INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The components of earnings (loss) from continuing operations before income taxes and the provision for (benefit from) income taxes from continuing operations were as follows:

	Years ended December 31,
(In millions)	2022		2021		2020
Earnings (loss) from continuing operations before income taxes:
United States	$	1,021	$	560	$	(126)
Foreign	195		133		(4)
Total	$	1,216	$	693	$	(130)
Provision for (benefit from) income taxes from continuing operations:
Current tax expense (benefit) from continuing operations:
Federal	$	30	$	9	$	(1)
State	43		24		10
Foreign	14		12		6
	87		45		15
Deferred tax expense (benefit) from continuing operations:
Federal	214		112		(28)
State	23		8		(10)
Foreign	29		6		5
	266		126		(33)
Total	$	353	$	171	$	(18)

In 2022, 2021 and 2020, federal, state, and foreign net operating losses were utilized to offset current income taxes payable resulting in a tax benefit of $103 million, $124 million, and $278 million, respectively.

A reconciliation of the federal statutory tax rate with the effective tax rate from continuing operations follows:

	Years ended December 31,
(Percentage of pre-tax earnings)	2022		2021		2020
Federal statutory tax rate	21.0	%	21.0	%	21.0	%
Impact on deferred taxes for changes in tax rates	(0.4)	%	(0.3)	%	0.9	%
Additional deferred tax adjustments	(0.1)	%	(0.1)	%	0.8	%
State income taxes, net of federal income tax benefit	5.1	%	4.4	%	(3.4)	%
Foreign rates varying from federal statutory tax rate	(5.3)	%	0.1	%	1.3	%
FMS U.K. business exit	3.2	%	—	%	—	%
Tax contingencies	(0.3)	%	(0.7)	%	5.5	%
Tax credits	(0.2)	%	(0.3)	%	1.7	%
Other permanent book-tax differences	0.6	%	1.8	%	(3.3)	%
Change in foreign valuation allowance	5.4	%	(1.1)	%	(11.9)	%
Other	0.1	%	(0.1)	%	1.5	%
Effective tax rate	29.1	%	24.7	%	14.1	%

Deferred Income Taxes

The components of the net deferred income tax liability were as follows:

	December 31,
(In millions)	2022		2021
Deferred income tax assets:
Self-insurance accruals	$	109	$	111
Net operating loss carryforwards	182		271
Accrued compensation and benefits	88		69
Pension benefits	27		17
Deferred revenue	131		153
Other, including federal benefit on state tax positions	25		31
	562		652
Valuation allowance	(88)		(24)
	474		628
Deferred income tax liabilities:
Property and equipment basis differences	(2,013)		(1,874)
Other	(18)		(24)
	(2,031)		(1,898)
Net deferred income tax liability (1)	$	(1,557)	$	(1,270)

_______________

(1)Deferred tax assets of $14 million and $5 million have been included in "Sales-type leases and other assets" as of December 31, 2022 and 2021.

During 2021, we reevaluated our historic assertion with respect to our U.K. and Germany operations and determined that we no longer consider these earnings to be indefinitely reinvested. In October 2022 we repatriated $282 million of undistributed earnings from our U.K. subsidiary with minimal tax cost. As of December 31, 2022, we continue to consider these earnings no longer indefinitely reinvested and determined that there was no impact to deferred taxes. We intend to continue to permanently reinvest the earnings from our remaining foreign jurisdictions which, as of December 31, 2022, had $506 million of undistributed foreign earnings. Any future repatriations of the unremitted earnings could be subject to additional federal, state and foreign income taxes, withholding taxes, and/or the tax impact of foreign currency exchange gains or losses. The determination of the amount of unrecognized deferred tax liability associated with the $506 million of undistributed foreign earnings is not practicable because of the complexities associated with the hypothetical calculations used in evaluating whether we will maintain the indefinite reinvestment assertion on the remaining foreign subsidiaries.

As of December 31, 2022, we had U.S. federal tax effected net operating loss carryforwards, before unrecognized tax benefits, of $81 million, of which $6 million is expected to expire beginning 2035 and the remaining portion has an indefinite carryforward period. U.S. federal net operating loss deductions are limited to 80% of taxable income for losses generated in taxable years beginning after December 31, 2017. Various U.S. subsidiaries had state tax-effected net operating loss carryforwards, before unrecognized tax benefits and valuation allowances, of $31 million that will begin to expire as follows: approximately $1 million in 2026, $25 million in years 2027 and thereafter, with the remaining $6 million having an indefinite carryforward period. To the extent that we do not generate sufficient state taxable income through viable planning strategies within the statutory carryforward periods to utilize the loss carryforwards in these states, the loss carryforwards will expire unused. We also had foreign tax effected net operating loss carryforwards of $97 million that are available to reduce future income tax payments in several countries, subject to varying expiration rules. We assess the realizability of our deferred tax assets and record a valuation allowance to the extent it is determined that they are not more-likely-than-not to be realized. During 2022, the consideration of all of the evidence led to the determination that the deferred tax assets in the U.K. were more-likely-than-not realizable, and therefore, the full valuation allowance on the U.K. deferred tax assets of $4 million was released. Due to our assessment of future sources of taxable income in various states and foreign jurisdictions, we have a cumulative valuation allowance of $88 million against our deferred tax assets as of December 31, 2022, a net increase of $64 million from the prior year. The increase is primarily due to a newly established valuation allowance against net operating losses generated by the U.K.'s parent entity related to the exit of the FMS U.K. business in 2022, that were determined to be not more-likely-than-not realizable. The valuation allowance is subject to change in future years based on the availability of future sources of taxable income.

Uncertain Tax Positions

In many cases, our uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. The following table summarizes these open tax years by jurisdiction:

Jurisdiction	Open Tax Year
United States (Federal)	2013 - 2015, 2018 - 2022
Canada	2013 - 2022
Mexico	2017 - 2022
United Kingdom	2020 - 2022
Brazil (in discontinued operations)	2017 - 2022

The following table summarizes the activity related to unrecognized tax benefits (excluding the federal benefit received from state positions):

	December 31,
(In millions)	2022		2021		2020
Balance at January 1	$	38	$	43	$	49
Additions based on tax positions related to the current year	2		1		2
Reductions due to lapse of applicable statutes of limitation	(6)		(6)		(8)
Total before interest and penalties at December 31	34		38		43
Interest and penalties	3		4		4
Balance at December 31	$	37	$	42	$	47

Of the total unrecognized tax benefits as of December 31, 2022, $31 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. Unrecognized tax benefits related to federal, state and foreign tax positions may decrease $4 million by December 31, 2023, if audits are completed or tax years close during 2023.