2017 state income tax returns that were filed prior to October 15, 2018.

As of December 31, 2021, we have total NOL carryforwards of $6.0 billion, $1.4 billion of which will expire between 2036 and 2037. The remaining $4.6 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. Our total tax effected balance at December 31, 2020 was $196.5 million. As of December 31, 2021, our tax effected valuation allowance was $210.6 million, an increase of $14.1 million from December 31, 2020. Of this valuation allowance, $164.0 million of the valuation allowance is federal, and the remaining $46.6 million is state. The decrease in the federal valuation allowance is primarily because of positive book earnings in 2021, and the increase in the state valuation allowance is due to the establishment of a state valuation allowance in 2021.

As we continue to sustain profitability, we will give more weight to projections of future taxable income to determine whether such projections provide adequate taxable income to realize our deferred tax assets. This evaluation may result in a change to our valuation allowance within the next twelve months. The change could result in a full release of the valuation allowance by year ended 2022.

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:	2021			2020			2019
Income (loss) before income taxes	$	436.9		$	(1,573.1	)	$	(46.7	)
Less: Net income attributable to noncontrolling interest		(350.9	)		(228.9	)		(250.4	)
Income attributable to TRC before income taxes		86.0			(1,802.0	)		(297.1	)
Federal statutory income tax rate		21	%		21	%		21	%
Provision for federal income taxes		18.1			(378.4	)		(62.4	)
Valuation allowance		14.1			194.2			—
State income taxes, net of federal tax benefit		(5.4	)		(51.2	)		(5.8	)
CARES Act NOL carryback		—			(16.9	)		—
Return-to-provision		(39.3	)		—			—
Change in statutory income tax rate		21.0			—			(14.4	)
Permanent adjustments		4.1			4.5			(6.3	)
Stock compensation shortfall		1.4			—			—
Other, net		0.8			(0.3	)		1.0
Income tax provision (benefit)	$	14.8		$	(248.1	)	$	(87.9	)

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.

Subsequent Event

In January 2022, the IRS notified us that it will examine Targa’s NOL carryback previously claimed under the CARES Act. We are cooperating with the IRS in the audit process and do not anticipate material changes in prior year taxable income.