|12 Months Ended|
Dec. 31, 2020
(9) Income Taxes
Income tax benefit (expense) consists of:
The following table presents a summary of our domestic and foreign earnings from continuing operations before income taxes:
Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 21% as a result of the following:
For the year ended December 31, 2020 the Company recorded an income tax benefit. The current year tax benefit was primarily driven by the impacts of a corporate realignment and tax credits generated by alternative energy investments.
During the fourth quarter of 2020, the Company completed a corporate realignment transaction, whereby the assets and liabilities of certain foreign business units held in U.S. subsidiaries were transferred to QVC Global, a foreign subsidiary of QVC. This changed the manner in which income of the foreign business units is subject to U.S. income tax. As part of this realignment and upon entering into a payment agreement, QVC Global became the primary co-obligor of the Motorola Exchangeables. The Company’s accounting policy is not to record deferred income taxes related to global intangible low-taxed income related to activity in our foreign subsidiaries but instead to recognize income tax expense in the periods as incurred. Accordingly, the deferred income tax liability for the Motorola Exchangeables that existed prior to the corporate realignment was reduced to zero and the Company recorded a corresponding income tax benefit. Although the Company no longer records deferred income taxes in the consolidated balance sheets associated with the Motorola Exchangeables, the Company expects to incur future income tax expense at prevailing income tax rates upon maturity or retirement of the Motorola Exchangeables and will reflect such income tax expense in the period incurred.
For the year ended December 31, 2019 income tax benefit was greater than the U.S. statutory rate of 21% due to tax benefits from tax credits and incentives generated by our alternative energy investments and tax benefits from losses generated in 2019 that were eligible for carryback to tax years with federal income tax rates greater than the U.S. statutory tax rate of 21%, partially offset by a goodwill impairment that is not deductible for tax purposes and an increase in the valuation allowance against certain deferred tax assets.
For the year ended December 31, 2018 income tax expense was lower than the U.S. statutory rate of 21% due to tax benefits from tax credits and incentives generated by our alternative energy investments, a reduction in the Company’s state effective tax rate used to measure deferred taxes resulting from the GCI Liberty Split-Off in March 2018, and a reduction in the Company’s state effective tax rate used to measure deferred taxes resulting from a state law change during the second quarter.
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below:
The Company's valuation allowance increased $59 million in 2020, all of which affected tax expense.
At December 31, 2020, the Company has a deferred tax asset of $280 million for net operating losses, credit carryforwards, and interest expense carryforwards. If not utilized to reduce income tax liabilities in future periods, $272 million of these loss carryforwards and tax credits will expire at various times between 2021 and 2042. The remaining $8 million of tax losses and carryforwards may be carried forward indefinitely. These losses and credit carryforwards are expected to be utilized prior to expiration, except for $187 million.
At December 31, 2020, the Company had a deferred tax asset of $161 million for foreign tax credit carryforwards. If not utilized to reduce income tax liabilities in future periods, these foreign tax credit carryforwards will expire at various times between 2022 and 2030. The Company estimates that $76 million of its foreign tax credit carryforward will expire without utilization.
A reconciliation of unrecognized tax benefits is as follows:
As of December 31, 2020, 2019 and 2018, the Company had recorded tax reserves of $83 million, $75 million and $70 million, respectively, related to unrecognized tax benefits for uncertain tax positions. If such tax benefits were to be recognized for financial statement purposes, $66 million, $61 million and $56 million for the years ended December 31, 2020, 2019 and 2018, respectively, would be reflected in the Company's tax expense and affect its effective tax rate. Qurate Retail's estimate of its unrecognized tax benefits related to uncertain tax positions requires a high degree of judgment. The Company has tax positions for which the amount of related unrecognized tax benefits could change during 2019. The amount of unrecognized tax benefits related to these issues could change as a result of potential settlements, lapsing of statute of limitations and revisions of estimates. It is reasonably possible that the amount of the Company's gross unrecognized tax benefits may increase within the next twelve months by up to $3 million.
As of December 31, 2020, the Company's tax years prior to 2017 are closed for federal income tax purposes, and the IRS has completed its examination of the Company's 2017 and 2018 tax years, however, 2017 and 2018 remain open until the statute of limitations lapses on October 15 of 2021 and 2022, respectively. The Company's 2019 and 2020 tax years are being examined currently as part of the IRS's Compliance Assurance Process ("CAP") program. Various states are currently examining the Company's prior years’ state income tax returns. The Company is not under audit in any foreign tax jurisdictions.
The Company recorded $25 million of accrued interest and penalties related to uncertain tax positions for the year ended December 31, 2020, $23 million for the year ended December 31, 2019 and $20 million for the year ended December 31, 2018.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef