XML 34 R24.htm IDEA: XBRL DOCUMENT v3.21.2
Income Taxes
6 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
The Company’s effective tax rate was 18.1% and (2.4%) for the three months ended June 30, 2021 and 2020, respectively. The Company’s effective tax rate was 15.4% and 18.0% for the six months ended June 30, 2021 and 2020, respectively.
The effective tax rate for the three months ended June 30, 2021 is lower than the statutory tax rate as a result of tax preferred items including low income housing tax credits and dividends received deduction, partially offset by state income taxes, net of federal benefit. The effective tax rate for the six months ended June 30, 2021 is lower than the statutory rate as a result of tax preferred items including low income housing tax credits, incentive compensation, foreign tax credits, and the dividends received deduction, partially offset by state income taxes, net of federal benefit.

The Company had a negative tax rate of (2.4%) for the three months ended June 30, 2020. This negative tax rate was a result of an income tax expense applied to a pretax loss for the quarter ended June 30, 2020. The income tax expense was primarily due to the reversal of the net operating loss (“NOL”) benefit recorded in the quarter ended March 31, 2020. The Company was no longer forecasting a 2020 NOL due to strong equity market appreciation in the second quarter of 2020, which was a reversal of the equity market dislocation experienced in March of 2020. The NOL benefit reversal was partially offset by tax preferred items including low income housing tax credits for the three months ended June 30, 2020. The effective tax rate for the six months ended June 30, 2020 was lower than the statutory rate as a result of tax preferred items including low income housing tax credits, partially offset by state income taxes, net of federal benefit.
The higher effective tax rate for the three months ended June 30, 2021 compared to June 30, 2020 is primarily the result of the prior period losses and income tax expense related to the NOL benefit reversal recorded in the quarter ended June 30, 2020. The lower
effective tax rate for the six months ended June 30, 2021 compared to June 30, 2020 is primarily the result of an increase in tax preferred items, including foreign tax credits and incentive compensation.

Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $16 million, net of federal benefit, which will expire beginning December 31, 2021.
The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business. Consideration is given to, among other things in making this determination, (i) future taxable income exclusive of reversing temporary differences and carryforwards, (ii) future reversals of existing taxable temporary differences, (iii) taxable income in prior carryback years, and (iv) tax planning strategies. Based on analysis of the Company’s tax position, management believes it is more likely than not that the Company will not realize certain state net operating losses of $12 million, state deferred tax assets of $2 million and foreign deferred tax assets of $1 million; therefore a valuation allowance has been established. The valuation allowance was $15 million as of both June 30, 2021 and December 31, 2020, respectively.
As of June 30, 2021 and December 31, 2020, the Company had $124 million and $110 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $92 million and $80 million, net of federal tax benefits, of unrecognized tax benefits as of June 30, 2021 and December 31, 2020, respectively, would affect the effective tax rate.
It is reasonably possible that the total amount of unrecognized tax benefits will change in the next 12 months. The Company estimates that the total amount of gross unrecognized tax benefits may decrease by $40 million to $50 million in the next 12 months primarily due to Internal Revenue Service (“IRS”) settlements and state exams.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized nil and a net decrease of $1 million in interest and penalties for the three and six months ended June 30, 2021, respectively. The Company recognized nil and a net increase of $1 million in interest and penalties for the three and six months ended June 30, 2020, respectively. As of June 30, 2021 and December 31, 2020, the Company had a payable of $9 million and $10 million, respectively, related to accrued interest and penalties.
The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The federal statute of limitations are closed on years through 2015, except for one issue for 2014 and 2015 which was claimed on amended returns. The IRS is currently auditing the Company’s U.S. income tax returns for 2016, 2017 and 2018. The Company’s state income tax returns are currently under examination by various jurisdictions for years ranging from 2015 through 2019.