Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 5 Income Taxes

UScellular is included in a consolidated federal income tax return and in certain state income tax returns with other members of the TDS consolidated group. For financial statement purposes, UScellular and its subsidiaries compute their income tax expense as if they comprised a separate affiliated group and were not included in the TDS consolidated group.

UScellular’s current income taxes balances at December 31, 2021 and 2020, were as follows:

December 31,	2021		2020
(Dollars in millions)
Federal income taxes receivable	$	123	$	124
Net state income taxes receivable	—		1

Income tax expense (benefit) is summarized as follows:

Year Ended December 31,	2021		2020		2019
(Dollars in millions)
Current
Federal	$	2	$	(118)	$	44
State	(23)		5		12
Deferred
Federal	49		124		—
State	(8)		6		(4)
Total income tax expense (benefit)	$	20	$	17	$	52

A reconciliation of UScellular’s income tax expense computed at the statutory rate to the reported income tax expense, and the statutory federal income tax rate to UScellular’s effective income tax rate is as follows:

Year Ended December 31,	2021				2020				2019
	Amount		Rate		Amount		Rate		Amount		Rate
(Dollars in millions)
Statutory federal income tax expense and rate	$	38	21.0	%	$	52	21.0	%	$	39	21.0	%
State income taxes, net of federal benefit1	(25)		(14.1)		8		3.4		6		3.4
Change in federal valuation allowance2	7		3.8		—		0.1		7		3.6
Loss carryback benefit of CARES Act3	—		—		(49)		(19.8)		—		—
Nondeductible compensation	2		1.3		6		2.6		2		1.3
Tax credits	—		(0.2)		—		(0.1)		(3)		(1.5)
Other differences, net	(2)		(0.4)		—		(0.6)		1		0.3
Total income tax expense (benefit) and rate	$	20	11.4	%	$	17	6.6	%	$	52	28.1	%

1State income taxes, net of federal benefit, include changes in unrecognized tax benefits as well as adjustments to state valuation allowances. State taxes in 2021 are a net benefit due primarily to the reduction of tax accruals resulting from expirations of state statute of limitations for prior tax years.

2Change in federal valuation allowance is due primarily to interest expense carryforwards from partnership investments that may not be realized.

3The CARES Act provides a 5-year carryback of net operating losses generated in years 2018-2020. As the statutory federal tax rate applicable to certain years within the carryback period is 35%, carryback to those years provides a tax benefit in excess of the current federal statutory rate of 21%.

Significant components of UScellular’s deferred income tax assets and liabilities at December 31, 2021 and 2020, were as follows:

December 31,	2021		2020
(Dollars in millions)
Deferred tax assets
Net operating loss (NOL) carryforwards	$	126	$	107
Lease liabilities	254		236
Asset retirement obligation	64		51
Other	130		83
Total deferred tax assets	574		477
Less valuation allowance	(83)		(94)
Net deferred tax assets	491		383
Deferred tax liabilities
Property, plant and equipment	446		391
Licenses/intangibles	330		256
Partnership investments	154		143
Lease assets	232		215
Other	3		11
Total deferred tax liabilities	1,165		1,016
Net deferred income tax liability	$	674	$	633

At December 31, 2021, UScellular and certain subsidiaries had $2,058 million of state NOL carryforwards (generating a $90 million deferred tax asset) available to offset future taxable income. The state NOL carryforwards expire between 2022 and 2041. UScellular and certain subsidiaries had $170 million of federal NOL carryforwards (generating a $36 million deferred tax asset) available to offset future taxable income. The federal NOL carryforwards generally expire between 2022 and 2037, with the exception of federal NOLs generated after 2017, which do not expire. A valuation allowance was established for certain federal and state NOL carryforwards since it is more likely than not that a portion of such carryforwards will expire before they can be utilized.

A summary of UScellular’s deferred tax asset valuation allowance is as follows:

	2021		2020		2019
(Dollars in millions)
Balance at beginning of year	$	94	$	90	$	75
Charged to Income tax expense	(11)		4		15
Balance at end of year	$	83	$	94	$	90

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

	2021		2020		2019
(Dollars in millions)
Unrecognized tax benefits balance at beginning of year	$	51	$	48	$	48
Additions for tax positions of current year	8		7		7
Additions for tax positions of prior years	—		2		—
Reductions for tax positions of prior years	(3)		—		(6)
Reductions for settlements of tax positions	(2)		—		(1)
Reductions for lapses in statutes of limitations	(19)		(6)		—
Unrecognized tax benefits balance at end of year	$	35	$	51	$	48

Unrecognized tax benefits are included in Other deferred liabilities and credits in the Consolidated Balance Sheet. If these benefits were recognized at each respective year end period, they would have reduced income tax expense in 2021, 2020 and 2019 by $28 million, $41 million and $37 million, respectively, net of the federal benefit from state income taxes. 

UScellular recognizes accrued interest and penalties related to unrecognized tax benefits in Income tax expense (benefit). The amounts charged to income tax expense related to interest and penalties resulted in a benefit of $10 million in 2021, and expenses of $2 million and $3 million in 2020 and 2019, respectively. Net accrued liabilities for interest and penalties were $12 million and $23 million at December 31, 2021 and 2020, respectively, and are included in Other deferred liabilities and credits in the Consolidated Balance Sheet. 

UScellular is included in TDS’ consolidated federal and certain state income tax returns. UScellular also files certain state and local income tax returns separately from TDS. With limited exceptions, TDS is no longer subject to federal and state income tax audits for the years prior to 2018.