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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Income Before Income Taxes. The sources of income (loss) from continuing operations before income taxes are:
(dollars in millions)202120202019
United States$3,498 $(2,762)$1,594 
Foreign1,433 409 2,558 
Income (loss) from continuing operations before income taxes$4,931 $(2,353)$4,152 
The Company no longer intends to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, we recorded the taxes associated with the future remittance of these earnings. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, the Company will continue to permanently reinvest these earnings. As of December 31, 2021, such undistributed earnings were approximately $15 billion, excluding other comprehensive income amounts. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts.
Provision for Income Taxes. The income tax expense (benefit) for the years ended December 31 are as follows:
(dollars in millions)202120202019
Current:
United States:
Federal$387 $324 $(100)
State60 45 (58)
Foreign427 305 541 
874 674 383 
Future:
United States:
Federal(26)(264)121 
State41 258 56 
Foreign(103)(93)(139)
 (88)(99)38 
Income tax expense$786 $575 $421 
Reconciliation of Effective Income Tax Rate. Differences between effective income tax rates and the statutory U.S. federal income tax rate are as follows:
202120202019
(dollars in millions)AmountRateAmountRateAmountRate
Statutory U.S. federal income tax rate$1,036 21.0 %$(494)21.0 %$872 21.0 %
Tax on international activities(204)(4.1)27 (1.1)32 0.7 
Tax audit settlements— — — — (290)(7.0)
Tax charges related to Separation Transactions and Raytheon Merger(39)(0.8)416 (17.7)— — 
Disposals of businesses108 2.2 177 (7.5)— — 
U.S. research and development credit(172)(3.5)(142)6.1 (101)(2.4)
Goodwill impairment— — 668 (28.4)— — 
State income tax, net33 0.7 (56)2.4 16 0.4 
Foreign Derived Intangible Income (FDII)(121)(2.5)(83)3.5 (138)(3.3)
U.K. corporate tax rate enactment73 1.5 8 (0.4)— — 
Other72 1.4 54 (2.3)30 0.7 
Effective income tax rate$786 15.9 %$575 (24.4)%$421 10.1 %
The 2021 effective tax rate includes tax benefits of $244 million included in international activities associated with legal entity and operational reorganizations implemented in the third quarter of 2021, $172 million associated with U.S. research and development credits and $121 million associated with Foreign Derived Intangible Income (FDII), and tax charges of $73 million associated with the revaluation of deferred taxes resulting from the increase in the United Kingdom (U.K.) corporate tax rate to 25% enacted in 2021 and effective in 2023. In the first quarter of 2021, we recorded $148 million of tax charges associated with the sale of the Forcepoint business, and subsequently recognized a $104 million tax benefit due to the revaluation of that tax benefit as a result of completing the divestiture of RIS’s global training and services business for a gain in the fourth quarter of 2021.
The 2020 negative effective tax rate is a result of having tax expense of $575 million on a loss from continuing operations before income taxes of $2.4 billion. The loss from continuing operations before income taxes in 2020 includes the $3.2 billion goodwill impairment as described in “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets,” most of which was non-deductible for tax purposes. Tax expense includes net deferred tax charges of $416 million resulting from the Separation Transactions and the Raytheon Merger primarily related to the impairment of deferred tax assets and the revaluation of certain international tax incentives, and incremental tax expense of $177 million related to the disposal of businesses, including the sales of businesses at Collins Aerospace, the airborne tactical radios business at RIS and the entry into a definitive agreement to sell Forcepoint, as described in “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets.” Also included in the 2020 effective tax rate are tax benefits of $142 million associated with U.S. research and development credits and $83 million associated with FDII.
The 2019 effective tax rate includes tax benefits of $290 million primarily associated with the conclusion of the audit by the Examination Division of the Internal Revenue Service (IRS) for the Company’s 2014, 2015 and 2016 tax years and the filing by a subsidiary of the Company to participate in an amnesty program offered by the Italian Tax Authority. The 2019 effective tax rate also includes tax benefits of $101 million related to U.S. research and development credits and $138 million associated with FDII.
Deferred Tax Assets and Liabilities. The tax effects of temporary differences and tax carryforwards which gave rise to future income tax benefits and payables at December 31, 2021 and 2020 are as follows:
(dollars in millions)20212020
Future income tax benefits:
Insurance and employee benefits$1,831 $3,004 
Inventory and contract balances756 822 
Warranty provisions248 220 
Other basis differences878 637 
Tax loss carryforwards251 196 
Tax credit carryforwards1,088 959 
Valuation allowances(825)(757)
Total future income tax benefits$4,227 $5,081 
Future income taxes payable:
Goodwill and Intangible assets$7,168 $7,786 
Fixed assets1,746 1,637 
Other basis differences323 151 
Total future income tax payable$9,237 $9,574 
Valuation allowances have been established primarily for tax credit carryforwards, tax loss carryforwards, and certain temporary differences to reduce the future income tax benefits to expected realizable amounts.
Tax Credit and Loss Carryforwards. At December 31, 2021, tax credit carryforwards, principally state and foreign, and tax loss carryforwards, principally state and foreign, were as follows:
(dollars in millions)Tax Credit
Carryforwards		Tax Loss
Carryforwards
Expiration period:
2022-2026$65 $364 
2027-2031115 141 
2032-2041391 257 
Indefinite517 1,058 
Total$1,088 $1,820 
Unrecognized Tax Benefits. At December 31, 2021, we had gross tax-effected unrecognized tax benefits of $1,458 million, of which $1,313 million, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and interest expense related to unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019 is as follows: 
(dollars in millions)202120202019
Balance at January 1$1,225 $1,347 $1,619 
Additions for tax positions related to the current year110 125 131 
Additions for tax positions of prior years282 323 73 
Reductions for tax positions of prior years(49)(83)(101)
Settlements(110)(48)(375)
Separation of Carrier and Otis— (439)— 
Balance at December 31$1,458 $1,225 $1,347 
Gross interest expense related to unrecognized tax benefits$39 $50 $57 
Total accrued interest balance at December 31165 141 249 
The unrecognized tax benefit table includes discontinued operations activity in 2020 and 2019.
As a result of the Separation Transactions and the Distributions in April 2020, we transferred unrecognized tax benefits to Carrier and Otis of $439 million and associated interest of approximately $165 million. Pursuant to the terms of the separation agreements, certain other unrecognized tax benefits retained by the Company are subject to indemnification. Total unrecognized tax benefits at December 31, 2019 included $437 million of benefits related to discontinued operations, and associated interest of approximately $155 million.
The 2020 additions for tax positions of prior years in the table above include amounts related to the Raytheon Merger.
Management has determined that the distributions of Carrier and Otis on April 3, 2020, and certain related internal business separation transactions, qualified as tax-free under applicable law. In making these determinations, we applied the tax law in the relevant jurisdictions to our facts and circumstances and obtained tax rulings from the relevant taxing authorities, tax opinions, and/or other external tax advice related to the concluded tax treatment. If the completed distributions of Carrier or Otis, in each case, or certain internal business separation transactions, were to fail to qualify for tax-free treatment, the Company could be subject to significant liabilities, and there could be material adverse impacts on the Company’s business, results of operations, financial condition or liquidity in future reporting periods.
We conduct business globally and, as a result, Raytheon Technologies or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Germany, India, Poland, Saudi Arabia, Singapore, Switzerland, the United Kingdom and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2012.
During the fourth quarter of 2020, the Company recognized a non-cash gain of approximately $25 million, primarily tax, as a result of the statute of limitations expiration of the 2016 tax year of a subsidiary acquired as part of the RTC’s acquisition of Rockwell Collins.
During 2019, the Company recognized a non-cash net gain of approximately $307 million, including pre-tax interest of approximately $56 million as a result of the conclusion of the IRS audit of the Company’s 2014, 2015 and 2016 tax years.
The Examination Division of the IRS is currently auditing Raytheon Technologies tax years 2017 and 2018 and pre-merger Raytheon Company tax periods 2017, 2018 and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015 and 2016 filed prior to the Raytheon Merger.
The Examination Division of the IRS is also auditing pre-acquisition Rockwell Collins fiscal tax years 2016 and 2017, which is projected to close within the next six to twelve months. As a result of the projected closure of the audit of Rockwell Collins fiscal tax years 2016 and 2017, it is reasonably possible that the Company may recognize non-cash gains in the range of $20 million to $100 million, within the next six to twelve months.
It is reasonably possible that a net reduction within the range of $100 million to $500 million of unrecognized tax benefits may occur over the next 12 months as a result of the revaluation of uncertain tax positions arising from the issuance of legislation, regulatory or other guidance or developments in examinations, in appeals, or in the courts, or the closure of tax statutes.