Income Taxes

12 Months Ended

Dec. 31, 2019

The income tax provision (benefit) for continuing operations consisted of the following for the years ended December 31, 2019, 2018 and 2017:



In millions	2019			2018		2017
Current:
Federal	$	2,450		$	1,480	$	2,594
State	565			499		464
	3,015			1,979		3,058
Deferred:
Federal	(535		)	22		(1,435		)
State	(114		)	1		14
	(649		)	23		(1,421		)
Total	$	2,366		$	2,002	$	1,637

The TCJA was enacted on December 22, 2017. Among numerous changes to existing tax laws, the TCJA permanently reduced the federal corporate income tax rate from 35% to 21% effective on January 1, 2018. The effects of changes in tax rates on deferred tax balances are required to be taken into consideration in the period in which the changes are enacted, regardless of when they are effective. As a result of the reduction of the corporate income tax rate under the TCJA, the Company estimated the revaluation of its net deferred tax liabilities and recorded a provisional income tax benefit of approximately $1.5 billion for year ended December 31, 2017. In 2018, the Company completed its process of determining the TCJA’s final impact and recorded an additional income tax benefit of $100 million.

The following table is a reconciliation of the statutory income tax rate to the Company’s effective income tax rate for continuing operations for the years ended December 31, 2019, 2018 and 2017:



	2019		2018		2017
Statutory income tax rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal tax benefit	4.0		27.7		4.1
Effect of the Tax Cuts and Jobs Act	—		(7.1	)	(18.3	)
Health insurer fee	—		2.2		—
Goodwill impairments	—		89.5		0.8
Sale of subsidiary	—		5.0		—
Other	1.3		4.1		(1.8	)
Effective income tax rate	26.3	%	142.4	%	19.8	%

The following table is a summary of the components of the Company’s deferred income tax assets and liabilities as of December 31, 2019 and 2018:



In millions	2019			2018
Deferred income tax assets:
Lease and rents	$	267		$	277
Inventory	23			28
Employee benefits	191			243
Bad debts and other allowances	294			243
Retirement benefits	47			130
Net operating loss and capital loss carryforwards	480			529
Deferred income	36			104
Insurance reserves	430			467
Investments	—			11
Other	451			242
Valuation allowance	(374		)	(520		)
Total deferred income tax assets	1,845			1,754
Deferred income tax liabilities:
Investments	(289		)	—
Depreciation and amortization	(8,850		)	(9,431		)
Total deferred income tax liabilities	(9,139		)	(9,431		)
Net deferred income tax liabilities	$	(7,294	)	$	(7,677	)

As of December 31, 2019, the Company has net operating and capital loss carryovers of $480 million, which expire between 2021 and 2038. The Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and the Company’s recent operating results. The Company established a valuation allowance of $374 million because it does not consider it more likely than not that these deferred tax assets will be recovered.

A reconciliation of the beginning and ending amount of unrecognized tax benefits as of December 31, 2019, 2018 and 2017 is as follows:



In millions	2019			2018			2017
Beginning balance	$	661		$	344		$	307
Additions based on tax positions related to the current year	4			1			62
Additions based on tax positions related to prior years	115			324			32
Reductions for tax positions of prior years	(111		)	(5		)	(28		)
Expiration of statutes of limitation	(7		)	(2		)	(10		)
Settlements	(7		)	(1		)	(19		)
Ending balance	$	655		$	661		$	344

The increase in the balance of unrecognized tax benefits in 2018 compared to 2017 was mainly due to the Aetna Acquisition.

The Company and most of its subsidiaries are subject to U.S. federal income tax as well as income tax of numerous state and local jurisdictions. The Company is a participant in the Compliance Assurance Process, which is a program made available by the U.S. Internal Revenue Service (“IRS”) to certain qualifying large taxpayers, under which participants work collaboratively with the IRS to identify and resolve potential tax issues through open, cooperative and transparent interaction prior to the annual filing of their federal income tax returns. The IRS has completed its examinations of the Company’s consolidated U.S. federal income tax returns through tax year 2013. The IRS has substantially completed its examinations of the Company’s consolidated U.S. federal income tax returns for tax years 2014 through 2018. The IRS is currently examining the Company’s 2019 consolidated U.S. federal income tax return.

The Company and its subsidiaries are also currently under income tax examinations by a number of state and local tax authorities. As of December 31, 2019, no examination has resulted in any proposed adjustments that would result in a material change to the Company’s operating results, financial condition or liquidity.

Substantially all material state and local income tax matters have been concluded for fiscal years through 2014. Certain state exams are likely to be concluded and certain state statutes of limitations will lapse in 2020, but the change in the balance of the Company’s uncertain tax positions is projected to be immaterial. In addition, it is reasonably possible that the Company’s unrecognized tax benefits could change within the next twelve months due to the anticipated conclusion of various examinations with the IRS for various years. An estimate of the range of the possible change cannot be made at this time.

The Company records interest expense related to unrecognized tax benefits and penalties in the income tax provision. The Company accrued interest expense of approximately $49 million, $19 million and $11 million in 2019, 2018 and 2017, respectively. The Company had approximately $173 million and $80 million accrued for interest and penalties as of December 31, 2019 and 2018, respectively.

As of December 31, 2019, the total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective income tax rate is approximately $532 million, after considering the federal benefit of state income taxes.