|12 Months Ended|
Dec. 31, 2020
|Income Tax Disclosure [Abstract]|
|Income Taxes||INCOME TAXES
The jurisdictional components of income before income taxes and non-controlling interest on our Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 are as follows (in millions):
Income tax provision (benefit) included in our reported net income consisted of the following (in millions):
Our income tax rates do not bear a customary relationship to statutory income tax rates. A reconciliation of the federal statutory income tax rate of 21% to our effective income tax rate is as follows:
Significant components of our deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows (in millions):
Business interest expense carryforward
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act (“the CARES Act”) was signed into law which provided numerous tax changes in response to the COVID-19 pandemic. In general, the CARES Act was favorable to us because it increased the interest deductibility limit from 30% to 50% of adjusted taxable income in 2019 and 2020.
On September 14, 2020, the U.S Department of Treasury issued final and proposed regulations providing guidance on the business interest expense limitation under Section 163(j) of the Internal Revenue Code. In general, the regulations were favorable to us because they allow depreciation capitalized to inventory to be added back to adjusted taxable income from 2018 through 2021, for purposes of computing the allowable interest expense deduction. As permitted under the regulations, we intend to adopt them retroactively beginning with the tax year ended December 31, 2018.
The favorable changes brought about by the CARES Act and the final and proposed interest expense regulations allow us to fully deduct our current year business interest expense and all of our previously disallowed business interest expense carryforward.
On March 31, 2020 we executed an internal restructuring which simplified our legal entity structure, causing foreign income to flow directly to our U.S. tax return. As a result of the internal restructuring, a one-time $38 million deferred tax expense was recorded discretely during the first quarter of 2020.
For the period ended December 31, 2020, we have provided a valuation allowance of approximately $190 million on certain state NOLs and federal capital loss carryforwards, for which we believe are more likely than not to expire before realization of the benefit. Our valuation allowance decreased by $6 million for the year ended December 31, 2020.
For the period ended December 31, 2019, we weighed all of the positive and negative evidence, and determined that sufficient positive evidence existed to support releasing the valuation allowance against substantially all of our federal deferred tax assets and a portion of our state deferred tax assets. The positive evidence supporting such conclusion included successful completion and subsequent operations of Trains 1 and 2 of the CCL Project and Train 5 of the SPL Project, transitioning from a
-year cumulative loss position in 2018 to a -year cumulative income position in 2019, commencing commercial delivery on 13 of our long-term customer SPAs and forecasts of sustained future profitability.
NOL and tax credit carryforwards
At December 31, 2020, we had federal and state NOL carryforwards of approximately $15.0 billion and $3.2 billion, respectively. Approximately $10.6 billion of these NOLs have an indefinite carryforward period. All other NOLs will expire between 2026 and 2040.
At December 31, 2020, we had federal and state tax credit carryforwards of $93 million and $2 million, respectively. The federal tax credit carryforwards include investment tax credit carryforwards of $52 million related to capital equipment placed in service at our Liquefaction Projects. We account for our federal investment tax credits under the flow-through method. The federal tax credit carryforwards also include $37 million of foreign tax credits related to tax years 2014 through 2020. The federal and state tax credit carryforwards will expire between 2024 and 2039.
We experienced an ownership change within the provisions of U.S. IRC Section 382 in 2008, 2010 and 2012. An analysis of the annual limitation on the utilization of our NOLs was performed in accordance with IRC Section 382. It was determined that IRC Section 382 will not limit the use of our NOLs over the carryover period. We continue to monitor trading activity in our shares which may cause an additional ownership change which could ultimately affect our ability to fully utilize our existing NOL carryforwards.
Income Tax Audits
We are subject to tax in the U.S. and various state and foreign jurisdictions and we remain subject to periodic audits and reviews by taxing authorities. Federal and state tax returns for the years after 2016 remain open for examination. Tax authorities may have the ability to review and adjust carryover attributes that were generated prior to these periods if utilized in an open tax year.
Unrecognized Tax Benefits
At December 31, 2020, we had unrecognized tax benefits of $62 million. If recognized, $53 million of unrecognized tax benefits would affect our effective tax rate in future periods. Currently, we do not recognize any accrued liabilities, interest and penalties associated with the unrecognized tax benefits provided in our Consolidated Statements of Operations or our Consolidated Balance Sheets because any settlement of uncertain tax positions would result in an adjustment to our NOL carryforward. We recognize interest and penalties related to income tax matters as part of income tax expense.
A reconciliation of the beginning and ending amounts of our unrecognized tax benefits for the years ended December 31, 2020 and 2019, is as follows (in millions):
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.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef