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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income tax expense are as follows (in millions):
Year Ended December 31,
202120202019
Current:
Federal$(10)$(134)$19 
State and local— 1 3
Current income tax expense (benefit)(10)(133)22 
Deferred:
Federal(32)(5)49 
State and local(1)(9)4 
Foreign1 — (1)
Deferred income tax expense (benefit)(32)(14)52 
Total income tax expense (benefit)$(42)$(147)$74 
The income tax provision differs from that computed at the federal statutory corporate tax rate as follows:
Year Ended December 31,
202120202019
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %
Reserves for uncertain tax positions, net6.2 %(0.2)%0.1 %
Stock-based compensation5.2 %— %(0.2)%
State taxes, net of federal benefit1.6 %2.1 %1.8 %
Nondeductible warrants(3.5)%(0.5)%— %
Impact of CARES Act— %16.9 %— %
Other(1.3)%0.2 %0.1 %
Effective income tax rate29.2 %39.5 %22.8 %
The effective tax rate for the year ended December 31, 2021 is higher than the statutory rate primarily due to the release of the reserves related to uncertain tax positions for which the statute of limitations has expired, excess tax benefits associated with the Company’s stock-based compensation arrangements and a return to provision adjustment related to the Company’s foreign net operating loss carryforward; these are partially offset by the recognition of a valuation allowance against certain foreign and state net operating loss carryforwards and non-deductible interest from the mark to market adjustments from the warrants issued to the Treasury as part of the Company’s participation in the PSP, PSP2, PSP3, and the Treasury Loan.
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act permits a net operating loss (“NOL”) generated in 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. As a result, the Company’s taxable losses for 2020 were fully absorbed in the 2015 and 2016 tax years (pre-Tax Cuts and Jobs Act) in which a federal 35% tax rate applies, resulting in a permanent benefit of the 14% rate differential which was favorability impacted by the inclusion of the tax deduction for the payments made to FAPAInvest, LLC, as described in Note 11.
The Company had net tax payments/(refunds) of $(158) million, $9 million and $56 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial statement and income tax purposes. The following table shows the components of the Company’s deferred tax assets and liabilities (in millions):
December 31,
20212020
Deferred tax assets:
Operating lease liability$551 $514 
Net operating losses47 9 
Nondeductible accruals32 25 
Deferred revenue12 12 
Income tax credits2 — 
Valuation allowance(8)— 
Other10 11 
Deferred tax assets$646 $571 
Deferred tax liabilities:
Right of use asset$(545)$(507)
Property and equipment(36)(34)
Maintenance deposits(22)(19)
Intangibles(6)(7)
Leasehold interests— (6)
Other(12)(7)
Deferred tax liabilities(621)(580)
Net deferred tax assets (liabilities)$25 $(9)
As of December 31, 2021, the Company’s net deferred tax asset balance was $25 million, including $47 million of deferred tax assets related net operating loss carry forwards which are made up of a $30 million of federal net operating losses, which do not expire, $10 million of state net operating losses, which expire from two years to having no expiration, and $7 million of foreign net operating losses, which expire in nine years. The Company recognizes a valuation allowance when it is more likely than not that some portion, or all, of the Company’s deferred tax assets, will not be realized. The Company considers sources of taxable income from prior period carryback periods, future reversals of existing taxable temporary differences, tax planning strategies and future taxable income when assessing the future utilization of deferred tax assets.
The Company considers all available positive and negative evidence in determining the need for a valuation allowance. The Company updated this assessment as of December 31, 2021, noting that in part as a result of the significant impacts from the COVID-19 pandemic, the Company was in a cumulative three-year loss position. Prior to the pandemic, the Company has a consistent history of generating significant earnings and resulting taxable income and has typically utilized significant deferred tax assets such as net operating losses prior to expiration. The main sources of taxable income that supported realization of the Company’s deferred tax assets were from the projected reversal of existing temporary differences and the Company’s projected future taxable income. The Company expects to generate significant positive earnings in the near term as the recovery from the pandemic is expected to continue which would support the realization of substantially all of the Company’s federal and state deferred tax assets. As a result of the assessment as of December 31, 2021, the Company recorded a valuation allowance related to its foreign deferred tax assets of $7 million, which was fully offset by a corresponding reversal
of a U.S. federal deferred tax liability, and state deferred tax assets of $1 million as these are more likely than not to not be realized given the short expiry periods in foreign and certain state jurisdictions.
The following table shows the components of the Company’s unrecognized tax benefits related to uncertain tax positions (in millions):
202120202019
Unrecognized tax benefits at January 1$10 $9 $9 
Increase for tax positions taken during prior period— — — 
Decrease for tax positions taken during prior period(9)— — 
Increase for tax positions taken during current period— 1 — 
Unrecognized tax benefits at December 31$1 $10 $9 
In December of 2021 the Company received its federal tax refund related to the Company carrying back its 2020 losses to previous year’s tax returns that included certain unrecognized tax positions. Upon receipt of the 2020 tax year refund, the previous year’s tax returns effectively are considered closed and, as the statute of limitations reverted back at that time to its original expiry, the Company released any reserve related to tax periods where the statute of limitations would have lapsed.
It is reasonably possible that the amount of unrecognized tax benefit could change significantly within the next 12 months pending the outcome of any cases currently in litigation, which could reduce income tax expense by $1 million. A lapse in the statute of limitations could also reduce income tax expense by less than $1 million within the next 12 months. The total amount of unrecognized benefit, if recognized, would reduce income tax expense by $1 million. The Company accrues interest related to unrecognized tax benefits in its provision for income taxes, and any associated penalties in other operating expenses. The amounts recorded in the Company’s consolidated financial statements related to interest and penalties is less than $1 million for the year ended December 31, 2021.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates yearly. The 2014 tax year audit by the Internal Revenue Service (“IRS”) closed in 2017 with no material changes. The Company's federal income tax returns for tax years 2018 and forward remain open. Additionally, various tax years remain open to examination by state and local taxing jurisdictions.