Income Taxes (Note)

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 13 INCOME TAXES

The components of International Paper’s earnings from continuing operations before income taxes and equity earnings by taxing jurisdiction were as follows:

In millions	2021		2020		2019
Earnings (loss)
U.S.	$	906	$	660	$	1,103
Non-U.S.	93		(331)		(182)
Earnings (loss) from continuing operations before income taxes and equity earnings (losses)	$	999	$	329	$	921

The provision (benefit) for income taxes from continuing operations (excluding noncontrolling interests) by taxing jurisdiction was as follows:

In millions	2021		2020		2019
Current tax provision (benefit)
U.S. federal	$	413	$	98	$	219
U.S. state and local	47		31		18
Non-U.S.	37		(3)		18
	$	497	$	126	$	255
Deferred tax provision (benefit)
U.S. federal	$	(274)	$	(2)	$	47
U.S. state and local	(27)		2		(21)
Non-U.S.	(8)		50		196
	$	(309)	$	50	$	222
Income tax provision (benefit)	$	188	$	176	$	477

The Company’s deferred income tax provision (benefit) includes an $8 million benefit, a $2 million benefit and a $44 million benefit for 2021, 2020 and 2019, respectively, for the effect of various changes in non-U.S. and U.S. federal and state tax rates.

International Paper made income tax payments, net of refunds, of $601 million, $162 million and $349 million in 2021, 2020 and 2019, respectively.

A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision follows: 

In millions	2021			2020			2019
Earnings (loss) from continuing operations before income taxes and equity earnings	$	999		$	329		$	921
Statutory U.S. income tax rate	21		%	21		%	21		%
Tax expense (benefit) using statutory U.S. income tax rate	210			69			193
State and local income taxes	15			26			(1)
Impact of rate differential on non-U.S. permanent differences and earnings	5			29			25
Foreign valuation allowance	—			—			203
Adjustment to tax basis of assets	(14)			—			—
Non-deductible business expenses	1			4			6
Non-deductible impairments	—			92			31
Non-deductible compensation	11			11			2
Tax audits	9			(28)			—
Deemed repatriation, net of foreign tax credits	—			—			1
U.S. federal tax rate change	—			7			—
Foreign derived intangible income deduction	(7)			—			4
US tax on non-U.S. earnings (GILTI and Subpart F)	5			6			29
Foreign tax credits	(6)			(3)			2
General business and other tax credits	(39)			(42)			(31)
Tax expense (benefit) on equity earnings	—			8			10
Other, net	(2)			(3)			3
Income tax provision (benefit)	$	188		$	176		$	477
Effective income tax rate	19		%	53		%	52		%

The tax effects of significant temporary differences, representing deferred income tax assets and liabilities at December 31, 2021 and 2020, were as follows: 

In millions	2021		2020
Deferred income tax assets:
Postretirement benefit accruals	$	84	$	91
Pension obligations	—		280
Tax credits	199		293
Net operating and capital loss carryforwards	661		563
Compensation reserves	184		170
Lease obligations	92		99
Environmental reserves	104		111
Other	189		191
Gross deferred income tax assets	$	1,513	$	1,798
Less: valuation allowance (a)	(708)		(681)
Net deferred income tax asset	$	805	$	1,117
Deferred income tax liabilities:
Intangibles	$	(140)	$	(114)
Investments	(56)		(251)
Right of use assets	(92)		(99)
Pension obligations	(34)		—
Plants, properties and equipment	(1,776)		(1,826)
Forestlands, related installment sales, and investment in subsidiary	(1,279)		(1,351)
Gross deferred income tax liabilities	$	(3,377)	$	(3,641)
Net deferred income tax liability	$	(2,572)	$	(2,524)

(a) The net change in the total valuation allowance for the years ended December 31, 2021 and 2020 was a increase of $27 million and an decrease of $(6) million, respectively.

Deferred income tax assets and liabilities are recorded in the accompanying consolidated balance sheet under the captions Deferred charges and other assets and Deferred income taxes. Of the $1.3 billion of deferred tax liabilities for forestlands, related installment sales, and investment in subsidiary, $813 million is attributable to an investment in subsidiary and relates to a 2006 International Paper installment sale of forestlands and $487 million is attributable to a 2007 Temple-Inland installment sale of forestlands (see Note 15).

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019 is as follows: 

In millions	2021		2020		2019
Balance at January 1	$	(143)	$	(166)	$	(172)
(Additions) reductions for tax positions related to current year	(13)		(10)		(5)
(Additions) for tax positions related to prior years	(23)		(10)		(3)
Reductions for tax positions related to prior years	1		30		5
Settlements	10		13		7
Expiration of statutes of limitations	1		1		2
Currency translation adjustment	1		(1)		—
Balance at December 31	$	(166)	$	(143)	$	(166)

If the Company were to prevail on the unrecognized tax benefits recorded, substantially all of the balances at December 31, 2021, 2020 and 2019 would benefit the effective tax rate.

The Company accrues interest on unrecognized tax benefits as a component of interest expense. Penalties, if incurred, are recognized as a component of income tax expense. The Company had approximately $21 million and $16 million accrued for the payment of estimated interest and penalties associated with unrecognized tax benefits at December 31, 2021 and 2020, respectively.

The Company is currently subject to audits in the United States and other taxing jurisdictions around the world. Generally, tax years 2009 through 2020 remain open and subject to examination by the relevant tax authorities. The Company frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature, and amount of deductions and the allocation of income among various tax jurisdictions. Pending audit settlements and the expiration of statute of limitations could reduce the uncertain tax positions by $3 million during the next twelve months.

The Company provides for foreign withholding taxes and any applicable U.S. state income taxes on earnings intended to be repatriated from non-U.S. subsidiaries, which we believe will be limited in the future to each year's current earnings. No provision for these taxes on approximately $2.3 billion of undistributed earnings of non-U.S. subsidiaries as of December 31, 2021 has been made, as these earnings are considered indefinitely invested. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted in a taxable manner is not practicable.

If management decided to monetize the Company’s foreign investments, we would recognize the tax cost related to the excess of the book value over the tax basis of those investments. This would include foreign withholding taxes and any applicable U.S. Federal and state income taxes. Determination of the

tax cost that would be incurred upon monetization of the Company’s foreign investments is not practicable; however, we do not believe it would be material.

The following details the scheduled expiration dates of the Company’s net operating loss and income tax credit carryforwards:

In millions	2022 Through 2031		2032 Through 2041		Indefinite		Total
U.S. federal and non-U.S. NOLs	$	53	$	123	$	425	$	601
State taxing jurisdiction NOLs (a)	52		8		—		60
U.S. federal, non- U.S. and state tax credit carryforwards (a)	81		5		113		199
Total	$	186	$	136	$	538	$	860
Less: valuation allowance (a)	(100)		(118)		(389)		(607)
Total, net	$	86	$	18	$	149	$	253

(a) State amounts are presented net of federal benefit.