Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

(7) Income Taxes

The components of our income tax expense are as follows (in millions):

	Year Ended December 31,
	2020		2019		2018
Current income tax expense	$	(1.1)	$	—	$	(1.9)
Deferred tax expense	(142.1)		(6.9)		(16.3)
Total income tax expense	$	(143.2)	$	(6.9)	$	(18.2)

The following schedule reconciles total income tax expense and the amount calculated by applying the statutory U.S. federal tax rate to income before income taxes (in millions):

	Year Ended December 31,
	2020		2019		2018
Expected income tax benefit (expense) based on federal statutory tax rate	$	58.5	$	233.6	$	(1.0)
State income tax benefit (expense), net of federal benefit	6.5		27.0		(0.1)
Unit-based compensation (1)	(6.0)		(2.2)		(0.7)
Non-deductible expense related to impairments	(43.4)		(264.5)		(10.7)
Change in valuation allowance	(153.3)		—		—
Other	(5.5)		(0.8)		(5.7)
Total income tax expense	$	(143.2)	$	(6.9)	$	(18.2)

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(1)Related to book-to-tax differences recorded upon the vesting of restricted incentive units.

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax liabilities, net of deferred tax assets, are included in “Deferred tax liability, net” in the consolidated balance sheet as of December 31, 2020. The deferred tax assets, net of deferred tax liabilities, are included in “Other assets, net” in the consolidated balance sheet at December 31, 2019. Our deferred income tax assets and liabilities as of December 31, 2020 and 2019 are as follows (in millions):

	December 31, 2020		December 31, 2019
Deferred income tax assets:
Federal net operating loss carryforward	$	488.3	$	341.4
State net operating loss carryforward	61.0		44.8
Total deferred tax assets, gross	549.3		386.2
Valuation allowance	(153.3)		—
Total deferred tax assets, net of valuation allowance	396.0		386.2
Deferred tax liabilities:
Property, plant, equipment, and intangible assets (1)	504.6		(354.0)
Total deferred tax liabilities	504.6		(354.0)
Deferred tax asset (liability), net	$	(108.6)	$	32.2

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(1)Includes our investment in ENLK and primarily relates to differences between the book and tax bases of property and equipment.

As a result of the Merger, we acquired all issued and outstanding ENLK common units that were not already held by us or our subsidiaries in exchange for the issuance of ENLC common units. This was a taxable exchange to our unitholders, and we received a step-up in tax basis of the underlying assets acquired. In accordance with ASC 810, Consolidation, the step-up in our basis reduced our deferred tax liability by $399.0 million at the time of the Merger.

As of December 31, 2020, we had federal net operating loss carryforwards of $2.3 billion that represent a net deferred tax asset of $488.3 million. As of December 31, 2020, we had state net operating loss carryforwards of $1.1 billion that represent a net deferred tax asset of $61.0 million. These carryforwards will begin expiring in 2028 through 2040. Under the Tax Cut and Jobs Act of 2017, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited.

A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized. Due to recent cumulative losses, a valuation allowance of $153.3 million was established as of December 31, 2020, and was primarily related to federal and state tax operating loss carryforwards for which we do not believe a tax benefit is more likely than not to be realized. We did not record a valuation allowance as of December 31, 2019. Management believes it is more likely than not that the company will realize the benefits of the deferred tax assets, net of valuation allowance, at December 31, 2020.

For the years ended December 31, 2020 and 2019, there was no recorded unrecognized tax benefit. Per our accounting policy election, penalties and interest related to unrecognized tax benefits are recorded to income tax expense. As of December 31, 2020, tax years 2016 through 2020 remain subject to examination by various taxing authorities.