Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The effect on the income tax provision and deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We have provided a valuation allowance on certain foreign and state net operating losses (“NOLs”), and other federal, state, and foreign deferred tax assets. NOLs and other federal, state, and foreign deferred tax assets were not deemed realizable based upon the Company’s recent history of taxable losses.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected our year ended December 31, 2017, including, but not limited to (i) reducing the U.S. federal corporate tax rate, (ii) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, (iii) bonus depreciation that will allow for full expensing of qualified property, (iv) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, and (v) a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings accumulated post 1986 through 2017 that were previously deferred from U.S. income taxes.

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for the accounting of the effects of the Tax Act. SAB 118 provides a measurement period that should not be extended past a year from the enactment date for companies to complete the accounting of the Tax Act under ASC Topic 740, Income Taxes (“ASC 740”). Companies that do not complete the accounting under ASC 740 for the tax effects of the Tax Act must record a provisional estimate of the tax effects of the Tax Act. If a provisional estimate cannot be determined, a company should continue to apply ASC 740 based on the tax laws in effect immediately before the enactment of the Tax Act.

As of December 31, 2018, the Company completed the accounting for the tax effects of the Tax Act. During the year ended December 31, 2017, the Company made a reasonable estimate of the effects on the existing deferred tax balances and accrued a provisional income tax benefit of approximately $1.2 billion in the period ended December 31, 2017. The amount of the estimated income tax benefit was (i) $797 million related to the net deferred tax benefit of the corporate rate reduction and (ii) $442 million related to the net deferred tax benefit of deferred tax assets which were realizable due to the changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. During the year ended December 31, 2018, the Company revised its estimate of the effects on the existing deferred tax balances as of December 31, 2017, and accrued an additional provisional income tax benefit of $82 million. The total amount of the revised estimated income tax benefit is (i) $710 million related to the net deferred tax benefit of the corporate rate reduction, (ii) $569 million related to the net deferred tax benefit of deferred tax assets, which are now realizable due to the changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, and (iii) $42 million relating to the net deferred tax benefit of state deferred tax assets, which are now realizable due to the changing rules related to interest expense disallowance for those states which conform to the Tax Act.

The Tax Act also includes provisions for Global Intangible Low-Taxed Income (“GILTI”), which imposes taxes on foreign income in excess of a deemed return on tangible assets of foreign corporations. Companies are allowed to make an accounting policy election of either (i) account for GILTI as a component of income tax expense in the period in which the Company is subject to the rules (the “period cost method”), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the “deferred method”). The Company has elected the period cost method.

Effective January 1, 2018, we adopted ASU 2016-16, Income Taxes (Topic 740), which provides amended guidance regarding intra-entity transfers of assets other than inventory and requires the recognition of any related income tax consequences when such transfers occur.

In January 2019, we adopted ASU 2018-02 Income Statement—Reporting Comprehensive Income (Topic 220), which allows for a reclassification from accumulated other comprehensive income to retained earnings effectively eliminating the stranded tax effects resulting from the Tax Act. The adoption of this standard had no effect on our financial statements.

We file income tax returns, including returns for our subsidiaries, with federal, state, and foreign jurisdictions. We are under regular and recurring audit by the IRS and various state taxing authorities on open tax positions, and it is possible that the amount of the liability for unrecognized tax benefits could change during the next 12 months.

Components of Income/(Loss) Before Income Taxes
	Years Ended December 31,
(In millions)	2019			2018			2017
United States	$	(1,272	)	$	205		$	(2,374	)
Outside of the U.S.	(67		)	(22		)	4
	$	(1,339	)	$	183		$	(2,370	)

Income Tax Benefit
	Years Ended December 31,
(In millions)	2019			2018			2017
United States
Current
Federal	$	(2	)	$	(9	)	$	148
State	(1		)	(1		)	(7		)
Deferred
Federal	131			170			1,835
State	22			(39		)	23
Outside of the U.S.
Current	(7		)	(9		)	(4		)
Deferred	(2		)	9			—
	$	141		$	121		$	1,995

Allocation of Income Tax Benefit
	Years Ended December 31,
(In millions)	2019		2018		2017
Income tax benefit applicable to:
Income from operations	$	141	$	121	$	1,995
Other comprehensive income/(loss)	12		3		—

Effective Income Tax Rate Reconciliation
	Years Ended December 31,
	2019		2018		2017
Statutory tax rate	21.0	%	21.0	%	35.0	%
Increases/(decreases) in tax resulting from:
State taxes, net of federal tax benefit	2.5		4.0		5.2
Valuation allowance	(9.9	)	(70.4	)	(17.1	)
Foreign income taxes	(1.3	)	2.3		(0.1	)
Deferred tax benefit from changes in federal tax law	—		(44.7	)	52.1
Stock-based compensation	(1.8	)	4.7		(0.2	)
Acquisition of CEOC	—		—		36.7
Reserves for uncertain tax positions	0.5		4.4		(4.6	)
Current tax benefit from change in CGP operating agreement	—		—		2.4
Impairment of goodwill	(0.3	)	4.7		—
Nondeductible transaction costs	—		6.6		(25.0	)
Other	(0.1	)	1.3		(0.2	)
Effective tax rate	10.6	%	(66.1	)%	84.2	%

Temporary Differences Resulting in Deferred Tax Assets and Liabilities
	As of December 31,
(In millions)	2019		2018
Deferred tax assets:
State net operating losses	$	415	$	420
Federal net operating loss	409		485
Foreign net operating loss	16		16
Compensation programs	46		81
Allowance for doubtful accounts	40		41
Self-insurance reserves	8		10
Accrued expenses	41		45
Federal tax credits	82		70
Financing obligations	2,479		2,445
Golf course properties’ obligation	35		35
Investment in non-consolidated affiliates	5		5
Other debt-related items	66		—
Deferred revenue	39		42
Leases	62		66
Other	16		—
Subtotal	3,759		3,761
Less: valuation allowance	1,436		1,302
Total deferred tax assets	2,323		2,459
Deferred tax liabilities:
Depreciation and other property-related items	2,360		2,567
Other debt-related items	—		95
Intangibles	497		496
Prepaid expenses	23		20
Other	—		1
Total deferred tax liabilities	2,880		3,179
Net deferred tax liability (1)	$	557	$	720

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⁽¹⁾  The net deferred tax liability above is reflected in the Balance Sheets as follows: Deferred income tax asset of $2 million; Deferred income tax liability of $555 million; Accrued Expenses and other current liabilities - Liabilities held for sale of $4 million.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Due to ongoing losses from operations, we project that future reversals of taxable temporary differences are not sufficient to provide adequate taxable income to realize our deferred tax assets. Accordingly, we have a valuation allowance against the federal, state and foreign deferred tax assets that are not projected to be realizable.

As of December 31, 2019 and 2018, we had federal NOL carryforwards of $2.5 billion and $2.6 billion, respectively. These NOLs will begin to expire in 2030. In addition, we had federal general business tax credits and research tax credit carryforwards of $82 million, which will begin to expire in 2029.

NOL carryforwards for our domestic subsidiaries for state income taxes were $8.6 billion and $9.0 billion as of December 31, 2019 and 2018, respectively. Due to the Company’s recent history of taxable losses, it is more likely than not that the benefit from certain state NOL carryforwards will not be realized. Accordingly, we have provided a valuation allowance on the deferred tax assets relating to these NOL carryforwards which will not more likely than not be realized. These state NOLs will begin to expire in 2021.

NOL carryforwards for our foreign subsidiaries were $84 million and $91 million as of December 31, 2019 and 2018, respectively. Due to the Company’s recent history of taxable losses, it is more likely than not that the benefit from certain foreign NOL carryforwards will not be realized. Accordingly, we have provided a valuation allowance on the deferred tax assets relating to these NOL carryforwards which will not more likely than not be realized. These foreign NOLs do not expire.

Reconciliation of Unrecognized Tax Benefits
	Years Ended December 31,
(In millions)	2019			2018			2017
Balance as of beginning of year	$	169		$	162		$	115
Additions based on tax positions related to the current year	37			—			113
Additions for tax positions of prior years	25			13			1
Reductions for tax positions for prior years	(18		)	(5		)	(92		)
Acquisition of OpCo	—			—			67
Settlements	—			(1		)	—
Effect of changes in federal tax law	—			—			(42		)
Balance as of end of year	$	213		$	169		$	162

We classify reserves for tax uncertainties within Accrued expenses and other current liabilities and Deferred credits and other liabilities in our Balance Sheets, separate from any related income tax payable or Deferred income taxes. Reserve amounts relate to any potential income tax liabilities resulting from uncertain tax positions as well as potential interest or penalties associated with those liabilities.

We accrue interest and penalties related to unrecognized tax benefits in income tax expense. During 2019, we increased our accrual by $2 million. During 2018, we increased our accrual by $2 million, and during 2017, we increased our accrual by $2 million (including the interest from OpCo unrecognized tax benefits acquired in 2017). There was an accrual for the payment of interest and penalties of $10 million, $8 million, and $5 million as of December 31, 2019, 2018, and 2017, respectively. Included in the balances of unrecognized tax benefits as of December 31, 2019 and 2018 was approximately $143 million and $145 million, respectively, of unrecognized tax benefits that, if recognized, would impact the effective tax rate. There were $78 million unrecognized tax benefits as of December 31, 2017 that, if recognized, would impact the effective tax rate.

We file income tax returns, including returns for our subsidiaries, with federal, state, and foreign jurisdictions. We are subject to exam by various state and foreign tax authorities. As of December 31, 2019, the tax years prior to 2015 are not subject to examination for U.S. income tax purposes and for most of the state or foreign income tax jurisdictions as the statutes of limitations have lapsed.

We believe that it is reasonably possible that the unrecognized tax benefits liability will not materially change within the next 12 months. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. Although we believe that adequate provision has been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse effect on our earnings. Conversely, if these issues are resolved favorably in the future, the related provision would be reduced, thus having a favorable impact on earnings.