Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

The following table presents the components of income before income taxes (in millions):

	Year ended December 31,
	2022		2021		2020
U.S. companies	$	1,157	$	1,282	$	(62	)
Non-U.S. companies		640		1,144		696
Income before income taxes	$	1,797	$	2,426	$	634

The following table presents the current and deferred amounts of the provision for income taxes (in millions):

	Year ended December 31,
	2022			2021			2020
Current:
Federal	$	(191	)	$	(172	)	$	88
State and municipal		(16	)		(13	)		(16	)
Foreign		(250	)		(290	)		(203	)
Deferred:
Federal		52			(97	)		7
State and municipal		8			(7	)		3
Foreign		(14	)		88			10
Provision for income taxes	$	(411	)	$	(491	)	$	(111	)

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

The following table presents the reconciliation of the statutory U.S. federal income tax rate to the effective tax rate:

	Year ended December 31,
	2022			2021			2020
Statutory U.S. federal income tax rate		21.0	%		21.0	%		21.0	%
State income tax, net of federal effect		0.7			1.0			1.4
Audit settlements & change in reserve		3.7			1.6			12.1
Differential arising from foreign earnings (1)		2.2			2.0			14.9
Valuation allowance		2.1			(0.5	)		2.5
Intercompany loan adjustment		0.6						6.1
Tax credits		(3.3	)		(2.6	)		(29.2	)
Foreign derived intangible income		(2.7	)		(1.3	)
Stock compensation		(0.8	)		(1.5	)		(1.7	)
Remeasurement of deferred tax assets and liabilities		(0.1	)					(13.2	)
Legal entity rationalization								(2.2	)
Non-deductible expenses					1.4			6.9
Global intangible low-taxed income					0.2			(0.5	)
Other items, net		(0.5	)		(1.1	)		(0.6	)
Effective tax rate		22.9	%		20.2	%		17.5	%

(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 3 (HSG Transactions and Acquisitions) in the notes to the consolidated financial statements for additional information.

During the year ended December 31, 2022, the Company distributed approximately $534 million from foreign subsidiaries to their respective U.S. parent companies.  As of December 31, 2022, Corning has approximately $1.3 billion of indefinitely reinvested foreign earnings. It remains impracticable to calculate the tax cost of repatriating unremitted earnings which are considered indefinitely reinvested.

The following table presents the tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities (in millions):

	December 31,
	2022			2021
Loss and tax credit carryforwards	$	281		$	375
Other assets		232			200
Research and development capitalization		280			81
Asset impairments and restructuring reserves		41			30
Postretirement medical and life benefits		102			154
Other accrued liabilities		311			354
Other employee benefits		346			329
Gross deferred tax assets		1,593			1,523
Valuation allowances		(166	)		(138	)
Total deferred tax assets		1,427			1,385
Intangible and other assets		(108	)		(103	)
Fixed assets		(289	)		(300	)
Finance leases		(200	)		(174	)
Total deferred tax liabilities		(597	)		(577	)
Net deferred tax assets	$	830		$	808

Net deferred tax assets on the consolidated balance sheets consisted of the following (in millions):

	December 31,
	2022			2021
Deferred tax assets	$	1,073		$	1,066
Other liabilities		(243	)		(258	)
Net deferred tax assets	$	830		$	808

The following table presents details of the deferred tax assets for loss and tax credit carryforwards (in millions):

			Expiration
	Total			2023-2027		2028-2032		2033-2042	Indefinite
Net operating losses	$	278	$	94	$	27	$	24	$	133
Tax credits		3				3
Balance as of December 31, 2022	$	281	$	94	$	30	$	24	$	133

The following table presents the changes in the deferred tax valuation allowance (in millions):

	2022			2021			2020
Balance as of January 1	$	138		$	167		$	215
Additions		81			13			27
Reductions		(53	)		(42	)		(75	)
Balance as of December 31	$	166		$	138		$	167

The following table presents the reconciliation of the beginning and ending amount of unrecognized tax benefits (in millions):

	2022			2021			2020
Balance as of January 1	$	178		$	131		$	62
Additions based on tax positions related to the current year		10			54			19
Additions for tax positions of prior years		24			17			53
Reductions for tax positions of prior years		(5	)		(21	)
Settlements and lapse of statute of limitations		(1	)		(3	)		(3	)
Balance as of December 31	$	206		$	178		$	131

During 2020, the Internal Revenue Service (“IRS”) opened an audit for tax years 2015-2018. The Company does 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 the current position, the 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 as of  December 31, 2022, 2021 and 2020 are $169 million, $120 million and $102 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, 2022, 2021 and 2020 the amount recognized in interest expense and accrued for the payment of interest and penalties was 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. The Company 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, 2022, 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 (2014), Taiwan (2016) and South Korea (2013).

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 assessment. Corning believes that it is more likely than not that the Company will prevail in the appeals process.  The non-current receivable balance was $349 million and $350 million as of  December 31, 2022 and  December 31, 2021, respectively, for the amount on deposit with the South Korean government.