Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Components of income tax expense (benefit) were:

	Millions of Dollars
	2021		2020	2019
Income Tax Expense (Benefit)
Federal
Current	$	363	(1,324)	354
Deferred	(85)		171	177
Foreign
Current	50		9	204
Deferred	(39)		67	(50)
State and local
Current	5		(61)	61
Deferred	(148)		(112)	55
	$	146	(1,250)	801

During the year ended December 31, 2020, in accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, we recorded a tax benefit reflecting the carryback of a significant portion of our 2020 net operating loss to a year that had a 35% federal statutory income tax rate. An income tax receivable of $1.5 billion was included in the “Accounts and notes receivable” line item on our consolidated balance sheet as of December 31, 2020. We received a U.S. federal income tax refund of $1.1 billion in the second quarter of 2021. As of December 31, 2021, the remaining $400 million income tax receivable related to 2020 is no longer expected to be received in the next twelve months due to the estimated timing of IRS review procedures and certain elections we made when filing our 2020 income tax return.

During the year ended December 31, 2019, we recorded adjustments to the one-time deemed repatriation tax, which decreased our income tax expense by $42 million. The adjustments were due to the issuance of additional guidance by the U.S. Internal Revenue Service related to the Tax Act.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax liabilities and assets at December 31 were:

	Millions of Dollars
	2021		2020
Deferred Tax Liabilities
Properties, plants and equipment, and intangibles	$	3,135	3,487
Investment in joint ventures	2,065		1,859
Investment in subsidiaries	969		940
Inventory	—		77
Other	267		310
Total deferred tax liabilities	6,436		6,673
Deferred Tax Assets
Benefit plan accruals	431		499
Loss and credit carryforwards	173		148
Asset retirement obligations and accrued environmental costs	120		114
Other financial accruals and deferrals	82		73
Other	262		289
Total deferred tax assets	1,068		1,123
Less: valuation allowance	74		40
Net deferred tax assets	994		1,083
Net deferred tax liabilities	$	5,442	5,590

At December 31, 2021, the loss and credit carryforward deferred tax assets were primarily related to a state tax net operating loss carryforward of $83 million; a foreign tax credit carryforward in the United States of $67 million; capital loss and net operating loss carryforwards in the United Kingdom of $11 million; and a German interest deduction carryforward of $11 million. State net operating loss carryforwards begin to expire in 2040 or have indefinite lives. Foreign tax credit carryforwards, which have a full valuation allowance against them, begin to expire in 2029. The other loss and credit carryforwards, all of which relate to foreign operations, have indefinite lives.

Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During the year ended December 31, 2021, our total valuation allowance balance increased by $34 million. Based on our historical taxable income, expectations for the future and available tax planning strategies, management expects the remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and the tax consequences of future taxable income.

Earnings of our foreign subsidiaries and foreign joint ventures after December 31, 2017, are generally not subject to incremental income taxes in the United States or withholding taxes in foreign countries upon repatriation. As such, we only assert that the earnings of one of our foreign subsidiaries are permanently reinvested. At December 31, 2021 and 2020, the unrecorded deferred tax liability related to the undistributed earnings of this foreign subsidiary was not material.

We file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Unrecognized tax benefits reflect the difference between positions taken on income tax returns and the amounts recognized in the financial statements. The following table is a reconciliation of the changes in our unrecognized income tax benefits balance:

	Millions of Dollars
	2021		2020	2019
Balance at January 1	$	56	40	23
Additions for tax positions of current year	—		—	2
Additions for tax positions of prior years	—		44	29
Reductions for tax positions of prior years	(2)		(28)	(14)
Settlements	—		—	—
Balance at December 31	$	54	56	40

Included in the balance of unrecognized income tax benefits at December 31, 2021, 2020 and 2019, were $35 million, $37 million and $15 million, respectively, which, if recognized, would affect our effective income tax rate. With respect to various unrecognized income tax benefits and the related accrued liabilities, we do not expect any to be recognized or paid within the next twelve months.

At December 31, 2021, 2020 and 2019, accrued liabilities for interest and penalties, net of accrued income taxes, totaled $6 million, $5 million and $10 million, respectively. These accruals decreased our results by $3 million for each of the years ended December 31, 2021, 2020 and 2019.

Audits in significant jurisdictions are generally complete as follows: United Kingdom (2018), Germany (2014) and United States (2013). Certain issues remain in dispute for audited years, and unrecognized income tax benefits for years still subject to or currently undergoing an audit are subject to change. As a consequence, the balance in unrecognized income tax benefits can be expected to fluctuate from period to period. Although it is reasonably possible such changes could be significant when compared with our total unrecognized income tax benefits, the amount of change is not estimable.

The amounts of U.S. and foreign income (loss) before income taxes, with a reconciliation of income tax at the federal statutory rate to the recorded income tax expense (benefit), were:

	Millions of Dollars				Percentage of Income (Loss) Before Income Taxes
	2021		2020	2019	2021		2020	2019
Income (loss) before income taxes
United States	$	1,737	(5,292)	3,267	99.8	%	106.6	78.2
Foreign	3		328	911	0.2		(6.6)	21.8
	$	1,740	(4,964)	4,178	100.0	%	100.0	100.0
Federal statutory income tax	$	365	(1,043)	877	21.0	%	21.0	21.0
State income tax, net of federal income tax benefit	(65)		(139)	93	(3.7)		2.8	2.2
Net operating loss carryback	—		(398)	—	—		8.0	—
Goodwill impairment	—		387	—	—		(7.8)	—
Noncontrolling interests	(57)		(54)	(61)	(3.3)		1.1	(1.5)
Non-taxable equity earnings	(53)		(18)	(32)	(3.0)		0.4	(0.7)
Tax law changes	(26)		—	(43)	(1.5)		—	(1.0)
Other*	(18)		15	(33)	(1.1)		(0.3)	(0.8)
	$	146	(1,250)	801	8.4	%	25.2	19.2

* Other includes individually immaterial items but is primarily attributable to foreign operations and change in valuation allowance.

For the year ended December 31, 2021, state income tax, net of federal income tax benefit, includes a $58 million benefit, primarily to reflect the impact of updated apportionment factors.

There is no income tax reflected for the year ended December 31, 2021, in “Capital in Excess of Par” in the consolidated statement of changes in equity. An income tax benefit of $1 million for the year ended December 31, 2020, and income tax expense of $123 million for the year ended December 31, 2019, is reflected in “Capital in Excess of Par.”