INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 12 - INCOME TAXES

The following summarizes domestic and foreign components of income (loss) from continuing operations before domestic and foreign income taxes for the years ended December 31:

millions	2020		2019		2018
Domestic	$	(15,322)	$	(1,632)	$	3,431
Foreign	(383)		1,986		2,177
Total	$	(15,705)	$	354	$	5,608

The following summarizes components of income tax expense (benefit) on continuing operations for the years ended December 31:

millions	2020		2019		2018
Current
Federal	$	(126)	$	33	$	(23)
State and Local	6		46		52
Foreign	465		1,809		1,077
Total current tax expense	$	345	$	1,888	$	1,106
Deferred
Federal	(2,384)		(130)		422
State and Local	(103)		17		12
Foreign	(30)		(914)		(63)
Total deferred tax expense (benefit)	$	(2,517)	$	(1,027)	$	371
Total income tax expense (benefit)	$	(2,172)	$	861	$	1,477

The following reconciliation of the U.S federal statutory income tax rate to Occidental’s worldwide effective tax rate on income from continuing operations for the years ended December 31 is stated as a percentage of income (loss) from continuing operations before income taxes:

	2020		2019		2018
U.S. federal statutory tax rate	21	%	21	%	21	%
Enhanced oil recovery credit and other general business credits	—		(2)		(3)
Goodwill impairment	(3)		—		—
Tax benefit due to reversal of indefinite reinvestment assertion	—		—		(2)
Tax impact from foreign operations	(4)		135		11
State income taxes, net of federal benefit	—		14		1
Uncertain tax positions	—		7		—
Transaction costs	—		10		—
Non-controlling interest	—		(8)		—
Executive compensation limitation	—		12		—
Stock warrants	—		(5)		—
WES loss of control	—		58		—
Other	—		1		(2)
Worldwide effective tax rate	14	%	243	%	26	%

In 2020, Occidental’s worldwide effective tax rate was 14%, which was largely a result of the impairment of the WES goodwill and certain international assets for which Occidental received no tax benefit and higher-taxed foreign operations which generally caused Occidental’s tax rate to vary significantly from the U.S. corporate tax rate.

The tax effects of temporary differences resulting in deferred income taxes at December 31, 2020, and 2019 were as follows:

millions	2020		2019
Deferred tax liabilities
Property, plant and equipment differences	$	(10,744)	$	(12,375)
Equity investments, partnerships and foreign subsidiaries	(658)		(989)
Gross long-term deferred tax liabilities	(11,402)		(13,364)
Deferred tax assets
Environmental reserves	257		261
Postretirement benefit accruals	398		441
Deferred compensation and benefits	186		266
Asset retirement obligations	942		906
Foreign tax credit carryforwards	4,465		4,379
General business credit carryforwards	607		443
Net operating loss carryforward	1,797		692
Interest expense carryforward	668		492
All other	720		782
Gross long-term deferred tax assets	10,040		8,662
Valuation allowance	$	(5,695)	$	(4,959)
Net long-term deferred tax assets	$	4,345	$	3,703
Total deferred income taxes, net	$	(7,057)	$	(9,661)
Less: foreign deferred tax asset in long-term receivables and other assets, net	$	(56)	$	(56)
Total deferred income taxes	$	(7,113)	$	(9,717)

Total deferred tax assets, after valuation allowances, were $4.3 billion and $3.7 billion as of December 31, 2020, and 2019, respectively. Occidental expects to realize the recorded deferred tax assets, net of any allowances, through future operating income and reversal of temporary differences. The total deferred tax liabilities were $11.4 billion and $13.4 billion as of December 31, 2020 and 2019, respectively. The decrease in net deferred tax liability in 2020 over 2019 is primarily driven by domestic asset impairments for which Occidental does not receive an immediate tax benefit as well as an increase in net operating loss carryforwards.

As of December 31, 2020, Occidental had foreign tax credit carryforwards of $4.5 billion, federal general business credits carryforwards of $607 million and state tax credit carryforwards of $39 million. Occidental has recorded a valuation allowance for $4.4 billion of the foreign tax credit carryforwards and $30 million of the state tax credit carryforwards.

As of December 31, 2020, Occidental had tax-effected federal net operating loss carryforwards of $631 million, foreign net operating loss carryforwards of $850 million and state operating loss carryforwards of $316 million. The carryforward balances have varying carryforward periods through 2040, excluding certain attributes for which there is an indefinite carryforward period. A valuation allowance was recorded for $251 million of the tax-effected state net operating loss carryforwards and $795 million of the tax-effected foreign net operating loss carryforwards. Occidental has an additional valuation allowance of $145 million against other foreign deferred tax assets.

Occidental had a tax-effected federal interest expense carryforward of $569 million and tax-effected state interest expense carryforward of $99 million as of December 31, 2020. Occidental recorded a valuation allowance for $64 million of the state interest expense carryforward.

A deferred tax liability has not been recognized for temporary differences related to unremitted earnings of certain consolidated international subsidiaries aggregating approximately $930 million at December 31, 2020, as it is Occidental’s intention to reinvest such earnings indefinitely. If the earnings of these international subsidiaries were not indefinitely reinvested, an additional deferred tax liability of approximately $214 million would be required.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

millions	2020		2019		2018
Balance at January 1	$	2,173	$	—	$	22
Increase related to Anadarko Acquisition	—		2,143		—
Increases related to current-year positions	14		30		—
Settlements	(42)		—		(22)
Reductions for tax positions of prior years	(100)		—		—
Balance at December 31	$	2,045	$	2,173	$	—

The December 31, 2020 balance of unrecognized tax benefits of $2.0 billion included potential benefits of $2.0 billion of which, if recognized, $1.6 billion would affect the effective tax rate on income. Also included are benefits of $84 million related to tax positions for which the ultimate deductibility is highly certain, but the timing of such deductibility is uncertain. Occidental records estimated potential interest and penalties related to liabilities for unrecognized tax benefits in the provisions for domestic and foreign income taxes. During 2020, Occidental recorded interest related to liabilities for unrecognized tax benefits of $67 million, for a cumulative accrued interest related to liabilities for unrecognized tax benefits of $263 million as of December 31, 2020. There were no interest and penalties associated with liabilities for unrecognized tax benefits recorded for the years ended December 31, 2020 and 2019. Over the next 12 months, it is reasonably possible that the total amount of unrecognized tax benefits could decrease by $70 million to $80 million due to settlements with taxing authorities or lapse in statutes of limitation.

Occidental recognized $110 million and $86 million in federal and state income tax receivables at December 31, 2020, and 2019, respectively, which was recorded in other current assets. In addition, Occidental recognized $24 million in receivables associated with audits and $36 million in federal alternative minimum tax non-current receivables at December 31, 2020 and 2019, respectively, both of which were recorded in long-term receivables and other assets, net.

Occidental is subject to audit by various tax authorities in varying periods. See Note 11 - Lawsuits, Claims, Commitments and Contingencies for a discussion of these matters.