Note 8 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Income before income taxes follows (in millions):

	Year ended December 31,
	2021		2020			2019
U.S. companies	$	1,254	$	(71	)	$	504
Non-U.S. companies		1,143		694			712
Income before income taxes	$	2,397	$	623		$	1,216

The current and deferred amounts of the provision for income taxes are as follows (in millions):

	Year ended December 31,
	2021			2020			2019
Current:
Federal	$	(172	)	$	88		$	(82	)
State and municipal		(13	)		(16	)		(12	)
Foreign		(290	)		(203	)		(354	)
Deferred:
Federal		(97	)		7			64
State and municipal		(7	)		3			13
Foreign		88			10			115
Provision for income taxes	$	(491	)	$	(111	)	$	(256	)

Amounts are reflected in the preceding tables based on the location of the taxing authorities.

Reconciliation of the U.S. statutory income tax rate to the effective tax rate for operations is as follows:

	Year ended December 31,
	2021			2020			2019
Statutory U.S. income tax rate		21.0	%		21.0	%		21.0	%
State income tax, net of federal effect		1.0			1.4			0.6
Global intangible low-taxed income		0.2			(0.5	)		1.2
Foreign derived intangible income		(1.3	)					(8.5	)
Remeasurement of deferred tax assets and liabilities					(13.4	)		(0.6	)
Differential arising from foreign earnings (1)		2.0			15.2			5.4
IRS settlements & change in reserve		1.6			12.1			8.5
Valuation allowance		(0.5	)		2.5			(3.7	)
Tax credits		(2.6	)		(29.7	)		(2.8	)
Stock compensation		(1.5	)		(1.7	)		(0.6	)
Legal entity rationalization					(2.2	)
Intercompany loan adjustment					6.2			(0.5	)
Non-deductible expenses		1.4			7.0			2.1
Other items, net		(0.8	)		(0.1	)		(1.0	)
Effective income tax rate		20.5	%		17.8	%		21.1	%

(1) Includes impact of intercompany asset sales.

On September 9, 2020, Corning obtained a 100% controlling interest in HS LLC and an 80.5% controlling interest in HSO LLC. As a result, the deferred tax liability on the outside basis difference between book and tax basis for Corning’s investment in HS LLC and HSO LLC was adjusted by approximately $116 million.

Refer to Note 4 (HSG Transactions and Acquisitions) to the consolidated financial statements for additional information.

During 2021, the Company distributed approximately $2.3 billion from foreign subsidiaries to their respective U.S. parent companies.  As of December 31, 2021, Corning has approximately $2.4 billion of indefinitely reinvested foreign earnings.  It remains impracticable to calculate the tax cost of repatriating unremitted earnings which are considered indefinitely reinvested.

The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities are as follows (in millions):

	December 31,
	2021			2020
Loss and tax credit carryforwards	$	375		$	637
Other assets		281			269
Asset impairments and restructuring reserves		30			29
Postretirement medical and life benefits		154			171
Other accrued liabilities		354			162
Other employee benefits		329			337
Gross deferred tax assets		1,523			1,605
Valuation allowances		(138	)		(167	)
Total deferred tax assets		1,385			1,438
Intangible and other assets		(103	)		(95	)
Fixed assets		(300	)		(375	)
Finance leases		(174	)		(160	)
Total deferred tax liabilities		(577	)		(630	)
Net deferred tax assets	$	808		$	808

The net deferred tax assets in the consolidated balance sheets are as follows (in millions):

	December 31,
	2021			2020
Deferred tax assets	$	1,066		$	1,121
Other liabilities		(258	)		(313	)
Net deferred tax assets	$	808		$	808

Details on deferred tax assets for loss and tax credit carryforwards are as follows (in millions):

			Expiration
	Amount			2022-2026		2027-2031		2032-2041	Indefinite
Net operating losses	$	303	$	102	$	16	$	41	$	144
Tax credits		72		7		1		59		5
Balance as of December 31, 2021	$	375	$	109	$	17	$	100	$	149

Details of the deferred tax valuation allowances are as follows (in millions):

Deferred Tax Valuation Allowance	Balance at beginning of period		Additions		Net deductions and other		Balance at end of period
Year ended December 31, 2021	$	167	$	13	$	42	$	138
Year ended December 31, 2020	$	215	$	27	$	75	$	167
Year ended December 31, 2019	$	317	$	10	$	112	$	215

The following is a tabular reconciliation of the total amount of unrecognized tax benefits (in millions):

	2021			2020			2019
Balance at January 1	$	131		$	62		$	435
Additions based on tax positions related to the current year		54			19			3
Additions for tax positions of prior years		17			53			2
Reductions for tax positions of prior years		(21	)
Settlements and lapse of statute of limitations		(3	)		(3	)		(378	)
Balance at December 31	$	178		$	131		$	62

During 2020, the Internal Revenue Service (“IRS”) opened an audit for tax years 2015-2018. We do not expect additional material exposure for the tax years under audit. However, if upon conclusion of these matters, the ultimate determination of taxes owed is for an amount materially different than our current position, our overall tax expense and effective tax rate could be materially impacted in the period of adjustment. 

The additions for tax positions of prior years were primarily due to tax audits, development of tax court cases, and tax law changes in various jurisdictions.

Included in the balance at  December 31, 2021, 2020 and 2019 are $120 million, $102 million and $35 million, respectively, of unrecognized tax benefits that would impact the Company’s effective tax rate if recognized.

Accrued interest and penalties associated with uncertain tax positions are recognized as part of tax expense. For the years ended  December 31, 2021, 2020 and 2019 the amount recognized in interest expense and accrued for the payment of interest and penalties were not material.

It is possible that the amount of unrecognized tax benefits will change due to one or more of the following events during the next twelve months: audit activity, tax payments, or final decisions in matters that are the subject of controversy in various jurisdictions. Corning believes that adequate tax reserves are provided for these matters. However, if upon conclusion of these matters, the ultimate determination of taxes owed is for an amount materially different than the current reserves, the Company’s overall tax expense and effective tax rate could be materially impacted in the period of adjustment. As of December 31, 2021, the company is not expecting any significant movements in the uncertain tax benefits in the next twelve months.

Corning Incorporated, as the common parent company, and all 80%-or-more-owned of its U.S. subsidiaries join in the filing of consolidated U.S. federal income tax returns. The statute of limitations is closed for all periods ending through December 31, 2012. All returns for periods ended through December 31, 2014, have been audited by and settled with the IRS.

Corning Incorporated and its U.S. subsidiaries file income tax returns on a combined, unitary or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 5 years. Various state income tax returns are currently in the process of examination or administrative appeal. The Company does not expect any material proposed adjustments from any of these audits.

Corning’s foreign subsidiaries file income tax returns in the countries where their operations are located.  Generally, these countries have statutes of limitations ranging from 3 to 10 years.  The statute of limitations is closed through the following years in these major jurisdictions:  China (2008), Japan (2012), Taiwan (2015) and South Korea (2013).

CPM (“Corning Precision Materials”), a South Korean subsidiary, is currently appealing certain tax assessments and tax refund claims for tax years 2010 through 2018. The Company is required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of any tax assessments. We believe that it is more likely than not that the Company will prevail in the appeal process.  The non-current receivable balance was $350 million and $365 million as of  December 31, 2021 and  December 31, 2020, respectively, for the amount on deposit with the South Korean government.