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Income Taxes

3 Months Ended

Mar. 31, 2021

The differences between the 21% statutory federal income tax rate and our effective income tax rate were as follows:


(Dollars in millions)	Three months ended March 31,
		2021	2020
Tax at statutory rate:			$	161	21.0	%	$	(331)	21.0	%
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds			(5)		(0.7)		(5)		0.3
Dividend received exclusion			(5)		(0.7)		(4)		0.3

Other			(3)		(0.3)		(10)		0.6
Provision (benefit) for income taxes			$	148	19.3	%	$	(350)	22.2	%

The provision for federal income taxes is based upon filing a consolidated income tax return for the company and its domestic subsidiaries.

We continue to believe that after considering all positive and negative evidence of taxable income in the carryback and carryforward periods as permitted by law, it is more likely than not that all of the deferred tax assets on our U.S. domestic operations will be realized. As a result, we have no valuation allowance for our U.S. domestic operations at March 31, 2021 and December 31, 2020. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global.

Unrecognized Tax Benefits

At March 31, 2021 and December 31, 2020, we had a gross unrecognized tax benefit of $34 million. There were no changes to this amount during the first quarter of 2021. It is reasonably possible that within the next 12 months, our unrecognized tax benefit could change when the IRS completes its examination of the tax year ended December 31, 2018.

Cincinnati Global

As a result of operations for the three months ended March 31, 2021, Cincinnati Global decreased their net deferred assets $1 million with an offsetting decrease of $1 million to their valuation allowance. At March 31, 2021, Cincinnati Global had a net deferred tax asset of $55 million and an offsetting valuation allowance of $55 million.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence related to the Cincinnati Global operations, we continue to believe it is appropriate to carry a valuation allowance at March 31, 2021.

At March 31, 2021 and December 31, 2020, Cincinnati Global had operating loss carryforwards in the United States of $26 million for both periods and in the United Kingdom of $115 million and $108 million, respectively. These Cincinnati Global losses can only be utilized within the Cincinnati Global group in both the United States and in the United Kingdom and cannot offset the income of our domestic operations in the United States.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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