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Income Taxes

12 Months Ended

Dec. 31, 2020

16. Income Taxes

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


	Successor						Predecessor
Total Income Tax Expense (Benefit)	Year Ended December 31, 2020		Year Ended December 31, 2019		Five Months Ended December 31, 2018		Seven Months Ended July 31, 2018
Current Income Taxes
Federal	$	(3)	$	19	$	—	$	(14)
State	92		74		—		(1)
Total current income taxes	89		93		—		(15)

Deferred Income Taxes
Federal	86		(298)		(1,015)		54
State	(83)		(68)		(6)		9
Total deferred income taxes	3		(366)		(1,021)		63
Total income tax expense (benefit)	$	92	$	(273)	$	(1,021)	$	48

The following table presents a reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the actual effective tax rate:


	Successor												Predecessor
Reconciliation of the Income Tax Provision	Year Ended December 31, 2020				Year Ended December 31, 2019				Five Months Ended December 31, 2018				Seven Months Ended July 31, 2018
Tax Expense (Benefit) at Federal Statutory Rate	$	84	21.0	%	$	(1)	21.0	%	$	(29)	21.0	%	$	42	21.0	%
Effect of:
State taxes, net of federal benefit	7		1.6	%	5		(141.2)	%	(6)		4.2	%	8		3.8	%
Non-controlling interests	—		—	%	1		(21.1)	%	—		—	%	—		—	%
Change in valuation allowance	—		—	%	(285)		8066.4	%	(990)		720.0	%	—		—	%
Deferred adjustments	(5)		(1.1)	%	2		(64.1)	%	3		(1.8)	%	(1)		(0.5)	%
Nondeductible items	7		1.7	%	4		(136.5)	%	1		(1.0)	%	7		3.3	%
Other, net	(1)		(0.2)	%	1		(5.7)	%	—		—	%	(8)		(3.8)	%
Total income tax expense (benefit)	$	92	23.0	%	$	(273)	7718.8	%	$	(1,021)	742.4	%	$	48	23.8	%

In 2020, the effective tax rate differed from the statutory tax rate primarily due to state tax adjustments and permanent differences such as nondeductible executive compensation and nondeductible penalties. In 2019, the effective tax rate differed from the statutory tax rate primarily due to the release of the valuation allowance associated with the net operating loss (“NOL”) carryforwards of WMIH and state tax adjustments. The effective tax rate for the five months ended December 31, 2018 differed from the statutory tax rate primarily due to the reversal of the valuation allowance associated with the NOL carryforwards of WMIH, permanent differences including executive compensation disallowed under Internal Revenue Code Section 162(m), penalties and nondeductible meals and entertainment expenses.

In the assessment of whether a valuation allowance was required as of December 31, 2020, the Company considered the four sources of taxable income, as follows, under ASC 740-10-30-18:

1.Taxable income in prior carryback year(s) if carryback is permitted under the tax law;

2.Future reversals of existing taxable temporary differences;

3.Tax-planning strategies; and

4.Future taxable income exclusive of reversing temporary differences and carryforwards.

As part of the CARES Act enacted on March 27, 2020, the Company noted provisions allowing certain NOLs to be carried back and determined it does not have NOLs available for carryback as a result of this change in law. In determining the appropriate deferred tax asset valuation allowance as of December 31, 2020, the Company considered and evaluated the remaining three sources of income. The Company considered the future reversals of existing taxable temporary differences and identified tax-planning strategies that were considered prudent and feasible. In addition, the Company considered:

1.Internal forecasts of future pre-tax income exclusive of reversing temporary differences and carryforwards;

2.The nature and timing of future reversals of existing temporary differences;

3.Future originating temporary and permanent differences; and

4.NOL carryforward expiration dates.

Consistent with the prior year analysis, the Company based its projection of future taxable income on historical pre-tax income and assumed a steady state of operations that would generate cash flows and liquidity sufficient to maintain current operations. The Company considered other factors in its determination of future taxable income that was demonstrated by historical performance.

As a result, the Company still believes it is more likely than not that its deferred tax assets will be realized prior to its expiration except for federal 382 limited NOLs and immaterial state NOL carryforwards that begin to expire with the 2020 tax year if unused. A federal and state valuation allowance of $7 and $2, respectively, was recorded as of December 31, 2020 and 2019 related to these NOL carryforwards. The Company does not expect any future tax loss limitations under Sections 382 and 384 that would impact its utilization of remaining federal NOL carryforwards. Accordingly, the Company has federal NOL carryforwards (pre-tax) of approximately $2.6 billion and $4.7 billion as of December 31, 2020 and 2019, respectively. It is expected that the federal NOL carryforwards will begin to expire beginning with the 2026 tax year, if unused. The Company also has immaterial state NOL carryforwards that begin to expire with the 2020 tax year, if unused.

Temporary differences and carryforwards that give rise to deferred tax assets and liabilities are comprised of the following:


	Successor
Deferred Tax Assets and Liabilities	December 31, 2020		December 31, 2019
Deferred Tax Assets
Effect of:
Goodwill and intangible assets	$	728	$	364
Loss carryforwards (federal, state & capital)	558		998
Loss reserves	115		108
Reverse mortgage interests	38		44
Lease liability	26		32
Accruals	24		16
Other, net	15		16
Total deferred tax assets	1,504		1,578

Deferred Tax Liabilities
MSR amortization and mark-to-market, net	(117)		(181)
Right-of-use assets	(23)		(29)
Depreciation and amortization, net	(13)		(12)
Prepaid assets	(2)		(2)
Total deferred tax liabilities	(155)		(224)
Valuation allowance	(9)		(9)
Deferred tax assets, net	$	1,340	$	1,345

The Company elected to account for the Global Intangible Low-Taxed Income (“GILTI”) tax expense in the period in which it is incurred. As a result, no deferred tax impact of GILTI has been provided in the consolidated financial statements.

The Company files income tax returns in the U.S. federal jurisdiction and numerous U.S. state jurisdictions. With few exceptions, as of December 31, 2020, the Company is no longer subject to U.S. federal and state income tax examinations for tax years prior to 2017.

As of December 31, 2020 and 2019, the Company had no unrecognized tax benefits recorded related to uncertain tax positions.

The following is a tabular reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits, excluding interest and penalties, for the Predecessor:


	Predecessor
Unrecognized Tax Benefits	Seven Months Ended July 31, 2018
Balance - beginning of period	$	17
Decreases in tax positions of prior years	(17)
Balance - end of period	$	—

As of December 31, 2017, the Predecessor recorded $19 of unrecognized tax benefits related to uncertain tax positions, including $2 in interest and penalties. In the period ended March 31, 2018 the Predecessor took certain actions to remediate the uncertain tax position that existed as of the prior period. As a result, the Predecessor recognized all of the unrecognized tax benefits and recorded an income tax benefit of approximately $6, exclusive of any benefits related to interest and penalties in the period ended March 31, 2018.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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