Income Taxes (Note)

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 13 INCOME TAXES

The components of International Paper’s earnings from continuing operations before income taxes and equity earnings by taxing jurisdiction were as follows:

In millions	2022		2021		2020
Earnings (loss)
U.S.	$	1,469	$	906	$	660
Non-U.S.	42		93		(331)
Earnings (loss) from continuing operations before income taxes and equity earnings (losses)	$	1,511	$	999	$	329

The provision (benefit) for income taxes from continuing operations (excluding noncontrolling interests) by taxing jurisdiction was as follows:

In millions	2022		2021		2020
Current tax provision (benefit)
U.S. federal	$	454	$	413	$	98
U.S. state and local	56		47		31
Non-U.S.	27		37		(3)
	$	537	$	497	$	126
Deferred tax provision (benefit)
U.S. federal	$	(775)	$	(274)	$	(2)
U.S. state and local	(39)		(27)		2
Non-U.S.	41		(8)		50
	$	(773)	$	(309)	$	50
Income tax provision (benefit)	$	(236)	$	188	$	176

The Company’s deferred income tax provision (benefit) includes a $3 million benefit, an $8 million benefit and a $2 million benefit for 2022, 2021 and 2020, respectively, for the effect of various changes in non-U.S. and U.S. federal and state tax rates.

International Paper made income tax payments, net of refunds, of $345 million, $601 million and $162 million in 2022, 2021 and 2020, respectively.

A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision follows: 

In millions	2022			2021			2020
Earnings (loss) from continuing operations before income taxes and equity earnings	$	1,511		$	999		$	329
Statutory U.S. income tax rate	21		%	21		%	21		%
Tax expense (benefit) using statutory U.S. income tax rate	317			210			69
State and local income taxes	44			15			26
Impact of rate differential on non-U.S. permanent differences and earnings	1			5			29
Foreign valuation allowance	45			—			—
Tax expense (benefit) on exchange of Sylvamo shares	(56)			—			—
Adjustment to tax basis of assets	—			(14)			—
Non-deductible business expenses	2			1			4
Non-deductible impairments	16			—			92
Non-deductible compensation	13			11			11
Tax audits	6			9			(28)
Timber Monetization Audit Settlement	(604)			—			—
U.S. federal tax rate change	—			—			7
Foreign derived intangible income deduction	(8)			(7)			—
US tax on non-U.S. earnings (GILTI and Subpart F)	27			5			6
Foreign tax credits	8			(6)			(3)
General business and other tax credits	(43)			(39)			(42)
Tax expense (benefit) on equity earnings	(1)			—			8
Other, net	(3)			(2)			(3)
Income tax provision (benefit)	$	(236)		$	188		$	176
Effective income tax rate	(16)		%	19		%	53		%

The tax effects of significant temporary differences, representing deferred income tax assets and liabilities at December 31, 2022 and 2021, were as follows: 

In millions	2022		2021
Deferred income tax assets:
Postretirement benefit accruals	$	68	$	84
Pension obligations	18		—
Tax credits	175		199
Net operating and capital loss carryforwards	568		661
Compensation reserves	151		184
Lease obligations	108		92
Environmental reserves	119		104
Other	271		189
Gross deferred income tax assets	$	1,478	$	1,513
Less: valuation allowance (a)	(677)		(708)
Net deferred income tax asset	$	801	$	805
Deferred income tax liabilities:
Intangibles	$	(147)	$	(140)
Investments	(2)		(56)
Right of use assets	(108)		(92)
Pension obligations	—		(34)
Plants, properties and equipment	(1,778)		(1,776)
Forestlands, related installment sales, and investment in subsidiary	(485)		(1,279)
Gross deferred income tax liabilities	$	(2,520)	$	(3,377)
Net deferred income tax liability	$	(1,719)	$	(2,572)

(a) The net change in the total valuation allowance for the years ended December 31, 2022 and 2021 was a decrease of $(31) million and an increase of $27 million, respectively. The net change in the current year includes an increase impacting the future utilization of foreign deferred tax assets of $45 million.

Deferred income tax assets and liabilities are recorded in the accompanying consolidated balance sheet under the captions Deferred charges and other assets and Deferred income taxes, respectively. The $485 million of deferred tax liabilities for forestlands, related installment sales, and investment in subsidiary is attributable to a 2007 Temple-Inland installment sale of forestlands (see Note 15).

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020 is as follows: 

In millions	2022		2021		2020
Balance at January 1	$	(166)	$	(143)	$	(166)
(Additions) reductions for tax positions related to current year	(7)		(13)		(10)
(Additions) for tax positions related to prior years	(10)		(23)		(10)
Reductions for tax positions related to prior years	3		1		30
Settlements	1		10		13
Expiration of statutes of limitations	1		1		1
Currency translation adjustment	1		1		(1)
Balance at December 31	$	(177)	$	(166)	$	(143)

If the Company were to prevail on the unrecognized tax benefits recorded, substantially all of the balances at December 31, 2022, 2021 and 2020 would benefit the effective tax rate.

The Company accrues interest on unrecognized tax benefits as a component of interest expense. Penalties, if incurred, are recognized as a component of income tax expense. The Company had approximately $29 million and $21 million accrued for the payment of estimated interest and penalties associated with unrecognized tax benefits at December 31, 2022 and 2021, respectively.

The Company is currently subject to audits in the United States and other taxing jurisdictions around the world. Generally, tax years 2009 through 2021 remain open and subject to examination by the relevant tax authorities. The Company frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature, and amount of deductions and the allocation of income among various tax jurisdictions. Pending audit settlements and the expiration of statute of limitations could reduce the uncertain tax positions by $28 million during the next twelve months.

The Company provides for foreign withholding taxes and any applicable U.S. state income taxes on earnings intended to be repatriated from non-U.S. subsidiaries, which we believe will be limited in the future to each year's current earnings. No provision for these taxes on approximately $1.9 billion of undistributed earnings of non-U.S. subsidiaries as of December 31, 2022 has been made, as these earnings are considered indefinitely invested. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted in a taxable manner is not practicable.

If management decided to monetize the Company’s foreign investments, we would recognize the tax cost related to the excess of the book value over the tax basis of those investments. This would include foreign withholding taxes and any applicable U.S. Federal and state income taxes. Determination of the

tax cost that would be incurred upon monetization of the Company’s foreign investments is not practicable; however, we do not believe it would be material.

The following details the scheduled expiration dates of the Company’s net operating loss and income tax credit carryforwards:

In millions	2023 Through 2032		2033 Through 2042		Indefinite		Total
U.S. federal and non-U.S. NOLs	$	1	$	95	$	422	$	518
State taxing jurisdiction NOLs (a)	43		7		—		50
U.S. federal, non- U.S. and state tax credit carryforwards (a)	70		8		97		175
Total	$	114	$	110	$	519	$	743
Less: valuation allowance (a)	(50)		(89)		(463)		(602)
Total, net	$	64	$	21	$	56	$	141

(a) State amounts are presented net of federal benefit.