Income Taxes

12 Months Ended

Dec. 31, 2020

. Income Taxes

The components of the Company’s provision for income taxes for the years ended December 31, 2020, 2019 and 2018 are presented below.


Components of Income/(Loss) Before Income Taxes	Years Ended December 31,
(In millions)	2020		2019		2018
United States	$	(1,634)	$	125	$	135
Outside of the U.S.	2		—		—
	$	(1,632)	$	125	$	135


Income Tax Provision	Years Ended December 31,
(In millions)	2020		2019		2018
United States
Current
Federal	$	(43)	$	31	$	4
State & Local	(24)		14		3
Deferred
Federal	202		5		16
State & Local	(11)		(6)		17
Outside of the U.S.
Current	2		—		—

	$	126	$	44	$	40


Allocation of Income Tax Provision	Years Ended December 31,
(In millions)	2020		2019		2018
Income tax provision applicable to:
Income from operations	$	126	$	44	$	40
Discontinued operations	(2)		—		—
Other comprehensive income	8		—		—

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2020, 2019 and 2018:


Effective Income Tax Rate Reconciliation	Years Ended December 31,
	2020		2019		2018
Federal statutory rate	21.0	%	21.0	%	21.0	%
State and local taxes	3.8	%	7.8	%	3.7	%
State tax rate adjustment	1.6	%	(2.3)	%	8.9	%
Stock compensation	(0.1)	%	1.8	%	(1.8)	%
Goodwill impairment and dispositions	(1.6)	%	7.4	%	—	%
Nondeductible transaction expenses	(0.5)	%	—	%	—	%
Nondeductible convertible notes costs	(1.0)	%	—	%	—	%
Decrease in uncertain tax positions	0.9	%	—	%	—	%
Deferred tax benefit of foreign subsidiaries held for sale	1.0	%	—	%	—	%
Tax Cuts and Jobs Act	—	%	—	%	(1.6)	%
Valuation allowance	(33.3)	%	1.8	%	(0.3)	%
Tax credits	0.1	%	(1.1)	%	(1.1)	%
Other	0.4	%	(1.2)	%	1.0	%
Effective income tax rate	(7.7)	%	35.2	%	29.8	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred taxes at December 31, 2020 and 2019 are as follows:


	As of December 31,
(In millions)	2020		2019
Deferred tax assets:
Loss carryforwards	$	1,071	$	27
Foreign investment - held for sale	78		—
Allowance for doubtful accounts	51		1
Deferred revenue	66		41
Excess business interest expense	61		2
State combined reporting deduction	29		—
Accrued expenses	74		10
Credit carryforwards	106		—
CARES Act deferred payroll tax	17		—
Compensation programs	34		7
Financing obligation	2,557		125
Long-term lease obligation	187		41
Other	16		2
	4,347		256
Deferred tax liabilities:
Identified intangibles	(836)		(151)
Other debt-related items	(108)		—
Prepaid expenses	(33)		(5)
Unrealized foreign exchange gain	(31)		—
Fixed assets	(2,424)		(218)
Right-of-use assets	(154)		(41)
Other	(6)		(9)
	(3,592)		(424)
Valuation allowance	(1,921)		(29)
Net deferred tax liabilities	$	(1,166)	$	(197)

As a result of the Merger described in Note 3, the Company acquired $772 million of additional net deferred tax liabilities, net of necessary valuation allowances.

A valuation allowance is recognized if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax asset will not be realized. Management must analyze all available positive and negative evidence regarding realization of the deferred tax assets and make an assessment of the likelihood of sufficient future taxable income. We have provided a valuation allowance on certain federal, state, and foreign deferred tax assets that were not deemed realizable based upon estimates of future taxable income. Included in the increase of valuation allowance of $1.9 billion is $1.4 billion that was acquired as a result of the Merger. Additionally, the Company increased its beginning of year valuation allowance by $8 million as a result of the Merger.

As of December 31, 2020, the Company had federal, state and foreign net operating loss carryforwards of $3.0 billion, $9.2 billion and $127 million, respectively. The federal net operating loss includes $479 million that does not expire. The remaining federal and state net operating losses will begin to expire in 2030 and 2021, respectively. The foreign net operating losses do not expire. As of December 31, 2020, the Company had federal general business tax credit and research tax credit carryforwards of $108 million, which begin to expire in 2029.

In general, Section 382 of the Internal Revenue Code provides an annual limitation with respect to the ability of a corporation to utilize its net operating loss carryovers, as well as certain built-in losses, against future taxable income in the event of a change in ownership. The acquisition of Former Caesars in July 2020 resulted in a change in ownership for purposes of Section 382, making its provisions applicable to the Company. However, it is unlikely that the annual limitation on tax attribute usage

resulting from the acquisition will adversely affect the Company’s ability to utilize its net operating loss carryovers against its future taxable income.


Reconciliation of Unrecognized Tax Benefits	Years Ended December 31,
(In millions)	2020		2019		2018
Balance as of beginning of year	$	—	$	—	$	—
Acquisition of Former Caesars	152		—		—

Additions for tax positions of prior years	1		—		—

Settlements	(4)		—		—
Expiration of statutes	(12)		—		—
Balance as of end of year	$	137	$	—	$	—

We classify reserves for tax uncertainties within Accrued expenses and other current liabilities and Deferred credits and other liabilities in our Balance Sheets, separate from any related income tax payable or Deferred income taxes. Reserve amounts relate to any potential income tax liabilities resulting from uncertain tax positions as well as potential interest or penalties associated with those liabilities.

We accrue interest and penalties related to unrecognized tax benefits in income tax expense. During 2020, we increased our accrual by $2 million, primarily due to the Merger. There was no accrual during 2019 and 2018. There was an accrual for the payment of interest and penalties of $2 million as of December 31, 2020. Included in the balances of unrecognized tax benefits as of December 31, 2020 was approximately $123 million of unrecognized tax benefits that, if recognized, would impact the effective tax rate.

The Company, including its subsidiaries, files tax returns with federal, state and foreign jurisdictions. The Company does not have tax sharing agreements with the other members within the consolidated group. With few exceptions, the Company is no longer subject to US federal or state and local tax examinations by tax authorities for years before 2017. We believe that it is reasonably possible that the unrecognized tax benefits liability will not materially change within the next 12 months. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. Although we believe that adequate provision has been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse effect on our earnings. Conversely, if these issues are resolved favorably in the future, the related provision would be reduced, thus having a favorable impact on earnings.