INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

8. INCOME TAXES

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

In millions	2023		2022		2021
Income (loss) before income taxes
United States	$	(323)	$	(212)	$	(260)
Foreign	(59)		81		(7)
Total income (loss) from continuing operations before income taxes	$	(382)	$	(131)	$	(267)

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

In millions	2023		2022		2021
Income tax expense (benefit)
Current
Federal	$	26	$	1	$	5
State	3		3		3
Foreign	35		30		36
Deferred
Federal	(32)		(3)		62
State	(6)		(2)		(10)
Foreign	178		43		(26)
Total income tax expense (benefit)	$	204	$	72	$	70

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	2023		2022		2021
Income tax (benefit) expense at the U.S. federal tax rate of 21%	$	(80)	$	(28)	$	(56)
Foreign income tax differential	1		(8)		13
Additional U.S. tax on foreign income	9		(2)		4
State and local income taxes (net of federal effect)	(2)		1		(5)
Other U.S. permanent book/tax differences	5		4		4
Meals and entertainment expense	2		1		1
Nondeductible transaction costs	2		1		—
Nondeductible executive compensation	17		9		13
Dispositions	16		—		—
Spin-off of NCR Atleos	226		—		—
Gains/losses on internal entity restructuring	—		—		55
Excess (benefit)/deficit from share-based payments	2		—		(11)
Change in branch tax status	—		—		1
Research and development tax credits	(2)		(5)		(5)
Foreign tax law changes	(8)		3		(14)
Valuation allowances	20		103		56
Change in liability for unrecognized tax benefits	3		(15)		—
Change in tax estimates for prior periods	(5)		4		17
Other, net	(2)		4		(3)
Total income tax (benefit) expense	$	204	$	72	$	70

The Company’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 2023, our tax rate was impacted by a net $226 million expense related to the Spin-Off of NCR Atleos. Also during 2023, our tax rate was impacted by a $20 million expense from recording a valuation allowance against deferred tax assets and a $17 million expense from nondeductible executive compensation. During 2022, our tax rate was impacted by a $103 million expense from recording a valuation allowance against deferred tax assets in the United Kingdom and other jurisdictions. During 2021, our tax rate was impacted by a $56 million expense from recording a valuation allowance against deferred tax assets and a $55 million expense resulting from an internal entity restructuring.

As described in Note 1, “Basis of Presentation and Significant Accounting Policies”, on October 16, 2023, in connection with the Spin-Off, the Company completed a series of legal entity restructurings including both an internal and external spin-off transaction. These transactions are subject to tax laws in the U.S. and non-U.S. jurisdictions, which resulted in the use of significant judgments by management as it pertains to the interpretation and application of tax laws in the U.S. and non-U.S. jurisdictions to determine the potential taxability of the transactions. The Company recorded income tax expense of $226 million from continuing operations in its 2023 financial statements related to the Spin-Off transactions.

The Company did not provide additional U.S. income tax or foreign withholding taxes, if any, on approximately $258 million 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 $19 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	2023		2022
Deferred income tax assets
Employee pensions and other benefits	$	7	$	41
Other balance sheet reserves and allowances	200		205
Tax loss and credit carryforwards	245		346
Capitalized research and development	51		30
Property, plant and equipment	17		18
Lease liabilities	56		70
Capitalized software	15		—
Other	26		25
Total deferred income tax assets	$	617	$	735
Valuation allowance	(211)		(274)
Net deferred income tax assets	$	406	$	461
Deferred income tax liabilities
Intangibles	$	119	$	41
Right of use assets	57		72
Capitalized software	—		19
Total deferred income tax liabilities	$	176	$	132
Total net deferred income tax assets	$	230	$	329

The Company 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, including tax loss carryforwards, interest expense carryforwards, and foreign tax credits in tax jurisdictions where there is uncertainty as to the ultimate realization of those tax assets. 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, 2023, the Company had U.S. federal, U.S. state (tax effected), and foreign tax attribute carryforwards of approximately $622 million. The net operating loss carryforwards that are subject to expiration will expire in the years 2024 through 2040. The attributes include U.S. tax credit carryforwards of $105 million, which expire in the years 2024 through 2043.

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

In millions	2023		2022		2021
Gross unrecognized tax benefits - January 1	$	87	$	121	$	103
Increases related to tax positions from prior years	1		3		25
Decreases related to tax positions from prior years	(1)		(15)		(4)
Increases related to tax provisions taken during the current year	2		7		7
Settlements with tax authorities	—		(22)		(2)
Lapses of statutes of limitation	(1)		(7)		(8)
Distributions to NCR Atleos	$	(30)	$	—	$	—
Total gross unrecognized tax benefits - December 31	$	58	$	87	$	121

Of the total amount of gross unrecognized tax benefits as of December 31, 2023, $44 million would affect the Company’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 $4 million of expense, $1 million of benefit, and zero for the years ended December 31, 2023, 2022, and 2021, respectively. The gross amount of interest and penalties accrued as of December 31, 2023 and 2022 was $18 million and $26 million, respectively.

In the United States, the Company 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.

The Company engages in 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, 2023, we estimate that it is reasonably possible that unrecognized tax benefits may decrease by $6 million to $8 million in the next 12 months.