|12 Months Ended|
Dec. 31, 2021
(12) Income Taxes
Income tax benefit (expense) consists of:
The following table presents a summary of our domestic and foreign earnings (loss) before income taxes:
Expected income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 21% for the years ended December 31, 2021, 2020 and 2019 as a result of the following:
For the year ended December 31, 2021, the significant reconciling items, as noted in the table above, are federal income tax credits, the settlement of state income tax audits at Sirius XM Holdings and a change in the Company’s foreign effective tax rate, partially offset by an increase in our valuation allowance, the effect of state income taxes and certain losses that are not deductible for income tax purposes.
For the year ended December 31, 2020, the significant reconciling items, as noted in the table above, are additional tax expense related to an impairment loss on goodwill that is not deductible for tax purposes and an increase in the Company’s valuation allowance, partially offset by tax benefits related to changes in the Company’s foreign effective tax rate and federal tax credits.
For the year ended December 31, 2019, the significant reconciling items, as noted in the table above, are additional tax expense related to increases in the Company’s valuation allowance, changes in the Company’s effective state tax rate and the effect of state income taxes, partially offset by tax benefits related to deductible stock based compensation, earnings in foreign jurisdictions taxed at rates lower than the 21% U.S. federal tax rate and federal income tax credits.
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:
During the year ended December 31, 2021, there was a $135 million increase in the Company’s valuation allowance that affected tax expense and a $4 million decrease that affected equity.
At December 31, 2021, the Company had a deferred tax asset of $1,475 million for federal, state and foreign net operating losses (“NOLs”), interest expense carryforwards and tax credit carryforwards. Of this amount, the Company has $170 million of federal NOLs, $243 million of state NOLs, $54 million of federal interest expense carryforwards, $234 million of federal tax credit carryforwards, $100 million of state tax credit carryforwards, $350 million of foreign NOLs and $320 million of foreign interest expense carryforwards that may be carried forward indefinitely. The remaining $4 million of carryforwards expire at certain future dates. These carryforwards are expected to be utilized in future periods, except for $424 million of NOLs, interest expense carryforwards and tax credit carryforwards which, based on current projections, will not be utilized in the future and are subject to a valuation allowance.
A reconciliation of unrecognized tax benefits is as follows:
As of December 31, 2021, the Company had unrecognized tax benefits and uncertain tax positions of $179 million. If such tax benefits were to be recognized for financial statement purposes, approximately $179 million would be reflected in the Company’s tax expense and affect its effective tax rate. We do not currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2021 will significantly increase or decrease during the twelve-month period ending December 31, 2022; however, various events could cause our current expectations to change in the future. The Company’s estimate of its unrecognized tax benefits related to uncertain tax positions requires a high degree of judgment.
As of December 31, 2021, the Company’s tax years prior to 2018 are closed for federal income tax purposes, and the IRS has completed its examination of the Company’s 2018, 2019 and 2020 tax years. The Company’s 2021 tax year is not under IRS examination. Various states are currently examining the Company’s prior years’ state income tax returns. Sirius XM Holdings is under IRS audit for the 2021 tax year and has certain state income tax audits pending. We do not expect the ultimate disposition of these audits to have a material adverse effect on our financial position or results of operations.
As of December 31, 2021, the Company had less than $1 million in accrued interest and penalties recorded related to uncertain tax positions.
On February 1, 2021, the Company entered into a tax sharing agreement with Sirius XM Holdings governing the allocation of consolidated U.S. income tax liabilities and setting forth agreements with respect to other tax matters. The tax sharing agreement was negotiated by the Company with a special committee of Sirius XM Holdings’ board of directors, all of whom are independent of the Company, and approved by the executive committee of the Company’s board of directors. The tax sharing agreement contains provisions that the Company believes are customary for tax sharing agreements between members of a consolidated group.
Under the Internal Revenue Code, two eligible corporations may form a consolidated tax group, and file a consolidated federal income tax return, if one corporation owns stock representing at least 80% of the voting power and value of the outstanding capital stock of the other corporation. Following the closing of the share exchange on November 3, 2021, as described in note 1, Liberty owned greater than 80% of the outstanding equity interest of Sirius XM Holdings, and, as a result, Liberty and Sirius XM Holdings became members of the same consolidated federal income tax group.
On November 1, 2021, Sirius XM Holdings entered into (i) an agreement with Liberty whereby Liberty agreed not to effect any merger with Sirius XM Holdings pursuant to Section 253 of the General Corporation Law of the State of Delaware (or any successor to such statute) without obtaining the prior approval of a special committee of the Sirius XM Holdings board of directors, all of whom are independent of Liberty (the “Special Committee”) (or any successor special committee of Sirius XM Holdings’ independent and disinterested directors) and (ii) an agreement regarding certain tax matters relating to the exchange. Each of these agreements was negotiated by the Special Committee with Liberty.
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