Income Taxes

12 Months Ended

Dec. 31, 2022

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,
	2022			2021			2020
Current:
Federal	$	—		$	(46	)	$	(1	)
State		5			6			3
		5			(40	)		2
Deferred:
Federal		166			161			(162	)
State		(1	)		10			(25	)
		165			171			(187	)
Total provision for (benefit from) income taxes for income	$	170		$	131		$	(185	)

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,
	2022						2021						2020
	Amount			%			Amount			%			Amount			%
Provision for (benefit from) income taxes at statutory   federal rate	$	73			21.0	%	$	105			21.0	%	$	89			21.0	%
State income taxes, net of federal income tax benefit		3			0.8			44			8.7			(15	)		(3.6	)
Net income attributable to noncontrolling interests		(28	)		(8.0	)		(29	)		(5.8	)		(20	)		(4.7	)
Change in valuation allowance		122			34.9			33			6.8			(267	)		(63.2	)
Nondeductible goodwill		—			—			—			—			41			9.8
Amended return adjustments		—			—			(22	)		(4.4	)		—			—
Nondeductible loss on divestiture		—			—			—			—			(15	)		(3.4	)
Other		—			—			—			—			2			0.3
Provision for (benefit from) income taxes and   effective tax rate for income	$	170			48.7	%	$	131			26.3	%	$	(185	)		(43.8	)%

The Company’s effective tax rates were 48.7%, 26.3% and (43.8)% for the years ended December 31, 2022, 2021 and 2020, respectively. The increase in the Company’s effective tax rate for the year ended December 31, 2022, when compared to the year ended December 31, 2021, was primarily due to an increase in non-deductible interest for 2022 compared to 2021, compounded by an adverse change in the IRC Section 163(j) limit for deductible interest expense beginning in 2022. 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.

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, 2022 and 2021 consist of (in millions):

	December 31,
	2022					2021
	Assets			Liabilities		Assets			Liabilities
Net operating loss and credit carryforwards	$	553		$	—	$	833		$	—
Property and equipment		—			323		—			343
Self-insurance liabilities		30			—		49			—
Prepaid expenses		—			31		—			30
Intangibles		—			148		—			144
Investments in unconsolidated affiliates		—			58		—			58
Other liabilities		—			9		—			9
Long-term debt and interest		41			—		48			—
Accounts receivable		16			—		22			—
IRC Section 163(j) interest limitation		448			—		329			—
Accrued vacation		19			—		22			—
Accrued bonus		19			—		31			—
Other comprehensive income		6			—		5			—
Right-of-use assets		—			148		—			137
Right-of-use liability		156			—		142			—
Stock-based compensation		5			—		4			—
Deferred compensation		51			—		64			—
IRC Section 481(a) adjustments		—			122		—			191
Other		19			—		38			—
Total		1,363			839		1,587			912
Valuation allowance		(829	)		—		(814	)		—
Total deferred income taxes	$	534		$	839	$	773		$	912

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 $68 million and state net operating loss carryforwards of approximately $9.6 billion, which expire from 2023 through 2042. The Company’s tax affected federal and state net operating loss and credit carryforwards are approximately $21 million and $532 million, respectively. A valuation allowance of approximately $829 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 realize. 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 $122 million and decreased by $108 million, respectively, for the year ended December 31, 2022, and increased by $64 million and decreased by $31 million, respectively, for the year ended December 31, 2021.

The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was $2 million as of December 31, 2022. 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, 2022. It is the Company’s policy to recognize interest and penalties related to unrecognized benefits in its consolidated statements of income 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, 2022, 2021 and 2020 (in millions):

	Year Ended December 31,
	2022		2021			2020
Unrecognized tax benefit, beginning of year	$	42	$	45		$	26
Gross increases — tax positions in current period		8		5			19
Reductions — tax positions in prior period		—		(8	)		—
Unrecognized tax benefit, end of year	$	50	$	42		$	45

The Company’s income tax return for the 2014, 2015 and 2018 tax years remain 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 December 31, 2023 for Community Health Systems, Inc. for the tax period ended December 31, 2018.

Cash paid for income taxes, net of refunds received, was $6 million, $4 million and $2 million during the years ended December 31, 2022, 2021 and 2020, respectively.