Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 13. INCOME TAXES

Significant components of our deferred tax liabilities (assets) are as follows at December 31:

	2022		2021
Depreciation and amortization	$	36,570	$	35,894
Licenses and nonamortizable intangibles	19,339		15,573
Employee benefits	(2,251)		(3,178)
Deferred fulfillment costs	1,989		1,797
Equity in partnership	3,284		3,285
Net operating loss and other carryforwards	(5,817)		(6,109)
Other – net	(343)		2,153
Subtotal	52,771		49,415
Deferred tax assets valuation allowance	4,175		4,343
Net deferred tax liabilities	$	56,946	$	53,758
Noncurrent deferred tax liabilities	$	57,032	$	53,767
Less: Noncurrent deferred tax assets	(86)		(9)
Net deferred tax liabilities	$	56,946	$	53,758

At December 31, 2022, we had combined net operating and capital loss carryforwards (tax effected) for federal income tax purposes of $892, state of $747 and foreign of $2,441, expiring through 2042. Additionally, we had federal credit carryforwards of $293 and state credit carryforwards of $1,444, expiring primarily through 2042.

We recognize a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. Our valuation allowances at December 31, 2022 and 2021 related primarily to state and foreign net operating losses and state credit carryforwards.

We consider post-1986 unremitted foreign earnings subjected to the one-time transition tax not to be indefinitely reinvested as such earnings can be repatriated without any significant incremental tax costs. We consider other types of unremitted foreign earnings to be indefinitely reinvested. U.S. income and foreign withholding taxes have not been recorded on temporary

differences related to investments in certain foreign subsidiaries as such differences are considered indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability is not practicable.

We recognize the financial statement effects of a tax return position when it is more likely than not, based on the technical merits, that the position will ultimately be sustained. For tax positions that meet this recognition threshold, we apply our judgment, taking into account applicable tax laws, our experience in managing tax audits and relevant GAAP, to determine the amount of tax benefits to recognize in our financial statements. For each position, the difference between the benefit realized on our tax return and the benefit reflected in our financial statements is recorded on our consolidated balance sheets as an unrecognized tax benefit (UTB). We update our UTBs at each financial statement date to reflect the impacts of audit settlements and other resolutions of audit issues, the expiration of statutes of limitation, developments in tax law and ongoing discussions with taxing authorities. A reconciliation of the change in our UTB balance from January 1 to December 31 for 2022 and 2021 is as follows:

Federal, State and Foreign Tax	2022		2021
Balance at beginning of year	$	8,954	$	9,415
Increases for tax positions related to the current year	1,389		677
Increases for tax positions related to prior years	577		332
Decreases for tax positions related to prior years	(1,079)		(1,169)
Lapse of statute of limitations	(2)		(6)
Settlements	(182)		(295)
Balance at end of year	9,657		8,954
Accrued interest and penalties	1,930		2,054
Gross unrecognized income tax benefits	11,587		11,008
Less: Deferred federal and state income tax benefits	(723)		(728)
Less: Tax attributable to timing items included above	(4,640)		(3,428)
Total UTB that, if recognized, would impact the effective income tax rate as of the end of the year	$	6,224	$	6,852

Periodically we make deposits to taxing jurisdictions which reduce our UTB balance but are not included in the reconciliation above. The amount of deposits that reduced our UTB balance was $1,767 at December 31, 2022 and $377 at December 31, 2021.

Accrued interest and penalties included in UTBs were $1,930 as of December 31, 2022 and $2,054 as of December 31, 2021. We record interest and penalties related to federal, state and foreign UTBs in income tax expense. The net interest and penalty expense (benefit) included in income tax expense was $(86) for 2022, $(129) for 2021 and $127 for 2020.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. As a large taxpayer, our income tax returns are regularly audited by the Internal Revenue Service (IRS) and other taxing authorities.

The IRS has completed field examinations of our tax returns through 2015. All audit periods prior to 2005 are closed for federal examination purposes and we have effectively resolved all outstanding audit issues for years through 2010 with the IRS Appeals Division. Those years will be closed as the final paperwork is processed in the coming months.

While we do not expect material changes, we are generally unable to estimate the range of impacts on the balance of the remaining uncertain tax positions or the impact on the effective tax rate from the resolution of these issues until each year is closed; and it is possible that the amount of unrecognized benefit with respect to our uncertain tax positions could increase or decrease within the next 12 months.

The components of income tax (benefit) expense are as follows:

	2022		2021		2020
Federal:
Current	$	579	$	(2,400)	$	(346)
Deferred	2,206		6,872		858
	2,785		4,472		512
State and local:
Current	21		289		338
Deferred	912		648		272
	933		937		610
Foreign:
Current	106		(66)		14
Deferred	(44)		52		32
	62		(14)		46
Total	$	3,780	$	5,395	$	1,168

“Income (Loss) from Continuing Operations Before Income Taxes” in the Consolidated Statements of Income included the following components for the years ended December 31:

	2022		2021		2020
U.S. income (loss) before income taxes	$	(1,480)	$	29,678	$	510
Foreign income (loss) before income taxes	(1,614)		(507)		(864)
Total	$	(3,094)	$	29,171	$	(354)

A reconciliation of income tax expense (benefit) on continuing operations and the amount computed by applying the statutory federal income tax rate of 21% to income from continuing operations before income taxes is as follows:

	2022			2021			2020
Taxes computed at federal statutory rate	$	(650)		$	6,126		$	(74)
Increases (decreases) in income taxes resulting from:
State and local income taxes – net of federal income tax benefit	795			936			170
CARES Act federal NOL carryback	—			(471)			—
Tax on foreign investments	43			47			(124)
Noncontrolling interest	(308)			(291)			(286)
Permanent items and R&D credit	(121)			(153)			(195)
Audit resolutions	(642)			(220)			(112)
Divestitures	(481)			(558)			107
Goodwill impairment1	5,210			16			1,702
Other – net	(66)			(37)			(20)
Total	$	3,780		$	5,395		$	1,168
Effective Tax Rate	(122.2)		%	18.5		%	(329.9)		%
1 Goodwill impairments are not deductible for tax purposes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted, which allows for a Net Operating Loss (NOL) generated in 2020 to be carried back to a year with a federal rate of 35%. During 2021, we recorded a $471 tax benefit for the rate impact of the 2020 NOL carryback adjusted for the domestic manufacturing deduction limitation in the carryback year and applicable unrecognized tax benefits.

AT&T is subject to the Global Intangible Low Taxed Income (GILTI) provisions created under the Tax Cuts and Jobs Act of 2017. We report the tax impact of GILTI as a period cost when incurred.