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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Components of the Company’s income tax provision are as follows:
Year Ended December 31,
202120202019
Current:
Federal$404 $213 $179 
State and Local106 68 59 
Non-U.S.249 215 181 
Total current759 496 419 
Deferred:
Federal(172)6 (19)
State and Local(45)— (3)
Non-U.S.(1)(50)(16)
Total deferred(218)(44)(38)
Total provision for income taxes$541 $452 $381 
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate on income before provision for income taxes is as follows:
Year Ended December 31,
202120202019
U.S. statutory tax rate21.0 %21.0 %21.0 %
State and local taxes, net of federal tax benefit1.5 %2.3 %2.2 %
Benefit of foreign operations(1.5)%(1.5)%(0.1)%
Other(1.4)%(1.5)%(2.1)%
Effective tax rate19.6 %20.3 %21.0 %
Income tax paid$932 $514 $458 
The source of income before provision for income taxes is as follows:
Year Ended December 31,
202120202019
U.S.$1,563 $1,349 $1,039 
Non-U.S.1,192 880 771 
Income before provision for income taxes$2,755 $2,229 $1,810 
The components of deferred tax assets and liabilities are as follows:
December 31,
20212020
Deferred tax assets:
Account receivable allowances$8 $9 
Accumulated depreciation and amortization10 2 
Stock-based compensation50 42 
Accrued compensation and benefits101 99 
Capitalized costs33 39 
Operating lease liabilities134 122 
Deferred revenue252 30 
Net operating loss33 17 
Restructuring1 3 
Uncertain tax positions86 98 
Self-insured related reserves10 10 
Loss on net investment hedges - OCI11 93 
Other16 10 
Total deferred tax assets745 574 
Deferred tax liabilities:
Accumulated depreciation and amortization of intangible assets and capitalized software(659)(468)
ROU Assets(102)(90)
Capital Gains(31)(23)
Self-insured related income(10)(10)
Revenue Accounting Standard - ASC 606(7)(10)
Deferred tax on unremitted foreign earnings(12)(16)
Gain on net investment hedges - OCI(4)(8)
Other(6)(4)
Total deferred tax liabilities(831)(629)
Net deferred tax liabilities(86)(55)
Valuation allowance(18)(15)
Total net deferred tax liabilities$(104)$(70)
On December 22, 2017, the Tax Act was signed into law, which resulted in significant changes to U.S. corporate tax laws. The Tax Act includes a mandatory one-time deemed repatriation tax (“transition tax”) on previously untaxed accumulated earnings of foreign subsidiaries and beginning in 2018 reduces the statutory federal corporate income tax rate from 35% to 21%. Due to the complexities of the Tax Act, the SEC issued guidance requiring that companies provide a reasonable estimate of the impact of the Tax Act to the extent such reasonable estimate has been determined. Accordingly, as of December 31, 2017, the Company recorded a provisional estimate for the transition tax of $247 million. In September, 2018, the Company filed its 2017 federal income tax return and revised its determination of the transition tax to $236 million, a reduction of $11 million from the estimate at December 31, 2017. The revised determination of transition tax may be impacted by a number of additional considerations, including but not limited to the issuance of additional regulations.
As a result of the Tax Act, all previously net undistributed foreign earnings have now been subject to U.S. tax. The Company regularly evaluates which entities it will indefinitely reinvest earnings. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested.
The Company’s annual tax expense for the year ended December 31, 2021 includes Excess Tax Benefits from stock compensation of $31 million, benefits from the resolution of certain UTPs of $70 million and other net decreases to tax positions of $25 million.
The Company had valuation allowances of $18 million and $15 million at December 31, 2021 and 2020, respectively, related to foreign net operating losses for which realization is uncertain.
As of December 31, 2021, the Company had $388 million of UTPs of which $353 million represents the amount that, if recognized, would impact the effective tax rate in future periods. The decrease in 2021 resulted primarily from the resolutions of uncertain tax positions. The increase in 2020 was primarily due to the additional reserves established for non-U.S. tax exposures.
A reconciliation of the beginning and ending amount of UTPs is as follows:
Year Ended December 31,
202120202019
Balance as of January 1$483 $477 $495 
Additions for tax positions related to the current year102 37 35 
Additions for tax positions of prior years18 17 22 
Reductions for tax positions of prior years— (2)(2)
Settlements with taxing authorities(134)(5)(1)
Lapse of statute of limitations(81)(41)(44)
Reclassification to indemnification liability related to MAKS divestiture— — (28)
Balance as of December 31$388 $483 $477 
The Company classifies interest related to UTPs in interest expense in its consolidated statements of operations. Penalties are recognized in other non-operating expenses. During the year ended December 31, 2021 the Company accrued net interest income of $21 million related to UTPs. During the years ended December 31, 2020 and 2019 the Company incurred net interest expense of $34 million and $28 million, respectively, related to UTPs. As of December 31, 2021, 2020 and 2019 the amount of accrued interest recorded in the Company’s consolidated balance sheets related to UTPs was $59 million, $113 million and $82 million, respectively.
Moody’s Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company’s U.S. federal income tax returns for 2017 through 2019 are currently under examination and 2020 remains open to examination. The Company’s New York State tax returns for 2017 through 2018 are currently under examination and New York City tax returns for 2014 through 2017 are currently under examination. After the resolution of a tax audit for 2012, certain of the Company’s U.K. subsidiaries’ returns from 2012 to 2020 remain open to examination.
For current ongoing audits related to open tax years, the Company estimates that it is possible that the balance of UTPs could decrease in the next twelve months as a result of the effective settlement of these audits, which might involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also possible that new issues might be raised by tax authorities which might necessitate increases to the balance of UTPs. As the Company is unable to predict the timing of conclusion of these audits, the Company is unable to estimate the amount of changes to the balance of UTPs at this time.