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Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
6. INCOME TAXES

For the years ended December 31, income (loss) from continuing operations before income taxes consisted of the following:
In millions202020192018
Income (loss) before income taxes
United States$(391)$(25)$(262)
Foreign332 366 301 
Total income (loss) from continuing operations before income taxes$(59)$341 $39 
For the years ended December 31, income tax expense (benefit) consisted of the following:
In millions202020192018
Income tax expense (benefit)
Current
Federal$(9)$$18 
State — 
Foreign68 78 42 
Deferred
Federal(108)(19)(2)
State(6)— 
Foreign2 (335)14 
Total income tax expense (benefit)$(53)$(273)$73 

The following table presents the principal components of the difference between the effective tax rate and the U.S. federal statutory income tax rate for the years ended December 31:
In millions202020192018
Income tax expense (benefit) at the U.S. federal tax rate of 21%$(12)$72 $
Foreign income tax differential 20 
State and local income taxes (net of federal effect)(4)
Other U.S. permanent book/tax differences2 — 
Meals and entertainment expense1 
Executive compensation10 
Employee share-based payments3 
Impact of intangible asset transfer (245)— 
Gains/losses on distributions/entity liquidations2 (12)— 
Foreign derived intangible income deduction (7)(1)
Change in branch tax status (17)(9)
Goodwill impairment — 30 
Research and development tax credits(7)(5)(6)
Foreign tax law changes(4)— 
U.S. valuation allowance (1)
(37)(16)16 
U.S tax reform — 37 
Foreign valuation allowance6 (74)
Change in liability for unrecognized tax benefits (1)
(12)(23)
Prior period adjustments (1)(11)
Other, net(1)(1)(1)
Total income tax expense (benefit)$(53)$(273)$73 
(1) Does not include the impact of items included in the U.S. Tax Reform category

NCR's tax provisions include a provision for income taxes in certain tax jurisdictions where its subsidiaries are profitable, but reflect only a portion of the tax benefits related to certain foreign subsidiaries' tax losses due to the uncertainty of the ultimate realization of future benefits from these losses. During 2020, our tax rate was impacted by a $48 million benefit from the release of a valuation allowance against U.S. foreign tax credits and the re-establishment of expected foreign tax credit offsets to unrecognized tax benefits. During 2019, the tax rate was impacted by the transfer of certain intangible assets among our wholly-owned subsidiaries, creating a net tax benefit of $264 million. The tax rate was also impacted by foreign valuation allowance releases of $74 million. During 2018, the tax rate was impacted by a $37 million expense relating to the Tax Cuts and Jobs Act of 2017 enacted on December 22, 2017.
In the first quarter of 2020, the Company identified and recorded income tax benefits of $5 million related to an error in the calculation of the permanent differences on executive stock compensation and the write-off of income tax payables incorrectly recorded in prior periods. In the fourth quarter of 2020, the Company identified and recorded income tax expense to correct for errors which originated in prior periods totaling $10 million, which included $6 million related to an error in the calculation of the provision for unrecognized tax benefits. The Company corrected for these immaterial errors as out of period adjustments in the periods identified which resulted in a net $5 million out of period adjustment for the year ended December 31, 2020.

NCR did not provide additional U.S. income tax or foreign withholding taxes, if any, on approximately $3.4 billion of undistributed earnings of its foreign subsidiaries, given the intention continues to be that those earnings are reinvested indefinitely. The amount of unrecognized deferred tax liability associated with these indefinitely reinvested earnings is approximately $200 million. The unrecognized deferred tax liability is made up of a combination of U.S. and state income taxes and foreign withholding taxes.
We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.  The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence.  This evidence includes historical taxable income/loss, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies. 

Deferred income tax assets and liabilities included in the Consolidated Balance Sheets as of December 31 were as follows:
In millions20202019
Deferred income tax assets
Employee pensions and other benefits$229 $243 
Other balance sheet reserves and allowances272 182 
Tax loss and credit carryforwards667 625 
Capitalized research and development44 47 
Lease liabilities91 104 
Intangibles123 127 
Property, plant and equipment11 11 
Other13 
Total deferred income tax assets1,450 1,348 
Valuation allowance(341)(352)
Net deferred income tax assets1,109 996 
Deferred income tax liabilities
Right of use assets90 102 
Capitalized software78 98 
Total deferred income tax liabilities168 200 
Total net deferred income tax assets$941 $796 

NCR has previously recorded valuation allowances related to certain deferred tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. The recorded valuation allowances cover deferred tax assets, primarily tax loss carryforwards and branch basket foreign tax credits, in tax jurisdictions where there is uncertainty as to the ultimate realization of those tax losses and credits. As of December 31, 2020, the Company's net deferred tax assets (without valuation allowances) in the U.S. totaled approximately $469 million. For the three year period ended December 31, 2020, the U.S. had a cumulative net loss from continuing operations before income taxes, as adjusted for permanent differences, which is generally considered a negative indicator of the Company's ability to realize the benefits of those assets. However, the Company evaluated the realizability of the U.S. net deferred tax assets by weighing positive and negative evidence, including our history of U.S. pre-tax income adjusted for permanent differences, the impact of the COVID-19 pandemic on our U.S. results in 2020 and in the near-term, projected U.S. taxable income, and the length of time over which the Company's deferred tax assets relating to net operating losses, general basket foreign tax credits, interest limitation carryforward, research and development credits and a variety of temporary differences may be realized. A specific focus of the evaluation was the realizability of the
Company's general basket foreign tax credit carryforwards, which expire on or before December 31, 2025. Through this assessment, realization of the related benefits was determined to be more likely than not. If the Company is unable to generate sufficient future U.S. taxable income of the proper source in the time period within which the temporary differences underlying our deferred tax assets become deductible, or before the expiration of our loss and credit carryforwards, additional valuation allowances could be required in the future.

As of December 31, 2020, NCR had U.S. federal, U.S. state (tax effected), and foreign tax attribute carryforwards of approximately $1.6 billion. The net operating loss carryforwards that are subject to expiration will expire in the years 2021 through 2039. This includes U.S. tax credit carryforwards of $279 million, which expire in the years 2021 through 2040. As a result of stock ownership changes our U.S. tax attributes could be subject to limitations under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, if further material stock ownership changes occur.

The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the years ended December 31:
In millions202020192018
Gross unrecognized tax benefits - January 1$121 $110 $196 
Increases related to tax positions from prior years15 
Decreases related to tax positions from prior years(6)(4)(50)
Increases related to tax provisions taken during the current year6 14 
Settlements with tax authorities(23)(5)(45)
Lapses of statutes of limitation(10)(1)(9)
Total gross unrecognized tax benefits - December 31$103 $121 $110 

Of the total amount of gross unrecognized tax benefits as of December 31, 2020, $61 million would affect NCR’s effective tax rate if realized. The Company’s liability arising from uncertain tax positions is recorded in income tax accruals and other current liabilities in the Consolidated Balance Sheets.

We recognized interest and penalties associated with uncertain tax positions as part of the provision for income taxes in our Consolidated Statements of Operations of $5 million of benefit, $2 million of expense, and $9 million of benefit for the years ended December 31, 2020, 2019, and 2018, respectively. The gross amount of interest and penalties accrued as of December 31, 2020 and 2019 was $30 million and $35 million, respectively.

In the U.S., NCR files consolidated federal and state income tax returns where statutes of limitations generally range from three to five years. U.S. federal tax years remain open from 2017 forward. Years beginning on or after 2001 are still open to examination by certain foreign taxing authorities, including India, Egypt, and other major taxing jurisdictions.
During 2021, the Company expects to resolve certain tax matters related to U.S. and foreign jurisdictions. As of December 31, 2020, we estimate that it is reasonably possible that unrecognized tax benefits may decrease by $10 million to $13 million in the next 12 months due to the resolution of these tax matters.