Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax provision (benefit) from continuing operations consists of the following:

	Year ended December 31,
(in thousands)	2021		2020		2019
Current:
Federal	$	23,333	$	(42,718)	$	1,162
State and local	4,934		(748)		740
Foreign	760		6,731		3,687
	29,027		(36,735)		5,589
Deferred:
Federal	(3,687)		28,665		1,999
State and local	819		1,180		1,952
Foreign	3,069		(4,020)		(395)
	201		25,825		3,556
Total:
Federal	19,646		(14,053)		3,161
State and local	5,753		432		2,692
Foreign	3,829		2,711		3,292
	$	29,228	$	(10,910)	$	9,145

Income (loss) before income taxes from continuing operations consists of the following:

	Year ended December 31,
(in thousands)	2021		2020		2019
U.S.	$	143,712	$	(38,319)	$	8,159
Foreign	17,058		11,238		4,862
	$	160,770	$	(27,081)	$	13,021

A reconciliation from the statutory U.S. federal tax rate to the effective tax rate follows:

	Year ended December 31,
	2021		2020		2019
Statutory U.S. federal tax rate	21.0	%	21.0	%	21.0	%
Increase (decrease) in rate resulting from:
State and local income taxes, net of related federal taxes	2.5		0.5		15.8
Federal tax rate differential	0.4		(2.1)		2.0
U.S. tax rate change and other tax law impacts (a)	0.5		56.2		4.5
Effect of noncontrolling interest	(4.2)		(17.0)		5.2
Derivative instruments and hedging activities	0.4		(11.8)		(5.4)
U.S. income taxes on foreign earnings	0.7		(1.8)		11.1
Nondeductible compensation	1.9		(5.5)		10.0
Unrecognized tax benefits	2.1		(72.2)		146.7
Valuation allowance	0.1		(1.9)		(2.0)
Foreign tax credits	(1.3)		(0.5)		(10.8)
Research and development and other tax credits	(5.0)		75.6		(189.4)
Equity method investments	(0.6)		(0.1)		12.2
Acquisition related permanent item	—		—		51.8
Other, net	(0.3)		(0.1)		(2.5)
Effective tax rate	18.2	%	40.3	%	70.2	%

(a) Reflects the impact of the CARES Act which provided a financial statement benefit of $14.8 million in 2020.

Net income taxes of $51.7 million, $2.4 million and $2.0 million were paid in the years ended December 31, 2021, 2020 and 2019, respectively.

TAMH and ELEMENT are treated as partnerships for U.S. tax purposes. Partnerships are not taxable entities so the tax consequences of the partnership’s transactions flow through to the partners (i.e., investors) at their proportionate share. As a result, the Consolidated Financial Statements do not reflect such income taxes on income (loss) before taxes attributable to the noncontrolling interest in the partnerships.

The Company has elected to treat Global Intangible Low Tax Income (“GILTI”) as a period cost and, therefore, has not recognized deferred taxes for basis differences that may reverse as GILTI tax in future years.

For the years ended December 31, 2021 and 2020, the Company has not recognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries that were deemed permanently reinvested. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing and if/when remittance occurs. A deferred tax liability will be recognized if and when the Company no longer plans to permanently reinvest these undistributed earnings.

Significant components of the Company's deferred tax liabilities and assets are as follows:

	December 31,
(in thousands)	2021		2020
Deferred tax liabilities:
Property, plant and equipment and Rail assets leased to others	$	(66,913)	$	(203,432)
Identifiable intangibles	(7,022)		(9,677)
Investments	(35,842)		(50,244)
Other	(3,859)		(3,427)
	(113,636)		(266,780)
Deferred tax assets:
Employee benefits	27,695		20,910
Accounts and notes receivable	2,189		4,207
Inventory	4,533		1,905
Federal income tax credits	2,292		25,163
Net operating loss carryforwards	2,906		25,427
Derivative instruments	1,774		5,949
Lease liability	64		9,068
Other	5,426		5,456
Total deferred tax assets	46,879		98,085
less: Valuation allowance	2,834		1,452
	44,045		96,633
Net deferred tax liabilities(a)	$	(69,591)	$	(170,147)

(a) The Company had deferred tax assets of $1.5 million included in Other assets in the Consolidated Balance Sheets as of December 31, 2021.

On December 31, 2021, the Company had $30.7 million and $4.7 million of state and non-U.S. net operating loss carryforwards that begin to expire in 2022 and 2035, respectively. The Company also has $2.3 million of U.S. foreign tax credits ("FTCs") carryforwards that begin to expire after 2028. The valuation allowance of $2.8 million is related to tax assets of $2.3 million and $0.5 million for U.S. federal FTCs and net operating loss carryforwards, respectively.

The decrease in net deferred tax liabilities of $100.5 million during the year ended December 31, 2021 was primarily related to a decrease in deferred tax liabilities related to the sale of the Company’s Rail Leasing business during the third quarter of 2021 which are reflected in the Consolidated statements of operations as discontinued operations, net of income taxes.

Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance will be recorded to reduce deferred tax assets if, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. In assessing the realizability of our deferred tax assets, we consider positive and negative evidence, including historical operating results, future reversals of existing taxable temporary differences, projected future earnings, and tax planning strategies.

The Company, or one of its subsidiaries, files income tax returns in the U.S., multiple foreign, state and local jurisdictions. The Company is no longer subject to examination by taxing authorities in the U.S., foreign, state and local jurisdictions federal taxation for years before 2014. The Company and the Company’s subsidiary partnership returns are under federal tax examination by the Internal Revenue Service (“IRS”) for the tax year 2018 and tax years 2015 through 2018, respectively. The Company’s subsidiary is under federal tax examination by the Mexican tax authorities for tax year 2015. Due to the potential for resolution of U.S. federal, foreign, state and local examinations, and the expiration of various statutes of limitations, it is reasonably possible that the gross unrecognized tax benefits may change within the next 12 months by a range of zero to $2.0 million.

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

(in thousands)	2021		2020		2019
Balance at beginning of period	$	44,401	$	22,415	$	618
Tax positions related to the current year
Gross additions	13,179		11,598		1,766
Tax positions related to prior years
Gross additions	1,364		12,013		20,649
Gross reductions	(7,190)		(1,566)		(155)
Lapse in statute of limitations	—		(59)		(463)
Balance at end of period	$	51,754	$	44,401	$	22,415

As of December 31, 2021, 2020 and 2019, if our unrecognized tax benefits were recognized in future periods, they would favorably impact our effective tax rate. As of December 31, 2021, unrecognized tax benefits of $51.7 million include $43.0 million associated with the federal and state R&D Credits.

The Company’s practice is to recognize interest and penalties on uncertain tax positions in the provision for income taxes in the Consolidated Statement of Operations. At December 31, 2021, 2020, and 2019, the Company recorded reserves of $2.7 million, $1.8 million and $2.1 million, respectively, of interest and penalties on uncertain tax positions in the Consolidated Balance Sheets.