INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 10 - INCOME TAXES

LEGAL ENTITY REORGANIZATION

To align Occidental’s legal entity structure with the nature of its business activities after completing the acquisition of Anadarko and subsequent large scale post-acquisition divestiture program, management undertook a legal entity reorganization that was completed in the first quarter of 2022.

As a result of this legal entity reorganization, management made an adjustment to the tax basis in a portion of its operating assets, thus reducing Occidental’s deferred tax liabilities. Accordingly, in 2022, Occidental recorded a tax benefit of $2.7 billion in connection with this reorganization. The timing of any reduction in Occidental’s future cash taxes as a result of this legal entity reorganization will be dependent on a number of factors, including prevailing commodity prices, capital activity level and production mix. The legal entity reorganization transaction is currently under IRS review as part of the Company’s 2022 federal tax audit.

INFLATION REDUCTION ACT

In August 2022, Congress passed the Inflation Reduction Act that contains, among other provisions, a corporate book minimum tax on financial statement income, an excise tax on stock buybacks, a methane emissions fee and certain tax incentives related to climate change and clean energy. Occidental is currently evaluating the provisions of this act. The ultimate impact of the Inflation Reduction Act to Occidental will depend on a number of factors including future commodity prices, interpretations and assumptions as well as additional regulatory guidance.

The following summarizes domestic and foreign components of income (loss) from continuing operations before domestic and foreign income taxes for the years ended December 31:

millions	2022		2021		2020
Domestic	$	11,314	$	1,966	$	(15,322)
Foreign	2,803		1,739		(383)
Total	$	14,117	$	3,705	$	(15,705)

The following summarizes components of income tax expense (benefit) on continuing operations for the years ended December 31:

millions	2022		2021		2020
Current
Federal	$	1,272	$	173	$	(126)
State and local	105		36		6
Foreign	1,080		660		465
Total current tax expense	$	2,457	$	869	$	345
Deferred
Federal	(1,569)		191		(2,384)
State and local	(57)		(153)		(103)
Foreign	(18)		8		(30)
Total deferred tax expense (benefit)	$	(1,644)	$	46	$	(2,517)
Total income tax expense (benefit)	$	813	$	915	$	(2,172)

The following reconciliation of the U.S federal statutory income tax rate to Occidental’s worldwide effective tax rate on income from continuing operations for the years ended December 31 is stated as a percentage of income (loss) from continuing operations before income taxes:

	2022		2021		2020
U.S. federal statutory tax rate	21	%	21	%	21	%
Legal entity reorganization	(18)		—		—
Enhanced oil recovery credit and other general business credits	—		(3)		—
Goodwill impairment	—		—		(3)
Capital loss	—		(2)		—
Tax impact from foreign operations	3		8		(4)
State income taxes, net of federal benefit	—		(2)		—
Other	—		3		—
Worldwide effective tax rate	6	%	25	%	14	%

In 2022, Occidental’s worldwide effective tax rate was 6%, which was lower than the U.S. statutory rate of 21% and primarily driven by a tax benefit associated with Occidental's legal entity reorganization, as described above, partially offset by higher tax rates in the foreign jurisdictions in which Occidental operates.

In 2021, Occidental’s worldwide effective tax rate was 25%, which was higher than the U.S. statutory rate of 21% due to higher tax rates in the foreign jurisdictions in which Occidental operates, partially offset by the tax impact of business credits, state tax revaluations and other domestic tax benefits.

The tax effects of temporary differences resulting in deferred income taxes as of December 31:

millions	2022		2021
Deferred tax liabilities
Property, plant and equipment differences	$	(7,218)	$	(9,905)
Equity investments, partnerships and international subsidiaries	(441)		(571)
Gross long-term deferred tax liabilities	(7,659)		(10,476)
Deferred tax assets
Environmental reserves	229		242
Postretirement benefit accruals	235		285
Deferred compensation and benefits	207		286
Asset retirement obligations	799		850
Foreign tax credit carryforwards	3,622		3,904
General business credit carryforwards	30		698
Net operating loss carryforward	1,058		1,628
Interest expense carryforward	11		28
All other	771		689
Gross long-term deferred tax assets	6,962		8,610
Valuation allowance	(4,785)		(5,136)
Net long-term deferred tax assets	$	2,177	$	3,474
Total deferred income tax liability, net	$	(5,482)	$	(7,002)
Less: foreign deferred tax asset in long-term receivables and other assets, net	(30)		(37)
Total deferred income tax liability, gross	$	(5,512)	$	(7,039)

Total deferred tax assets, after valuation allowances, were $2.2 billion and $3.5 billion as of December 31, 2022 and 2021, respectively. Occidental expects to realize the recorded deferred tax assets, net of any allowances, through future operating income and reversal of temporary differences. The total deferred tax liabilities were $7.7 billion and $10.5 billion as of December 31, 2022 and 2021, respectively. The decrease in the net deferred tax liability in 2022 compared to 2021 was primarily driven by a tax benefit associated with Occidental's legal entity reorganization, as described above, partially offset by the utilization of net operating losses and other tax attributes.

As of December 31, 2022, Occidental had foreign tax credit carryforwards of $3.6 billion and state tax credit carryforwards of $30 million. Occidental had recorded a valuation allowance for $3.6 billion of the foreign tax credit carryforwards and $27 million of the state tax credit carryforwards.

As of December 31, 2022, Occidental had tax-effected federal net operating loss carryforwards of $3 million, foreign net operating loss carryforwards of $841 million and state net operating loss carryforwards of $214 million. The carryforward balances have varying carryforward periods through 2042, excluding certain attributes for which there is an indefinite carryforward period. A valuation allowance was recorded for $184 million of the tax-effected state net operating loss carryforwards and $801 million of the tax-effected foreign net operating loss carryforwards. Occidental had an additional valuation allowance of $145 million against other foreign deferred tax assets.

Occidental had no tax-effected federal interest expense carryforward and tax-effected state interest expense carryforward of $11 million as of December 31, 2022. Occidental recorded a valuation allowance for $9 million of the state interest expense carryforward.

A deferred tax liability had not been recognized for temporary differences related to unremitted earnings of certain consolidated international subsidiaries aggregating approximately $924 million as of December 31, 2022, as it is Occidental’s intention to reinvest such earnings indefinitely. If the earnings of these international subsidiaries were not indefinitely reinvested, an additional deferred tax liability of approximately $221 million would be required.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

millions	2022		2021		2020
Balance as of January 1	$	2,026	$	2,045	$	2,173
Increases related to prior-year positions	2		75		14
Settlements	—		(80)		(42)
Reductions for tax positions of prior years	(18)		(14)		(100)
Balance as of December 31	$	2,010	$	2,026	$	2,045

The December 31, 2022 balance of unrecognized tax benefits of $2.0 billion included potential benefits of $2.0 billion of which, if recognized, $1.5 billion would affect the effective tax rate on income. Also included were benefits of $45 million related to tax positions for which the ultimate deductibility is highly certain, but the timing of such deductibility is uncertain. Unrecognized tax benefits are included in deferred credits and other liabilities - other. Occidental records estimated potential interest and penalties related to liabilities for unrecognized tax benefits in the provisions for domestic and foreign income taxes. During 2022, Occidental recorded interest related to liabilities for unrecognized tax benefits of $95 million, for a cumulative accrued interest related to liabilities for unrecognized tax benefits of $416 million as of December 31, 2022. There were no penalties associated with liabilities for unrecognized tax benefits recorded for the years ended December 31, 2022 and 2021. Over the next 12 months, it is reasonably possible that the total amount of unrecognized tax benefits could decrease by $50 million to $60 million due to settlements with taxing authorities or lapses in statutes of limitation.

Occidental recognized $280 million and $105 million in federal and state income tax receivables as of December 31, 2022 and 2021, respectively, which was recorded in other current assets. In addition, Occidental recognized $33 million associated with the December 31, 2021 audit, which was recorded in long-term receivables and other assets, net.

Occidental is subject to audit by various tax authorities in varying periods. See Note 13 - Lawsuits, Claims, Commitments and Contingencies for a discussion of these matters.