INCOME TAXES

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

5. INCOME TAXES

Our provision for income taxes is calculated using an estimated annual effective tax rate, based upon expected annual income, less losses in certain jurisdictions, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However, discrete items related to prior year tax items are treated separately.

Our interim effective tax rate was 34.7% and 81.5% for the three months ended September 30, 2022 and September 30, 2021, respectively. Our interim effective tax rate was 30.6% and 110.6% for the nine months ended September 30, 2022 and September 30, 2021, respectively. The change in the effective tax rate for both the three and nine months ended September 30, 2022 is predominately attributable to an increase in pre-tax income.

Unrecognized Tax Benefits

The following table summarizes the activity related to our unrecognized tax benefits (excluding interest and penalties) during the nine months ended September 30, 2022. These unrecognized tax benefits relate to uncertain income tax positions, which would affect the effective tax rate if recognized.

($ in millions)	Unrecognized Tax Benefits
Balance at December 31, 2021	$	26
Increases related to tax positions taken during a prior period	4
Decreases as a result of a lapse of the applicable statute of limitations	(1)
Balance at September 30, 2022	$	29

The total amount of gross interest and penalties accrued was $51 million at September 30, 2022 and $42 million at December 31, 2021. We anticipate $15 million of unrecognized tax benefits, including interest and penalties, to be indemnified pursuant to a Tax Matters Agreement dated May 11, 2016 by and among Starwood Hotels & Resorts Worldwide, Inc., Vistana Signature Experiences, Inc., and Interval Leisure Group, Inc., and consequently have recorded a corresponding indemnification asset. The unrecognized tax benefits, including accrued interest and penalties, are included in Other liabilities on our Balance Sheet.

Our income tax returns are subject to examination by relevant tax authorities. Certain of our returns are being audited in various jurisdictions for tax years 2007 through 2020. The amount of the unrecognized tax benefits may increase or decrease within the next twelve months as a result of audits or audit settlements.