Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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 September 30,								Nine months ended September 30,
	2021				2020				2021				2020
Tax at statutory rate:	$	39	21.0	%	$	129	21.0	%	$	383	21.0	%	$	38	21.0	%
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds	(5)		(2.7)		(5)		(0.8)		(15)		(0.8)		(15)		(8.2)
Dividend received exclusion	(5)		(2.7)		(5)		(0.8)		(14)		(0.8)		(13)		(7.1)
Other	2		1.2		11		1.8		(6)		(0.3)		6		3.0
Provision for income taxes	$	31	16.8	%	$	130	21.2	%	$	348	19.1	%	$	16	8.7	%

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 September 30, 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 September 30, 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 nine months 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 September 30, 2021, Cincinnati Global increased net deferred assets $4 million with an offsetting increase of $4 million to the valuation allowance. There was no change in the net deferred assets or valuation allowance for the nine months ended September 30, 2021. At September 30, 2021, Cincinnati Global had a net deferred tax asset of $56 million and an offsetting valuation allowance of $56 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 September 30, 2021.

At September 30, 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 $128 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.