The components of Income (Loss) before Income Taxes follow:



(In millions)	2021			2020			2019
U.S.	$	(102	)	$	(993	)	$	(39	)
Foreign		615			(147	)		216
	$	513		$	(1,140	)	$	177

A reconciliation of income taxes at the U.S. statutory rate to United States and Foreign Tax Expense (Benefit) follows:



(In millions)	2021			2020			2019
U.S. federal income tax expense (benefit) at the statutory rate of 21%	$	108		$	(239	)	$	37
Net establishment (release) of U.S. valuation allowances		(340	)		310			(98	)
Deferred tax impact of enacted tax rate and law changes		(61	)		(18	)		3
Adjustment for foreign income taxed at different rates		24			7			16
Net establishment (release) of uncertain tax positions		(6	)		6			7
U.S. charges (benefits) related to foreign tax credits, R&D and foreign derived intangible deduction		(4	)		(9	)		(17	)
Net foreign losses (income) with no tax due to valuation allowances		3			37			48
State income taxes, net of U.S. federal benefit		1			(17	)		(1	)
Net establishment (release) of foreign valuation allowances		(1	)		—			140
Goodwill impairment		—			34			—
Federal and state tax on accelerated royalty income transaction		—			—			334
Other		9			(1	)		5
United States and Foreign Tax Expense (Benefit)	$	(267	)	$	110		$	474

The components of United States and Foreign Tax Expense (Benefit) by taxing jurisdiction, follow:



(In millions)	2021			2020			2019
Current:
Federal	$	1		$	(5	)	$	—
Foreign		166			95			134
State		37			(3	)		17
		204			87			151
Deferred:
Federal		(362	)		63			133
Foreign		(23	)		(31	)		153
State		(86	)		(9	)		37
		(471	)		23			323
United States and Foreign Tax Expense (Benefit)	$	(267	)	$	110		$	474

Income tax benefit in 2021 was $267 million on income before income taxes of $513 million. In 2021, income tax benefit includes net discrete benefits totaling $409 million, including a reduction in our valuation allowances of $340 million for certain U.S. deferred tax assets for foreign tax credits and state tax loss carryforwards, a $39 million benefit to adjust our deferred tax assets in England for a second quarter enacted change in the tax rate, a $21 million benefit to reflect an increase in our estimated state tax rate used in calculating our U.S. net deferred tax assets as a result of a change in the overall mix of our earnings by state after including the impact of the acquisition of Cooper Tire, an $8 million benefit related to a favorable court ruling in Brazil, and a net benefit of $1 million for various other items.

In 2020, income tax expense of $110 million was unfavorably impacted by net discrete tax expense totaling $305 million, including the establishment of a $295 million valuation allowance on certain deferred tax assets for foreign tax credits during the first quarter of 2020. Discrete tax expense also includes a net charge of $10 million, including a $15 million charge related to a U.S. valuation allowance for state tax loss carryforwards, a $13 million benefit to adjust our deferred tax assets in England for a third quarter enacted change in the tax rate, and various other net charges totaling $8 million.

In 2019, income tax expense of $474 million was unfavorably impacted by net discrete tax expense totaling $386 million. Discrete tax expense includes non-cash charges of $334 million related to an acceleration of royalty income in the U.S. from the sale of certain European royalty payments to Luxembourg and $150 million related to an increase in our valuation allowance on tax losses in Luxembourg, which were partially offset by a non-cash tax benefit of $98 million related to a reduction of our U.S. valuation allowance for foreign tax credits.

We consider both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable evidence. We give operating results during the most recent three-year period a significant weight in our analysis. We typically only consider forecasts of future profitability when positive cumulative operating results exist in the most recent three-year period. We perform scheduling exercises to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. We also consider prudent tax planning strategies (including an assessment of their feasibility) to accelerate taxable income if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized.

At both December 31, 2021 and 2020, we had approximately $1.2 billion of U.S. federal, state and local net deferred tax assets, net of valuation allowances totaling $26 million in 2021, primarily for state tax loss carryforwards with limited lives, and $368 million in 2020, primarily for foreign tax credits with limited lives. The increase in our U.S. net deferred tax assets as a result of the reduction in valuation allowances during 2021 was largely offset by the establishment of deferred tax liabilities related to the Cooper Tire acquisition. In the U.S., we have a cumulative loss for the three-year period ending December 31, 2021. However, as the three-year cumulative loss in the U.S. is driven by business disruptions created by the COVID-19 pandemic, primarily in 2020, and only include the favorable impact of the Cooper Tire acquisition since the Closing Date, we also considered other objectively verifiable information in assessing our ability to utilize our net deferred tax assets, including recent favorable recovery trends in the tire industry and our tire volume as well as expected continued improvement. In addition, the Cooper Tire acquisition has generated significant incremental domestic earnings since the Closing Date and provides opportunities for cost and other operating synergies to further improve our U.S. profitability.

At December 31, 2021, our U.S. net deferred tax assets include approximately $339 million of foreign tax credits with limited lives, net of valuation allowances of $3 million. At December 31, 2020, our U.S. net deferred tax assets include $133 million of foreign tax credits with limited lives, net of valuation allowances of $328 million. Our earnings and forecasts of future profitability, taking into consideration recent trends, along with three significant sources of foreign income provide us sufficient positive evidence that we will be able to utilize our foreign tax credits that expire through 2030. Our sources of foreign income are (1) 100% of our domestic profitability can be re-characterized as foreign source income under current U.S. tax law to the extent domestic losses have offset foreign source income in prior years, (2) annual net foreign source income, exclusive of dividends, primarily from royalties, and (3) tax planning strategies, including capitalizing research and development costs, accelerating income on cross border transactions, including sales of inventory or raw materials to our subsidiaries, and reducing U.S. interest expense by, for example, reducing intercompany loans through repatriating current year earnings of foreign subsidiaries, all of which would increase our domestic profitability.

During the fourth quarter of 2021, we completed an intercompany sale of certain intellectual property. As a result of this transaction, U.S. taxable income for 2021 includes approximately $1.5 billion of accelerated income. External specialists assisted management with this transaction. The federal tax charge of $315 million related to this accelerated income was fully offset by the utilization of existing deferred tax assets, including $205 million related to tax loss carryforwards, which were primarily generated in 2020 as a result of a significant tax loss in the U.S. driven by the macroeconomic impacts of the COVID-19 pandemic, and $110 million of foreign tax credits.

Tax loss carryforwards must be utilized prior to foreign tax credits and other tax assets for tax purposes. Considering the magnitude of tax loss carryforwards that were utilized by this transaction, together with our earnings and other sources of income described above, we concluded that it is more likely than not that we will be able to utilize, prior to their expiration, certain U.S. tax assets. Accordingly, during the fourth quarter of 2021, we reduced U.S. valuation allowances by $325 million related to foreign tax credits and $15 million related to state tax loss carryforwards.

We consider our current forecasts of future profitability in assessing our ability to realize our deferred tax assets, including our foreign tax credits. As noted above, these forecasts include the impact of recent trends, including various macroeconomic factors such as the impact of the COVID-19 pandemic, on our profitability, as well as the impact of tax planning strategies. Macroeconomic factors, including the impact of the COVID-19 pandemic, possess a high degree of volatility and can significantly impact our profitability. As such, there is a risk that future earnings will not be sufficient to fully utilize our U.S. net deferred tax assets, including our foreign tax credits. However, we believe our forecasts of future profitability along with the three significant sources of foreign income described above provide us sufficient positive, objectively verifiable evidence to conclude that it is more likely than not that, at December 31, 2021, our U.S. net deferred tax assets, including our foreign tax credits, net of valuation allowances, will be fully utilized.

At both December 31, 2021 and 2020, we also had approximately $1.3 billion of foreign net deferred tax assets, and valuation allowances of $1.0 billion and $1.1 billion, respectively. Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of these net foreign

deferred tax assets. Most notably, in Luxembourg, we maintain a valuation allowance of approximately $885 million on all of our net deferred tax assets. Each reporting period, we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. We do not believe that sufficient positive evidence required to release valuation allowances having a significant impact on our financial position or results of operations will exist within the next twelve months.

Temporary differences and carryforwards giving rise to deferred tax assets and liabilities at December 31 follow:



(In millions)	2021			2020
Tax loss carryforwards and credits	$	1,274		$	1,570
Prepaid royalty income		534			629
Capitalized research and development expenditures		453			421
Partnership basis differences		364			—
Accrued expenses deductible as paid		331			255
Postretirement benefits and pensions		126			209
Lease liabilities		101			76
Rationalizations and other provisions		26			34
Vacation and sick pay		25			21
Other		98			133
		3,332			3,348
Valuation allowance		(1,044	)		(1,469	)
Total deferred tax assets		2,288			1,879
Property basis differences		(503	)		(420	)
Intangible property basis differences related to Cooper Tire acquisition		(227	)		—
Right-of-use assets		(96	)		(75	)
Tax on undistributed earnings of subsidiaries		(1	)		(1	)
Total net deferred tax assets	$	1,461		$	1,383

At December 31, 2021, we had $748 million of tax assets for net operating loss, capital loss and tax credit carryforwards related to certain foreign subsidiaries. These carryforwards are primarily from countries with unlimited carryforward periods, but include $61 million of tax credit carryforwards in various European countries that are subject to expiration from 2022 to 2031. A valuation allowance totaling $1,018 million has been recorded against these and other deferred tax assets where recovery of the asset or carryforward is uncertain. In addition, we had $444 million of federal and $82 million of state tax assets for net operating loss and tax credit carryforwards. The federal carryforwards include $339 million of foreign tax credits that are subject to expiration from 2023 to 2030 and $105 million of tax assets related to research and development credits and other federal credits that are subject to expiration from 2030 to 2041. The state carryforwards include $66 million that are subject to expiration from 2022 to 2040. A valuation allowance of $26 million has been recorded against federal and state deferred tax assets where recovery is uncertain.

At December 31, 2021, we had unrecognized tax benefits of $90 million that if recognized, would have a favorable impact on our tax expense of $61 million. We had accrued interest of $2 million as of December 31, 2021. If not favorably settled, $15 million of the unrecognized tax benefits and all the accrued interest would require the use of our cash. Included in the increases related to prior year tax positions is $13 million related to the acquisition of Cooper Tire. We do not expect changes during 2022 to our unrecognized tax benefits to have a significant impact on our financial position or results of operations. A summary of our unrecognized tax benefits and changes during the year follows:



(In millions)	2021			2020			2019
Balance at January 1	$	85		$	82		$	71
Increases related to prior year tax positions		28			26			24
Decreases related to prior year tax positions		(12	)		(1	)		—
Settlements		(5	)		(15	)		(11	)
Foreign currency impact		(7	)		(7	)		(2	)
Increases related to current year tax positions		3			—			—
Lapse of statute of limitations		(2	)		—			—
Balance at December 31	$	90		$	85		$	82

We are open to examination in the U.S. for 2021 and in Germany from 2018 onward. Generally, for our remaining tax jurisdictions, years from 2016 onward are still open to examination.

We have undistributed earnings and profits of our foreign subsidiaries totaling approximately $2.2 billion at December 31, 2021. We have concluded that no provision for tax in the U.S. is required because substantially all of the remaining undistributed earnings and profits have been or will be reinvested in property, plant and equipment and working capital outside

of the U.S. A foreign withholding tax charge of approximately $100 million (net of foreign tax credits) would be required if these earnings and profits were to be distributed to the U.S.

Net cash payments for income taxes were $201 million, $45 million and $142 million in 2021, 2020 and 2019, respectively.