Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of the income tax expense are as follows:

	Years Ended December 31,
	2021		2020	2019
	(Dollars in millions)
Federal
Current	$	—	—	12
Deferred	125		162	186
State and local
Current	12		22	4
Deferred	28		42	41
Foreign
Current	16		19	17
Deferred	16		(24)	(5)
Total income tax expense	$	197	221	255

	Years Ended December 31,
	2021		2020	2019
	(Dollars in millions)
Income tax expense was allocated as follows:
Income tax expense in the consolidated statements of operations:
Attributable to income	$	197	221	255
Member's equity:
Tax effect of the change in accumulated other comprehensive loss	$	(30)	43	5

The following is a reconciliation from the statutory federal income tax rate to our effective income tax rate:

	Years Ended December 31,
	2021		2020		2019
	(Percentage of pre-tax income)
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal income tax benefit	4.1	%	5.8	%	(1.2)	%
Goodwill impairment	—	%	—	%	(26.4)	%
Tax law changes	—	%	(1.5)	%	(0.2)	%
Global intangible low-taxed income	—	%	—	%	(0.4)	%
Net foreign income tax	1.6	%	0.9	%	(0.8)	%
Executive compensation limitation	—	%	—	%	(0.2)	%
Research and development credits	(0.4)	%	(0.6)	%	0.1	%
Other, net	(1.1)	%	(0.3)	%	(0.5)	%
Effective income tax rate	25.2	%	25.3	%	(8.6)	%

For the year ended December 31, 2021, the effective tax rate is 25.2% compared to 25.3% and (8.6)% for the years ended December 31, 2020 and 2019, respectively. The effective tax rate for the year ended December 31, 2019 reflects $779 million unfavorable impact of a non-deductible goodwill impairment.

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:

	As of December 31,
	2021		2020
	(Dollars in millions)
Deferred tax assets
Deferred revenue	$	306	277
Net operating loss carry forwards	3,191		3,503
Property, plant and equipment	71		65
Other	267		343
Gross deferred tax assets	3,835		4,188
Less valuation allowance	(1,103)		(1,170)
Net deferred tax assets	2,732		3,018
Deferred tax liabilities
Deferred revenue	(14)		(34)
Property, plant and equipment	(1,295)		(1,264)
Intangible assets	(1,539)		(1,773)
Other	(20)		(33)
Gross deferred tax liabilities	(2,868)		(3,104)
Net deferred tax liabilities	$	(136)	(86)

Of the $136 million and $86 million net deferred tax liabilities as of December 31, 2021 and 2020, respectively, $212 million and $247 million is reflected as a long-term liability, in other on our consolidated balance sheets and $76 million and $161 million is reflected as a net noncurrent deferred tax asset, in other, net on our consolidated balance sheets.

As of December 31, 2021, we had federal NOLs of $12 billion before uncertain tax positions of $4 billion, which will expire between 2025 and 2037 if unused, and state NOLs of $8 billion before uncertain tax positions of $521 million. As of December 31, 2021, we had foreign NOLs of $6 billion.

We establish valuation allowances when necessary to reduce the deferred tax assets to amounts we expect to realize. As of December 31, 2021, a valuation allowance of $1.1 billion was recorded as it is more likely than not that this amount of net operating loss and tax credit carryforwards will not be utilized prior to expiration. Our valuation allowance as of December 31, 2021 and 2020 is primarily related to foreign and state NOL carryforwards.

A reconciliation of the change in our gross unrecognized tax benefits (excluding both interest and any related federal benefit) from January 1 to December 31 for 2021 and 2020 is as follows:

	2021		2020
	(Dollars in millions)
Unrecognized tax benefits at beginning of period	$	923	952
Tax positions of prior periods netted against deferred tax assets	(49)		(32)
Increase in tax positions taken in the prior period	—		—
Increase in tax positions taken in the current period	4		4
Decrease due to settlement/payments	(2)		(1)
Decrease from the lapse of statute of limitations	—		—
Unrecognized tax benefits at end of period	$	876	923

The total amount (including interest and any related federal benefit) of unrecognized tax benefits that, if recognized, would impact the effective income tax rate was $34 million and $33 million for the years ended December 31, 2021 and 2020, respectively.

Our policy is to reflect interest expense associated with unrecognized tax benefits in income tax expense. We had accrued interest (presented before related tax benefits) of approximately $5 million and $9 million as of December 31, 2021 and 2020, respectively.

We, or at least one of our affiliates, file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2002. The Internal Revenue Service and state and local taxing authorities reserve the right to audit any period where net operating loss carry forwards are available.

Based on our current assessment of various factors, including (i) the potential outcomes of these ongoing examinations, (ii) the expiration of statute of limitations for specific jurisdictions, (iii) the negotiated settlement of certain disputed issues, and (iv) the administrative practices of applicable taxing jurisdictions, it is reasonably possible that the related unrecognized tax benefits for uncertain tax positions previously taken may increase by up to $2 million within the next 12 months. The actual amount of such increase, if any, will depend on several future developments and events, many of which are outside our control.