INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income Tax Provision

Components of income tax (provision) benefit
	Year Ended December 31,
(in millions)	2022		2021		2020
Current tax (provision) benefit:
Federal	$	—	$	—	$	94
State and local	(1)		(1)		3
International	(4)		(3)		(5)
Deferred tax (provision) benefit:
Federal	(525)		(130)		2,766
State and local	(66)		16		344
Income tax (provision) benefit	$	(596)	$	(118)	$	3,202

The following table presents the principal reasons for the difference between the effective tax rate and the U.S. federal statutory income tax rate:

Reconciliation of statutory federal income tax rate to the effective income tax rate
	Year Ended December 31,
	2022		2021		2020
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	3.0		(4.4)		1.9
Permanent differences	1.0		4.9		(0.6)
Valuation allowance	7.3		9.1		(2.6)
Other	(1.1)		(0.8)		0.8
Effective income tax rate	31.2	%	29.8	%	20.5	%

Deferred Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes.

Significant components of deferred income tax assets and liabilities
	December 31,
(in millions)	2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	1,395	$	1,301
Capital loss carryforward	50		480
Pension, postretirement and other benefits	1,467		2,089
Investments	1,106		314
Deferred revenue	2,334		2,288
Lease liabilities	2,376		2,452
Other	682		494
Valuation allowance	(1,176)		(833)
Total deferred tax assets	$	8,234	$	8,585
Deferred tax liabilities:
Depreciation	$	5,110	$	4,463
Operating lease assets	1,624		1,676
Intangible assets	1,121		1,097
Other	78		55
Total deferred tax liabilities	$	7,933	$	7,291
Net deferred tax assets(1)	$	301	$	1,294

(1)At December 31, 2022, the net deferred tax assets of $301 million included $325 million of net state deferred tax assets, which are recorded in deferred income taxes, net, and $24 million of net federal deferred tax liabilities, which are recorded in other noncurrent liabilities. At December 31, 2021, the net deferred tax assets of $1.3 billion were recorded in deferred income taxes, net.

Valuation Allowance

We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. We establish valuation allowances if it is more likely than not that we will be unable to realize our deferred income tax assets. In making this determination, we consider available positive and negative evidence and make certain assumptions. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies.

At December 31, 2022 our net deferred tax asset balance was $301 million, including a $1.2 billion valuation allowance primarily related to certain net realized and unrealized capital losses and certain state net operating losses. Although we have cumulative losses since the onset of the pandemic, we have a history of significant earnings prior to the onset of the COVID-19 pandemic. During 2022, we returned to profitability, as our business continued to recover from the impact of the pandemic. We are expecting to generate sufficient taxable income to utilize our federal net operating loss carryforwards before any expire. However, the generation of future taxable income is dependent on many factors, including those which are out of our control, such as the demand for air travel and overall health of the economy. As such, there are no guarantees that a valuation allowance will not be required against some or all of our deferred tax assets in future periods.

As of December 31, 2022, we had approximately $5.4 billion of U.S. federal pre-tax net operating loss carryforwards, of which $1.5 billion was generated prior to 2018 and will not begin to expire until 2029. Under current tax law, the remaining net operating loss carryforwards do not expire. Therefore, we have not recorded a valuation allowance on our deferred tax assets other than the certain net realized and unrealized capital losses and certain state net operating losses that have short expiration periods.

The following table presents the balance of our valuation allowance on our deferred income tax assets and the associated activity:

Valuation allowance activity
(in millions)	2022		2021
Balance at January 1	$	833	$	460
Tax provision	155		26
Equity investment activity	188		347
Balance at December 31	$	1,176	$	833

Other

The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We are currently under audit by the IRS for the 2022, 2021 and 2020 tax years.