Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes [Abstract]

Income Taxes

(16) Income Taxes:

The following is a reconciliation of the provision for income taxes computed at the federal statutory rate to income taxes computed at the effective rates:

	Successor				Predecessor
	For the year ended		For the eight months		For the four months		For the year ended
	December 31,		ended December 31,		ended April 30,		ended December 31,
	2022		2021		2021		2020
Consolidated tax provision at federal statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
State income tax provisions, net of federal
income tax benefit	4.8		3.1		0.5		21.7
Tax reserve adjustment	0.6		0.1		-		(0.7)
Fresh start and reorganization adjustments	-		-		(24.9)		-
Changes in certain deferred tax balances	(0.5)		(8.2)		-		(35.8)
Interest expense deduction	-		-		-		30.7
Restructuring cost	-		-		0.3		(10.0)
Loss on disposal of Northwest Operations	-		-		-		(9.1)
Share-based payments	-		-		-		(0.2)
Federal research and development credit	(1.2)		(0.4)		-		(0.5)
All other, net	1.7		1.6		-		0.1
Effective tax rate	26.4	%	17.2	%	(3.1)	%	17.2	%

Under ASC 740 – 270, income tax expense for the four months ended April 30, 2021, is based on the actual year to date effective tax rate for the first four months of the year inclusive of the impact of the fresh start and reorganization adjustments. Income tax expense for the eight months ended December 31, 2021 is based on the actual year to date effective tax rate for the successor period.

Other Tax Items

As of December 31, 2022, $18 million of expected income tax refunds are included in “Income taxes and other current assets” and $13 million of expected income tax receivable are included in “other assets” in the consolidated balance sheet.

In 2022, we paid net federal and state income tax totaling $8 million. For the four months ended April 30, 2021 and the eight months ended December 31, 2021, we paid net federal and state income tax amounting to $9 million and $28 million, respectively.

The Company reviewed the requirements of the Corporate Alternative Minimum Tax under the Inflation Reduction Act and Notice 2023-7, and does not believe the Company is subject to this new tax.

The components of the net deferred income tax liability (asset) are as follows:

		December 31,		December 31,
($ in millions)		2022		2021
Deferred income tax liabilities:
Property, plant, and equipment basis differences	$	1,059	$	859
Intangibles		178		140
Deferred revenue/expense		(7)		(3)
Other, net		47		46
	$	1,277	$	1,042
Deferred income tax assets:
Pension liability	$	123	$	212
Tax operating loss carryforward		306		185
Employee benefits		91		151
Interest expense deduction
limitation carryforward		112		-
Accrued expenses		80		76
Lease obligations		96		75
Tax credit		14		4
Allowance for doubtful accounts		13		14
Other, net		25		30
		860		747
Less: Valuation allowance		(141)		(92)
Net deferred income tax asset		719		655
Net deferred income tax liability	$	558	$	387

Our federal net operating loss carryforward as of December 31, 2022, is estimated at $156 million. Some of the federal loss carryforward will begin to expire between 2036 and 2037, with $71 million carrying forward indefinitely, unless otherwise used.

Our state tax operating loss carryforward as of December 31, 2022, is estimated at $2.4 billion. A portion of our state loss carryforward will continue to expire annually through 2042, unless otherwise used.

Our federal research and development credit as of December 31, 2022, is estimated at $9 million. The federal research and development credit will begin to expire after 2041, unless otherwise used.

Our various state credits as of December 31, 2022, are estimated at $12 million. The state credits will begin to expire after 2026, unless otherwise used.

We considered positive and negative evidence in regard to evaluating certain deferred tax assets during 2022, including the development of recent years of pre-tax book losses.

As of December 31, 2022, we have a valuation allowance of $141 million net of federal tax benefit, to reduce deferred tax assets to an amount more likely than not to be realized. This valuation allowance is related to state net operating losses, state tax credits, and the state impact from the federal limitation on interest expense deduction. In evaluating our ability to realize our deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. Management also considered the projected reversal of deferred tax liabilities in making this assessment. Based upon this assessment, management believes it is more likely than not we will realize the benefits of these deductible differences, net of valuation allowance.

The provision (benefit) for federal and state income taxes, as well as the taxes charged or credited to equity of Frontier, includes amounts both payable currently and deferred for payment in future periods as indicated below:

	Successor				Predecessor
	For the year ended		For the eight months		For the four months		For the year ended
	December 31,		ended December 31,		ended April 30,		December 31,
($ in millions)	2022		2021		2021		2020
Income tax expense (benefit):
Current:
Federal	$	-	$	-	$	-	$	(12)
State		(7)		8		12		19
Total Current		(7)		8		12		7
Deferred:
Federal		125		(84)		(116)		(84)
State		40		162		(32)		(7)
Total Deferred		165		78		(148)		(91)
Total income tax expense (benefit)		158		86		(136)		(84)
Income taxes charged (credited) to equity of Frontier:
Deferred income taxes (benefits) arising from the recognition of additional pension/OPEB liability		8		19		-		35
Total income taxes charged (credited) to equity of Frontier		-		-		-		35
Total income tax expense (benefit)	$	166	$	105	$	(136)	$	(49)

U.S. GAAP requires applying a “more likely than not” threshold to the recognition and derecognition of uncertain tax positions either taken or expected to be taken in our income tax returns. The total amount of our gross tax liability for tax positions that may not be sustained under a “more likely than not” threshold amounts to $5 million as of December 31, 2022, including immaterial interest. The amount of our uncertain tax positions, for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease during the next twelve months, would not have a material impact on our effective tax rate as of December 31, 2022.

Our policy regarding the classification of interest and penalties is to include these amounts as a component of income tax expense. This treatment of interest and penalties is consistent with prior periods. We are subject to income tax examinations generally for the years 2018 forward for federal and 2016 forward for state filing jurisdictions. We also maintain uncertain tax positions in various state jurisdictions.

The following table sets forth the changes in our balance of unrecognized tax benefits:

	Successor				Predecessor
($ in millions)	December 31,		December 31,		April 30,		December 31,
	2022		2021		2021		2020
Unrecognized tax benefits - beginning of period	$	1	$	1	$	16	$	12
Gross increases - prior period tax positions		-		-		-		4
Gross increases - current period tax positions		4		-		(15)		-
Unrecognized tax benefits - end of period	$	5	$	1	$	1	$	16