Income Taxes

3 Months Ended

Mar. 31, 2020

Current Income Tax Expense (Benefit), Continuing Operations [Abstract]

Income Taxes

Income Taxes

The Company files U.S. federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2016. In addition, with few exceptions, the Company is no longer subject to state, local or foreign income tax examinations for years prior to 2010.

The Company’s effective tax rate decreased from 27.7% during the three months ended March 31, 2019, to 24.7% during the three months ended March 31, 2020, primarily due to an increase in the valuation allowance associated with foreign tax credit carryforwards, which reduced the overall benefit for income taxes in the current year.

The Company made cash income tax payments, net of tax refunds, of $5 million and $2 million during the three months ended March 31, 2020 and 2019.

Tax positions are reviewed at least quarterly and adjusted as new information becomes available. The recoverability of deferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, available tax planning strategies and forecasted operating earnings. These estimates of future taxable income inherently require significant judgment. To the extent it is considered more likely than not that a deferred tax asset will be not recovered, a valuation allowance is established. The significant negative impacts of COVID-19 resulted in the establishment of additional valuation allowances in the first quarter of 2020 of $3 million related to foreign tax credits. 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was established to provide emergency assistance and health care for individuals, families, and businesses affected by COVID-19 and generally support the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. The Company expects to take advantage of the payroll tax credits and deferral of the social security payments. The Company will also have additional depreciation deductions relating to qualified improvement property. The Company has not completed the full analysis of the impact of the CARES Act.