Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 13—Income Taxes

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

	Years Ended December 31,
	2024		2023	2022
	(Dollars in millions)
Federal
Current	$	—	(1)	—
Deferred	(44)		(9)	271
State and local
Current	15		8	21
Deferred	—		(11)	4
Foreign
Current	2		1	26
Deferred	(8)		10	(66)
Total income tax (benefit) expense	$	(35)	(2)	256

Income tax (benefit) expense was allocated as follows:

	Years Ended December 31,
	2024		2023	2022
	(Dollars in millions)
Income tax (benefit) expense in the consolidated statements of operations:
Attributable to income	$	(35)	(2)	256
Member's equity:
Tax effect of the change in accumulated other comprehensive loss	$	—	3	(58)

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

	Years Ended December 31,
	2024		2023		2022
	(Percentage of pre-tax loss)
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal income tax benefit	3.8	%	0.3	%	(0.3)	%
Change in liability for unrecognized tax position	(27.8)	%	—	%	0.4	%
Goodwill impairment	—	%	(19.4)	%	(21.4)	%
Divestiture of business(1)	(19.4)	%	(2.5)	%	(5.1)	%
Change in valuation allowance	34.4	%	—	%	(0.6)	%
Net foreign income tax	(0.1)	%	—	%	0.2	%
Research and development credits	1.4	%	0.1	%	0.1	%
Other, net	(2.0)	%	0.6	%	0.1	%
Effective income tax rate	11.3	%	0.1	%	(5.6)	%

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(1)Includes Global Intangible Low-Taxes Income ("GILTI") incurred as a result of the sale of our Latin American business.

For the year ended December 31, 2024, the effective tax rate was 11.3% compared to 0.1% and (5.6)% for the years ended December 31, 2023 and 2022, respectively. The effective tax rate for the year ended December 31, 2023 includes a $389 million of a non-deductible goodwill impairment charge recorded in the second quarter of 2023. The effective tax rate for the year ended December 31, 2022 includes a $969 million unfavorable impact of non-deductible goodwill impairment and a $256 million unfavorable impact related to incurring GILTI as a result of the sale of our Latin American business.

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,
	2024		2023
	(Dollars in millions)
Deferred tax assets
Net operating loss carry forwards	$	1,319	1,598
Other	604		575
Gross deferred tax assets	1,923		2,173
Less valuation allowance	(126)		(248)
Net deferred tax assets	1,797		1,925
Deferred tax liabilities
Property, plant and equipment	(1,216)		(1,189)
Intangible assets	(858)		(1,063)
Other	(6)		(9)
Gross deferred tax liabilities	(2,080)		(2,261)
Net deferred tax liabilities	$	(283)	(336)

Of the $283 million and $336 million net deferred tax liabilities as of December 31, 2024 and 2023, respectively, $337 million and $375 million is reflected as a long-term liability, in other on our consolidated balance sheets and $54 million and $39 million is reflected as a net noncurrent deferred tax asset, in other, net on our consolidated balance sheets.

As of December 31, 2024, we had gross federal NOLs net of uncertain tax positions of $5.1 billion, which will expire between 2025 and 2037 if unused, and state NOLs net of uncertain tax positions of $5.1 billion. Our deferred tax asset balance is based on our historical balance and subsequent standalone activity since we were acquired by Lumen in 2017 and does not correspond to the amount of NOLs that are available for use by Lumen.

We establish valuation allowances when necessary to reduce the deferred tax assets to amounts we expect to realize. As of December 31, 2024, a valuation allowance of $126 million was recorded as it is more likely than not that this amount of NOL and tax credit carryforwards will not be utilized prior to expiration. Our valuation allowance as of December 31, 2024 is primarily related to state NOL carryforwards. As of December 31, 2023, our valuation allowance is primarily related to federal capital loss carryforwards and state NOL carryforwards.

A reconciliation of the change in our gross unrecognized tax benefits (excluding both interest and any related federal benefit) for the years ended December 31, 2024 and 2023 is as follows:

	2024		2023
	(Dollars in millions)
Unrecognized tax benefits at beginning of period	$	799	813
Decrease in tax positions of current year netted against deferred tax assets	(24)		(50)
Increase in tax positions of prior periods netted against deferred tax assets	91		43
Decreases related to divestitures of businesses	—		(2)
Decrease from the lapse of statute of limitations	(15)		(5)
Unrecognized tax benefits at end of period	$	851	799

As of December 31, 2024 the total amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate was $3 million. The unrecognized tax benefits also includes tax positions that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes, that would not impact the effective tax rate but could impact cash tax amounts payable to taxing authorities.

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 $1 million as of December 31, 2024 and 2023.

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 2004. The Internal Revenue Service and state and local taxing authorities reserve the right to audit any period where NOL 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 decrease by up to $7 million within the next 12 months. The actual amount of such decrease, if any, will depend on several future developments and events, many of which are outside our control.

In August 2022, the Inflation Reduction Act was signed into law and which, among other things, implemented a corporate alternative minimum tax (“CAMT”) on adjusted financial statement income effective for tax periods occurring after December 31, 2022. The CAMT had no material impact on our financial results as of December 31, 2024. In addition, in 2021 the Organization for Economic Co-operation and Development ("OECD") issued Pillar Two model rules introducing a new global minimum corporate tax of 15% and the OECD and the majority of its participating countries continue to work toward the enactment of such tax. While the US has not yet adopted the Pillar Two rules, various other governments around the world have enacted such legislation that is effective for tax periods after December 31, 2023. These global minimum tax rules have increased our administrative and compliance burdens, but the impact to our financial statements for the year ended December 31, 2024 was immaterial. We anticipate further legislative activity and administrative guidance throughout 2025 and continue to monitor evolving global tax legislation.