Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes The significant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31 were as follows:
Deferred tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount recognized for tax purposes. 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 of taxable income in the carryback and carryforward periods as permitted by law, we believe 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 at December 31, 2021 and 2020 for our U.S. domestic operations. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global. For financial reporting purposes, income (loss) before income taxes includes the following components:
The provision for income taxes consists of:
The differences between the 21% statutory federal income tax rate and our effective income tax rate were as follows:
The provision for federal income taxes is based upon the filing of a consolidated income tax return for the company and its domestic subsidiaries within the United States. At December 31, 2021 and 2020 we had no operating or capital loss carryforwards in the United States. As more fully discussed below, Cincinnati Global, has operating loss carryforwards in the United Kingdom. As more fully discussed in Note 1, Summary of Significant Accounting Policies, the COVID-19 pandemic outbreak began in mid-March 2020. In response to the pandemic, various stimulus legislation was enacted in 2021 and 2020. We have evaluated the pandemic-related legislation enacted in 2021 and 2020 and believe any impact to our financial statements, as a result of such legislation, is immaterial. Unrecognized Tax Benefits At December 31, 2021, 2020 and 2019, we had a gross unrecognized tax benefit of $34 million. Additionally, there was no change in the amount for 2021, 2020 or 2019. The unrecognized tax benefit liability is carried in other liabilities in the consolidated balance sheets. If recognized, the unrecognized tax benefit liability would affect the effective tax rate in the period of the release. Although no interest and penalties currently are accrued, if incurred, they would be recognized as a component of income tax expense. 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. The statute of limitations for federal tax purposes has closed for tax years ended December 31, 2016 and earlier. However, as a result of certain net operating loss carryback claims we have filed related to the tax year ended December 31, 2017, the IRS has a limited ability to assess tax for the 2015 tax year. In 2019, the IRS began its examination of the tax year ended December 31, 2017 and they have expanded their scope to include tax year ended December 31, 2018. At this time, no adjustments have been proposed. In addition to our IRS filings, we file income tax returns with immaterial amounts in various state jurisdictions and record these amounts in our provision for income taxes for both current and deferred taxes. The statute of limitations for state income tax purposes has closed for tax years ended December 31, 2017 and earlier. Cincinnati Global operates in the United Kingdom and as such, is subject to tax in that jurisdiction. The statute of limitations for tax return review by Her Majesty’s Revenue and Customs (HMRC) has closed for tax years ended December 31, 2019 and earlier. There are currently no tax returns under review by HMRC. Income taxes paid in our consolidated statements of cash flows are shown net of refunds received. We received no refunds in either 2021 or 2020 and $94 million in 2019. Cincinnati Global Cincinnati Global's operating results for the year ended December 31, 2021, decreased their net deferred assets by $3 million with an offsetting decrease of $3 million to their valuation allowance. At December 31, 2021, Cincinnati Global had a net deferred tax asset of $53 million and an offsetting valuation allowance of $53 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, we believe it was appropriate to set up a valuation allowance for purposes of our opening Cincinnati Global balance sheet and is appropriate to carry a valuation allowance at December 31, 2021, 2020 and 2019. The following is a tabular reconciliation of the total amounts of our Cincinnati Global valuation allowance.
At December 31, 2021, and 2020, Cincinnati Global had operating loss carryforwards in the United States of $8 million and $26 million and in the United Kingdom of $130 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.
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