Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2021
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, 2021, 2020 and 2019 are as follows (in millions): 
  Year Ended December 31,
  2021 2020 2019
U.S. $ (2,317) $ 720  $ 289 
International 39  (176) 426 
Total income (loss) before income taxes and non-controlling interest $ (2,278) $ 544  $ 715 
Income tax provision (benefit) included in our reported net income consisted of the following (in millions): 
Year Ended December 31,
2021 2020 2019
Current:
Federal $ —  $ —  $ — 
State 3  —  — 
Foreign 5  —  4 
Total current 8  —  4 
Deferred:
Federal (633) 41  (475)
State (89) 2  (46)
Foreign 1  —  — 
Total deferred (721) 43  (521)
Total income tax provision (benefit) $ (713) $ 43  $ (517)
 
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: 
Year Ended December 31,
2021 2020 2019
U.S. federal statutory tax rate 21.0  % 21.0  % 21.0  %
Non-controlling interest 7.2  (22.6) (17.2)
State tax, net of federal benefit (2.5) —  (5.4)
Executive compensation (0.5) 1.4  1.3 
Nondeductible interest expense —  8.0  5.0 
Foreign earnings taxed in the U.S. —  1.2  6.7 
Foreign rate differential (0.1) (3.7) (11.4)
Tax credits 0.6  (4.5) (5.2)
Internal restructuring —  7.0  — 
Other —  1.0  1.4 
Valuation allowance 5.6  (0.9) (68.5)
Effective tax rate as reported 31.3  % 7.9  % (72.3) %

Significant components of our deferred tax assets and liabilities at December 31, 2021 and 2020 are as follows (in millions): 
December 31,
2021 2020
Deferred tax assets    
Net operating loss carryforwards and credits
Federal $ 3,231  $ 3,084 
Foreign 2  3 
State 244  257 
Federal and state tax credits 108  95 
Derivative instruments 951  7 
Other 584  283 
Less: valuation allowance (63) (190)
Total deferred tax assets 5,057  3,539 
Deferred tax liabilities  
Investment in partnerships (716) (765)
Property, plant and equipment (2,638) (2,089)
Other (499) (196)
Total deferred tax liabilities (3,853) (3,050)
Net deferred tax assets $ 1,204  $ 489 
Valuation Allowance

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under GAAP and their respective tax bases, and for net operating loss (“NOL”) carryforwards and tax credit carryforwards. We evaluate the realizability of our deferred tax assets as of each reporting date, weighing all positive and negative evidence, and establish a valuation allowance if we determine that it is more likely than not that some or all of our deferred tax assets will not be realized. The assessment requires significant judgment and is performed in each of our applicable jurisdictions. In making such determination, we consider various factors such as historical profitability, future projections of sustained profitability underpinned by fixed-price long-term SPAs, reversal of existing deferred tax liabilities, construction and operational milestones reached on our Liquefaction Projects and our long-term SPAs achieving date of first commercial delivery. We recorded a valuation allowance of $190 million in 2020 against our deferred tax assets. Our valuation allowance decreased by $127 million for the year ended December 31, 2021, which was primarily attributable to a portion of our Louisiana NOLs no longer requiring a valuation allowance. Positive evidence supporting such conclusion included a change in Louisiana tax law allowing for indefinite carryover of NOLs, coupled with successful completion and subsequent operations of Train 3 of the CCL Project, and forecasts of sustained future profitability underpinned by fixed-price long-term SPAs. We maintained a valuation allowance of $63 million at December 31, 2021 primarily against state NOL carryforward deferred tax assets, for which we continue to believe the more likely than not recognition threshold was not met.

NOL and tax credit carryforwards

As of December 31, 2021, we had federal, state and foreign NOL carryforwards of approximately $15.7 billion, $2.4 billion and $10.0 million, respectively. Approximately $13.8 billion of our NOLs have an indefinite carryforward period. All other NOLs will expire between 2028 and 2037.

As of December 31, 2021, we had federal and state tax credit carryforwards of $107 million and $1 million, respectively. The federal tax credit carryforwards include investment tax credit carryforwards of $60 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 $44 million of foreign tax credits related to tax years 2014 through 2021. The federal and state tax credit carryforwards will expire between 2024 and 2041.

We experienced an ownership change within the provisions of U.S. Internal Revenue Code (“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.

Unrecognized Tax Benefits

As of December 31, 2021, we had unrecognized tax benefits of $65 million. If recognized, $56 million of unrecognized tax benefits would affect our effective tax rate in future periods. Currently, we do not recognize interest and penalties associated with the unrecognized tax benefits provided in our Consolidated Statements of Operations or our Consolidated Balance Sheets because settlement of uncertain tax positions would result in an adjustment to our NOL carryforward. Interest and penalties related to income tax matters would be recognized as part of income tax expense.

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 2017 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.
A reconciliation of the beginning and ending amounts of our unrecognized tax benefits for the years ended December 31, 2021 and 2020, is as follows (in millions): 
Year Ended December 31,
2021 2020
Balance at beginning of the year $ 62  $ 61 
Additions based on tax positions related to current year 3  1 
Additions for tax positions of prior years —  — 
Reductions for tax positions of prior years —  — 
Settlements —  — 
U.S. tax reform rate change —  — 
Balance at end of the year $ 65  $ 62