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Income Taxes
 12 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
10. Income Taxes

Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change.

The following table shows income tax expense (benefit) attributable to earnings (loss) from continuing operations before income taxes:

Years ended June 30,202120202019
(In millions)
Current
Federal$77.3 $18.7 $(29.8)
State16.9 7.9 (2.8)
Foreign1.2 1.1 0.6 
95.4 27.7 (32.0)
Deferred
Federal(6.5)(42.6)42.0 
State(2.0)(17.5)1.6 
Foreign0.1 0.2 (0.1)
(8.4)(59.9)43.5 
Income tax expense (benefit)$87.0 $(32.2)$11.5 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants, and investments. The CARES Act did not have a material impact on our consolidated financial statements for the years ended June 30, 2021 and 2020.
The differences between the statutory U.S. federal income tax rate and the effective tax rate were as follows:

Years ended June 30,202120202019
U.S. statutory tax rate21.0 %21.0 %21.0 %
State income taxes, less federal income tax benefits2.9 2.8 (0.7)
Foreign operations0.2 (0.5)(13.3)
Rate change— 0.1 (0.1)
Settlements - audits / tax litigation(4.9)(0.4)(2.5)
Transaction costs1.2 — — 
Nondeductible compensation1.2 (1.1)3.7 
Tax credits(0.3)3.7 — 
Goodwill impairment— (12.8)— 
Other0.8 0.5 0.1 
Effective income tax rate22.1 %13.3 %8.2 %

The Company’s effective tax rate was 22.1 percent in fiscal 2021, 13.3 percent in fiscal 2020, and 8.2 percent in fiscal 2019. The primary impact to the fiscal 2021 effective tax rate was the favorable Code Section 199 court determination being finalized and the release of $15.2 million of the associated reserve for uncertain tax positions. The fiscal 2020 effective tax rate was impacted primarily by the national media goodwill impairment charge. In the third quarter of fiscal 2020, the Company recorded a non-cash impairment charge of $252.7 million to reduce the carrying value of goodwill. The Company recorded an income tax benefit of $26.9 million related to this goodwill impairment charge. The fiscal 2019 effective tax rate was primarily impacted by a credit to income taxes of $23.5 million related to the write-off of worthless stock and related bad debt.
The tax effects of temporary differences that gave rise to deferred tax assets and deferred tax liabilities were as follows:

June 30,20212020
(In millions)
Deferred tax assets
Accounts receivable allowances and return reserves$25.0 $29.7 
Compensation and benefits— 0.7 
Indirect benefit of uncertain state and foreign tax positions5.8 6.3 
Investment in partnerships1.0 6.8 
Tax loss carryforwards47.4 43.3 
Lease liabilities117.3 126.5 
All other assets14.2 17.7 
Total deferred tax assets210.7 231.0 
Valuation allowance(17.5)(17.2)
Net deferred tax assets193.2 213.8 
Deferred tax liabilities
Subscription acquisition costs55.1 62.0 
Compensation and benefits7.4 — 
Accumulated depreciation and amortization482.8 494.3 
Deferred gains from dispositions15.0 15.8 
Lease right-of-use assets92.6 101.6 
All other liabilities2.7 3.7 
Total deferred tax liabilities655.6 677.4 
Net deferred tax liability$462.4 $463.6 

The Company has $6.9 million of net operating loss carryforwards for federal purposes and $209.9 million for state purposes, which, if unused, have expiration dates through fiscal 2039. It is expected that all federal net operating loss carryforwards will be utilized prior to expiration.

There was a small net increase in the valuation allowance of $0.3 million during fiscal 2021, which was related primarily to foreign and state net operating losses.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:

Years ended June 30,20212020
(In millions)
Balance at beginning of year$49.4 $53.7 
Increases in tax positions for prior years0.7 3.3 
Decreases in tax positions for prior years(0.4)(0.1)
Increases in tax positions for current year2.3 1.9 
Settlements(0.2)0.1 
Lapse in statute of limitations(18.6)(9.5)
Balance at end of year$33.2 $49.4 

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $31.4 million as of June 30, 2021, and $40.6 million as of June 30, 2020. The Company recognizes interest and penalties
related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest and penalties related to unrecognized tax benefits was $11.9 million and $13.4 million as of June 30, 2021 and 2020, respectively.

The total amount of unrecognized tax benefits at June 30, 2021, may change significantly within the next 12 months, decreasing by an estimated range of $18.6 million to $2.5 million. The change, if any, may result primarily from foreseeable federal and state examinations, ongoing federal and state examinations, anticipated state settlements, expiration of various statutes of limitation, the results of tax cases, or other regulatory developments.

The Company filed amended federal tax returns for fiscal years 2013-2016 in fiscal 2020 prior to the statute of limitations expiring. In addition, the Company filed an amended federal tax return for fiscal 2017 in fiscal 2021 prior to the statute of limitations expiring. As a result, those periods are subject to audit. On March 19, 2020, the Federal District Court ruled in the Company’s favor on a disputed Internal Revenue Code Section 199 issue for fiscal years 2006 through fiscal 2012. In the first quarter of fiscal 2021, the Department of Justice waived its right to appeal, resulting in the finalization of the Federal District Court decision and the release of the associated reserve for uncertain tax positions. Therefore, a tax benefit of $15.2 million was recorded in the first quarter of fiscal 2021. The Company has various state income tax examinations ongoing at various stages of completion, but generally the state income tax returns have been audited or closed to audit through fiscal 2012.

The complete legal and structural separation of Time Warner Inc.’s (Time Warner) magazine publishing and related business from Time Warner (the Time Spin-Off) was completed by way of a pro rata dividend of Time Inc. shares held by Time Warner to its stockholders as of May 23, 2014, based on a distribution ratio of one share of Time Inc. common stock for every eight shares of Time Warner common stock held (the Distribution). In connection with the acquisition of Time, the Company assumed the Tax Matters Agreement (TMA) entered into with Time Warner that requires Time to indemnify Time Warner for certain tax liabilities for periods prior to the Time Spin-Off from Time Warner, which was completed on June 6, 2014. With respect to taxes other than those incurred in connection with the Time Spin-Off, the TMA provides that the Company will indemnify Time Warner for (1) any taxes of Time and its subsidiaries for all periods after the Distribution and (2) any taxes of the Time Warner group for periods prior to the Distribution to the extent attributable to Time or its subsidiaries. For purposes of the indemnification described in clause (2), however, Time will generally be required to indemnify Time Warner only for any such taxes that are paid in connection with a tax return filed after the Distribution or that result from an adjustment made to such taxes after the Distribution. In these cases, Time’s indemnification obligations generally would be computed based on the amount by which the tax liability of the Time Warner group is greater than it would have been absent Time’s inclusion in its tax returns (or absent the applicable adjustment). Time and Time Warner will generally have joint control over tax authority audits or other tax proceedings related to Time specific tax matters. As of June 30, 2021 and 2020, the Company has recorded a liability in connection with the TMA of $29.8 million and $28.9 million, respectively.