Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table presents the components of income from continuing operations before taxes for the periods indicated (in millions):

	Year Ended December 31,
	2021		2020		2019
United States	$	1,608	$	1,167	$	179
International	(1,210)		2,178		1,473
	$	398	$	3,345	$	1,652

The following table summarizes the income tax provision (benefit) for the periods indicated (in millions):

	Year Ended December 31,
	2021		2020		2019
Current:
Federal	$	472	$	266	$	48
State and local	128		87		23
Foreign	228		91		149
	$	828	$	444	$	220
Deferred:
Federal	$	(755)	$	(73)	$	(159)
State and local	(125)		(8)		(44)
Foreign	198		495		202
	(682)		414		(1)
	$	146	$	858	$	219

The following table presents a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory rate of 21% to income before income taxes for the periods indicated (in millions):

	Year Ended December 31,
	2021		2020		2019
Provision at statutory rate	$	84	$	703	$	347
Foreign income taxed at different rates	19		19		13
Other taxes on foreign operations	89		19		(19)
Stock-based compensation	(26)		(4)		(4)
State taxes, net of federal benefit	3		80		(24)
Research and other tax credits	(39)		(28)		(29)
Impact of tax rate change	(3)		43		(21)
Effective settlement of audits	—		—		(69)
Non-deductible executive compensation	10		9		10
Other	9		17		15
	$	146	$	858	$	219

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to be reversed. The following table summarizes significant deferred tax assets and liabilities as of the dates indicated (in millions):

	As of December 31,
	2021		2020
Deferred tax assets:
Net operating loss, capital loss and credits	$	191	$	173
Accruals and allowances	356		390
Stock-based compensation	12		10
Amortizable tax basis in intangibles	3,174		3,471
Net deferred tax assets	3,733		4,044
Valuation allowance	(136)		(149)
	3,597		3,895
Deferred tax liabilities:
Outside basis differences	(3,136)		(2,165)
Acquisition-related intangibles	(37)		(36)
Depreciation and amortization	(202)		(219)
Net unrealized gain on investments	(84)		(307)
	(3,459)		(2,727)
	$	138	$	1,168

As of December 31, 2021, our federal, state and foreign net operating loss carryforwards for income tax purposes were approximately $13 million, $43 million and $248 million, respectively. The federal and state net operating loss carryforwards are subject to various limitations under Section 382 of the Internal Revenue Code and applicable state tax laws. If not utilized, the federal and state net operating loss carryforwards will begin to expire in 2024 and 2023, respectively. The carryforward periods on our foreign net operating loss carryforwards are as follows: $5 million do not expire and $243 million are subject to valuation allowance and begin to expire in 2027. As of December 31, 2021, state tax credit carryforwards for income tax purposes were approximately $175 million. Most of the state tax credits carry forward indefinitely.

As of December 31, 2021 and 2020, we maintained a valuation allowance with respect to certain of our deferred tax assets relating primarily to operating losses in certain non-U.S. jurisdictions and certain state tax credits that we believe are not likely to be realized.

We have recognized the tax consequences of all foreign unremitted earnings and management has no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiaries as of the balance sheet date. Accordingly, as of December 31, 2021 and 2020, $697 million and $791 million, respectively, of our liability for deemed repatriation of foreign earnings was included in other liabilities on our consolidated balance sheet. We have not provided for deferred taxes on outside basis differences in our investments in our foreign subsidiaries that are unrelated to unremitted earnings. These basis differences will be indefinitely reinvested. A determination of the unrecognized deferred taxes related to these other components of our outside basis difference is not practicable.

In connection with the transfer of our Classifieds business on June 24, 2021 we recorded $2.1 billion of income tax expense as part of income from discontinued operations, of which $1.7 billion was a deferred tax liability for the outside basis difference related to our receipt of Adevinta shares. Through the remainder of 2021, the deferred tax liability has decreased with the change in fair value of the Adevinta investment, which has been recorded in income from continuing operations following the transaction close date through December 31, 2021.

The following table presents changes in unrecognized tax benefits for the periods indicated (in millions):

	Year Ended December 31,
	2021		2020		2019
Gross amounts of unrecognized tax benefits as of the beginning of the period	$	420	$	387	$	544
Increases related to prior period tax positions	6		30		37
Decreases related to prior period tax positions	(5)		(15)		(114)
Increases related to current period tax positions	42		39		28
Settlements	(2)		(21)		(108)
Gross amounts of unrecognized tax benefits as of the end of the period	$	461	$	420	$	387

As of December 31, 2021, gross amounts of unrecognized tax benefits of $461 million included $50 million of unrecognized tax benefits indemnified by PayPal. As of December 31, 2020, gross amounts of unrecognized tax benefits of $420 million included $50 million of unrecognized tax benefits indemnified by PayPal. If total unrecognized tax benefits were realized in a future period, it would result in a tax benefit of $318 million. Of this amount, approximately $46 million of unrecognized tax benefit is indemnified by PayPal and a corresponding receivable would be reduced upon a future realization. As of December 31, 2021, our liabilities for unrecognized tax benefits were included in other liabilities on our consolidated balance sheet.

We recognize interest and/or penalties related to uncertain tax positions in income tax expense. In 2021 and 2020, tax benefits of $6 million and $10 million, respectively, were included in tax expense for interest and penalties. The amount of interest and penalties accrued as of December 31, 2021 and 2020 was approximately $46 million and $39 million, respectively.

We are subject to both direct and indirect taxation in the U.S. and various states and foreign jurisdictions. We are under examination by certain tax authorities for the 2010 to 2020 tax years. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these or other examinations. The material jurisdictions where we are subject to potential examination by tax authorities for tax years after 2009 include, among others, the U.S. (Federal and California), Germany, Israel, Singapore, Switzerland and the United Kingdom.

Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.