Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

5.  INCOME TAXES 

The provision for (benefit from) income taxes consists of the following (in millions):

	Year Ended December 31,
	2021			2020			2019
Current:
Federal	$	(46	)	$	(1	)	$	(38	)
State		6			3			(5	)
		(40	)		2			(43	)
Deferred:
Federal		161			(162	)		179
State		10			(25	)		24
		171			(187	)		203
Total provision for (benefit from) income taxes for income (loss)	$	131		$	(185	)	$	160

The following table reconciles the differences between the statutory federal income tax rate and the effective tax rate (dollars in millions):

	Year Ended December 31,
	2021						2020						2019
	Amount			%			Amount			%			Amount			%
Provision for (benefit from) income taxes at statutory federal rate	$	105			21.0	%	$	89			21.0	%	$	(90	)		21.0	%
State income taxes, net of federal income tax benefit		44			8.7			(15	)		(3.6	)		(104	)		24.3
Net income attributable to noncontrolling interests		(29	)		(5.8	)		(20	)		(4.7	)		(18	)		4.2
Change in valuation allowance		33			6.8			(267	)		(63.2	)		340			(79.2	)
Nondeductible goodwill		—			—			41			9.8			11			(2.6	)
Amended return adjustments		(22	)		(4.4	)		—			—			—			—
Nondeductible loss on divestiture		—			—			(15	)		(3.4	)		15			(3.5	)
Other		—			—			2			0.3			6			(1.4	)
Provision for (benefit from) income taxes and effective tax rate for income (loss)	$	131			26.3	%	$	(185	)		(43.8	)%	$	160			(37.2	)%

The Company’s effective tax rates were 26.3%, (43.8)% and (37.2)% for the years ended December 31, 2021, 2020 and 2019, respectively. The increase in the Company’s effective tax rate for the year ended December 31, 2021, when compared to the year ended December 31, 2020, was primarily due to a decrease in the valuation allowance in 2020 as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act; the CARES Act related benefits for deductibility of interest recognized in 2020 did not reoccur in 2021. The decrease in the Company’s effective tax rate for the year ended December 31, 2020, when compared to the year ended December 31, 2019, was primarily due to a decrease in the valuation allowance recognized on IRC Section 163(j) interest carryforwards and original issue discount deferred tax asset as a result of (i) an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act and (ii) tax impacts of 2020 financing activity.

Deferred income taxes are based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities under the provisions of the enacted tax laws. Deferred income taxes as of December 31, 2021 and 2020 consist of (in millions):

	December 31,
	2021					2020
	Assets			Liabilities		Assets			Liabilities
Net operating loss and credit carryforwards	$	833		$	—	$	873		$	—
Property and equipment		—			343		—			300
Self-insurance liabilities		49			—		58			—
Prepaid expenses		—			30		—			29
Intangibles		—			144		—			127
Investments in unconsolidated affiliates		—			58		—			57
Other liabilities		—			9		—			9
IRC Section 481(a) - mixed service cost		—			—		—			106
Long-term debt and interest		48			—		154			—
Accounts receivable		22			—		52			—
IRC Section 163(j) interest limitation		329			—		108			—
Accrued vacation		22			—		22			—
Accrued bonus		31			—		32			—
Other comprehensive income		5			—		6			—
Right-of-use assets		—			137		—			150
Right-of-use liability		142			—		155			—
Stock-based compensation		4			—		4			—
Deferred compensation		64			—		69			—
IRC Section 481(a) Adjustments		—			191		—			—
Other		38			—		57			—
Total		1,587			912		1,590			778
Valuation allowance		(814	)		—		(781	)		—
Total deferred income taxes	$	773		$	912	$	809		$	778

The Company believes that the net deferred tax assets will ultimately be realized, except as noted below. Its conclusion is based on its estimate of future taxable income and the expected timing of temporary difference reversals. The Company has gross federal net operating loss carryforwards of approximately $763 million and state net operating loss carryforwards of approximately $9.4 billion, which expire from 2022 to 2041. The Company’s tax affected federal and state net operating loss and credit carryforwards are approximately $195 million and $638 million, respectively. A valuation allowance of approximately $814 million has been recognized for state net operating loss carryforwards, state credit carryforwards and federal and state deferred tax assets that the Company does not expect to be able to utilize prior to the expiration of the carryforward period. With respect to the deferred tax liability pertaining to intangibles, as included above, goodwill purchased in connection with certain of the Company’s business acquisitions is amortizable for income tax reporting purposes. However, for financial reporting purposes, there is no corresponding amortization allowed with respect to such purchased goodwill.

The valuation allowance for federal and state jurisdictions where the Company concluded that the associated deferred tax assets would not be realized increased by $64 million and decreased by $31 million, respectively, for the year ended December 31, 2021, and decreased by $265 million and $2 million, respectively, for the year ended December 31, 2020.

The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was less than $1 million as of December 31, 2021. A total of less than $1 million of interest and penalties is included in the amount of the liability for uncertain tax positions at December 31, 2021. It is the Company’s policy to recognize interest and penalties related to unrecognized benefits in its consolidated statements of income (loss) as income tax expense.

It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute of limitations and settlements with taxing authorities; however, the Company does not anticipate the change will have a material impact on the Company’s consolidated results of operations or consolidated financial position.

The following is a tabular reconciliation of the total amount of unrecognized tax benefit for the years ended December 31, 2021, 2020 and 2019 (in millions):

	Year Ended December 31,
	2021			2020		2019
Unrecognized tax benefit, beginning of year	$	45		$	26	$	29
Gross increases — tax positions in current period		5			19		10
Reductions — tax positions in prior period		(8	)		—		—
Settlements		—			—		(13	)
Unrecognized tax benefit, end of year	$	42		$	45	$	26

The Company’s income tax return for the 2018 tax year remains under examination by the Internal Revenue Service. The Company believes the result of this examination will not be material to its consolidated results of operations or consolidated financial position. The Company has extended the federal statute of limitations through June 30, 2022 for Community Health Systems, Inc. for the tax periods ended December 31, 2014 and 2015. In addition, the Company has extended the federal statute of limitations through December 31, 2023 for the tax period ended December 31, 2018.

Cash paid for income taxes, net of refunds received, resulted in net cash paid of $4 million, net cash paid of $2 million and net cash refund of $3 million during the years ended December 31, 2021, 2020 and 2019, respectively.