INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

7. INCOME TAXES

For the years ended December 31, income (loss) from continuing operations before income taxes consisted of the following:

In millions	2022		2021		2020
Income (loss) before income taxes
United States	$	(139)	$	(142)	$	(391)
Foreign	350		426		332
Total income (loss) from continuing operations before income taxes	$	211	$	284	$	(59)

For the years ended December 31, income tax expense (benefit) consisted of the following:

In millions	2022		2021		2020
Income tax expense (benefit)
Current
Federal	$	2	$	5	$	(9)
State	7		5		—
Foreign	79		87		68
Deferred
Federal	13		93		(108)
State	(1)		(8)		(6)
Foreign	48		4		2
Total income tax expense (benefit)	$	148	$	186	$	(53)

The following table presents the principal components of the difference between the effective tax rate and the U.S. federal statutory income tax rate for the years ended December 31:

In millions	2022		2021		2020
Income tax (benefit) expense at the U.S. federal tax rate of 21%	$	44	$	60	$	(12)
Foreign income tax differential	(8)		4		(14)
Additional U.S. tax on foreign income	7		21		13
State and local income taxes (net of federal effect)	5		2		(4)
Other U.S. permanent book/tax differences	2		3		2
Meals and entertainment expense	2		1		1
Nondeductible transaction costs	1		4		—
Disallowed executive compensation	12		15		10
Gains/losses on internal entity restructuring	—		55		2
Excess benefit/deficit from share-based payments	1		(6)		3
Change in branch tax status	—		1		—
Research and development tax credits	(6)		(6)		(7)
Foreign tax law changes	—		(13)		(4)
Valuation allowances	94		21		(32)
Change in liability for unrecognized tax benefits	(6)		13		(12)
Change in tax estimates for prior periods	(1)		11		—
Other, net	1		—		1
Total income tax (benefit) expense	$	148	$	186	$	(53)

NCR's tax provisions include a provision for income taxes in certain tax jurisdictions where its subsidiaries are profitable, but reflect only a portion of the tax benefits related to certain foreign subsidiaries' tax losses due to the uncertainty of the ultimate realization of future benefits from these losses. During 2022, our tax rate was impacted by a $94 million expense from recording a valuation allowance against deferred tax assets in the United Kingdom and other foreign jurisdictions. During 2021, significant matters impacting our tax rate include a $36 million expense from recording a valuation allowance against interest expense deduction carryforwards in the United States, a $14 million benefit from the deferred tax impact of a tax law change in the United Kingdom and a $40 million non-cash expense resulting from an internal entity restructuring. During 2020, the tax rate was impacted by a $48 million benefit from the release of a valuation allowance against U.S. foreign tax credits and the re-establishment of expected foreign tax credit offsets to unrecognized tax benefits.

NCR did not provide additional U.S. income tax or foreign withholding taxes, if any, on approximately $3.7 billion of undistributed earnings of its foreign subsidiaries, given the intention continues to be that those earnings are reinvested indefinitely. The amount of unrecognized deferred tax liability associated with these indefinitely reinvested earnings is approximately $152 million. The unrecognized deferred tax liability is made up of a combination of U.S. and state income taxes and foreign withholding taxes.

We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence.  This evidence includes historical taxable income/loss, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies. 

Deferred income tax assets and liabilities included in the Consolidated Balance Sheets as of December 31 were as follows:

In millions	2022		2021
Deferred income tax assets
Employee pensions and other benefits	$	139	$	202
Other balance sheet reserves and allowances	257		233
Tax loss and credit carryforwards	616		656
Capitalized research and development	46		39
Property, plant and equipment	15		18
Lease liabilities	90		101
Other	36		27
Total deferred income tax assets	$	1,199	$	1,276
Valuation allowance	(448)		(368)
Net deferred income tax assets	$	751	$	908
Deferred income tax liabilities
Intangibles	$	71	$	73
Right of use assets	92		101
Capitalized software	27		58
Total deferred income tax liabilities	$	190	$	232
Total net deferred income tax assets	$	561	$	676

NCR has previously recorded valuation allowances related to certain deferred tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. The recorded valuation allowances cover deferred tax assets, primarily tax loss carryforwards and foreign tax credits, in tax jurisdictions where there is uncertainty as to the ultimate realization of those tax losses and credits. If we are unable to generate sufficient future taxable income of the proper source in the time period within which the temporary differences underlying our deferred tax assets become deductible, or before the expiration of our loss and credit carryforwards, additional valuation allowances could be required.

As of December 31, 2022, NCR had U.S. federal, U.S. state (tax effected), and foreign tax attribute carryforwards of approximately $1.7 billion. The net operating loss carryforwards that are subject to expiration will expire in the years 2023 through 2040. The attributes include U.S. tax credit carryforwards of $200 million, which expire in the years 2025 through 2042. As a result of stock ownership changes, our U.S. tax attributes could be subject to limitations under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, if further material stock ownership changes occur.

The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the years ended December 31:

In millions	2022		2021		2020
Gross unrecognized tax benefits - January 1	$	121	$	103	$	121
Increases related to tax positions from prior years	3		25		15
Decreases related to tax positions from prior years	(15)		(4)		(6)
Increases related to tax provisions taken during the current year	7		7		6
Settlements with tax authorities	(22)		(2)		(23)
Lapses of statutes of limitation	(7)		(8)		(10)
Total gross unrecognized tax benefits - December 31	$	87	$	121	$	103

Of the total amount of gross unrecognized tax benefits as of December 31, 2022, $59 million would affect NCR’s effective tax rate if realized. The Company’s liability arising from uncertain tax positions is recorded in Income tax accruals and Other current liabilities in the Consolidated Balance Sheets.

We recognized interest and penalties associated with uncertain tax positions as part of the provision for income taxes in our Consolidated Statements of Operations of $1 million of benefit, zero, and $5 million of benefit for the years ended December 31, 2022, 2021, and 2020, respectively. The gross amount of interest and penalties accrued as of December 31, 2022 and 2021 was $26 million and $30 million, respectively.

In the United States, NCR files consolidated federal and state income tax returns where statutes of limitations generally range from three to five years. In 2022, the IRS commenced an examination of our 2019 income tax return, which is ongoing. U.S. federal tax years remain open from 2019 forward. Years beginning on or after 2010 are still open to examination by certain foreign taxing authorities, including India, Egypt, and other major taxing jurisdictions.

The Company engages in continuous discussions and negotiations with taxing authorities regarding tax matters, and the Company has determined that over the next 12 months it expects to resolve certain tax matters related to U.S. and foreign jurisdictions. As a result, as of December 31, 2022, we estimate that it is reasonably possible that unrecognized tax benefits may decrease by $3 million to $5 million in the next 12 months.