Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Note 10: Income Taxes

We are a REIT for U.S. federal income tax purposes. We have been organized and operated, and we expect to continue to be organized and operate in a manner to qualify as a REIT. To qualify as a REIT, we must satisfy requirements related to, among other things, the real estate qualification of sources of our income, the real estate composition and values of our assets, the amounts we distribute to our stockholders annually and the diversity of ownership of our stock. To the extent we continue to remain qualified as a REIT, we generally will not be subject to U.S. federal income tax on taxable income generated by our REIT activities that we distribute annually to our stockholders. Accordingly, no provision for U.S. federal income taxes has been included in our accompanying consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 related to our REIT activities, other than taxes related to our built-in gain property (representing property held by us with an excess of fair value over tax basis on January 4, 2017).

We will be subject to U.S. federal income tax on taxable sales of built-in gain property during the five-year period following the date of our spin-off. In addition, we are subject to non-U.S. income tax on foreign held REIT activities and certain sales of foreign investments. Further, our taxable REIT subsidiaries (“TRSs”) are generally subject to U.S. federal, state and local, and foreign income taxes (as applicable).  

H.R. 1, commonly referred to as The Tax Cuts and Jobs Act of 2017 (the “Act”) was enacted on December 22, 2017. The Act, which amended the Internal Revenue Code of 1986, was the most significant tax legislative development in decades. Major elements of the Act from our perspective include reducing the corporate tax rate; restricting the eligibility for tax deferred like-kind exchange treatment solely to real property; limiting the deductibility of interest expense; the one-time transition tax on foreign cash and unremitted earnings; and the treatment of global intangible low-taxed income for REIT gross income purposes. As a result of the changes in the Act, we recognized $8 million of income tax expense for the year ended December 31, 2018 when our analysis of the effects of the Act was completed.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 and included several tax provisions that may impact us and our subsidiaries, including:

• the ability for our TRSs to carry back net operating losses (“NOLs”) arising in 2020 to all post spin-off taxable years preceding the taxable year of the loss;

• an increase of the business interest limitation under Internal Revenue Code (“Code”) section 163(j) from 30 percent to 50 percent of adjusted taxable income for taxable years beginning in 2019 and 2020 and the addition of an election by taxpayers to use their 2019 adjusted taxable income as their adjusted taxable income in 2020 for purposes of applying the limitation;

• a “technical correction” amending Code section 168(e)(3)(E) to add “qualified improvement property” to “15-year property” and assigning a class life of 20-years under section 168(g)(3)(B) to qualified improvement property under section 168(e)(3)(E)(vii), and

• the elimination of the taxable income limit for NOLs for all taxable years beginning before January 1, 2021, thereby permitting corporate taxpayers to use NOLs to fully offset taxable income (although as a REIT we will continue to only be able to use NOLs against taxable income remaining after taking into account any dividends paid deduction).

Our tax provision includes U.S. federal, state and foreign income taxes payable. The domestic and foreign components of income before income taxes were:

	Year Ended December 31,
	2020			2019		2018
	(in millions)
U.S. (loss) income before tax	$	(1,449	)	$	350	$	498
Foreign (loss) income before tax		(1	)		1		2
(Loss) income before income taxes	$	(1,450	)	$	351	$	500

The components of our (benefit) provision for income taxes were:

	Year Ended December 31,
	2020			2019		2018
	(in millions)
Current:
U.S. Federal	$	1		$	16	$	34
State		3			3		6
Foreign		20			11		3
Total current		24			30		43
Deferred:
U.S. Federal		(29	)		3		(18	)
Foreign		(1	)		2		(2	)
Total deferred		(30	)		5		(20	)
Total (benefit) provision for income taxes	$	(6	)	$	35	$	23

Reconciliations of our tax provision at the U.S. statutory rate to the (benefit) provision for income taxes were:

	Year Ended December 31,
	2020			2019			2018
	(in millions)
Statutory U.S. federal income tax (benefit) provision	$	(306	)	$	74		$	105
State income taxes, net of U.S. federal tax benefit		1			2			3
Foreign income tax expense, net		19			13			2
Change in deferred tax asset valuation allowance		71			2			—
Tax rate change		(7	)		—			(2	)
REIT income not subject to tax		221			(69	)		(92	)
Derecognition and remeasurement of deferred taxes		(35	)		13			7
Recognized built-in gain tax		29			—			—
Other		1			—			—
(Benefit) provision for income taxes	$	(6	)	$	35		$	23

Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities plus carryforward items. The composition of net deferred tax balances were as follows:

	December 31,
	2020			2019
	(in millions)
Deferred income tax assets(1)	$	1		$	8
Deferred income tax liabilities		(10	)		(50	)
Net deferred tax liability	$	(9	)	$	(42	)

⁽¹⁾ Included within other assets in our consolidated balance sheets, net of valuation allowance.

The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax liability were:

	December 31,
	2020			2019
	(in millions)
Deferred tax assets:
Net operating loss carryforwards	$	74		$	9
Deferred income		5			4
Accrued compensation		1			2
Other		6			6
Total gross deferred tax assets		86			21
Less: valuation allowance		(77	)		(6	)
Deferred tax assets		9			15
Deferred tax liabilities:
Property and equipment		(4	)		(48	)
Investments		(10	)		(8	)
Accrued compensation		(4	)		(1	)
Deferred tax liabilities		(18	)		(57	)
Net deferred tax liability	$	(9	)	$	(42	)

As of December 31, 2020, we had U.S. federal and state net operating loss carryforwards of $1 billion, which resulted in deferred tax assets of $74 million. Our U.S. federal and state net operating loss carryforwards of approximately $575 million and $452 million begin to expire in 2038 and 2025, respectively. Our valuation allowance increased $71 million during the year ended December 31, 2020.

For periods ended prior to January 4, 2017, Hilton filed income tax returns for us, with U.S. federal, state and foreign jurisdictions. Hilton is under regular and recurring audit by the Internal Revenue Service on open tax positions. The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution. Changes may

result from the conclusion of ongoing audits, appeals or litigation in U.S. federal, state, local, and foreign tax jurisdictions or from the resolution of various proceedings between the U.S. and foreign tax authorities. Hilton is no longer subject to U.S. federal income tax examination for years through 2004. As of December 31, 2020, Hilton remains subject to U.S. federal examinations from 2005 through 2017, state examinations from 2005 through 2017 and foreign examinations of their income tax returns for the years 1996 through 2017. We will be subject to U.S. federal, state and foreign examinations for periods ending after January 4, 2017.

For U.S. federal income tax purposes, the cash distributions to stockholders are characterized as follows:

	Year Ended December 31,
	2020		2019
Common distributions (per share):
Ordinary dividends	$	0.244571	$	1.605405
Capital gain distributions(1)		0.205429		0.294595

⁽¹⁾ Capital gain distribution disclosure pursuant to Treasury Regulation §1.1061-6(c).  The following additional information relates to the capital gain distribution for calendar year 2020, as reported on Park Hotels & Resorts Inc. Form 1099-DIV, Box 2a. For purposes of Internal Revenue Code Section 1061, which is generally applicable to direct and indirect holders of “applicable partnership interests,”: (i) the “One Year Amounts” are $0.205429 per share, and (ii) the “Three Year Amounts” are $0.205429 per share, with respect to the 2020 capital gain distribution.