Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The income tax provision/(benefit) attributable to continuing operations consisted of the following (in millions):
Year Ended December 31,
2022 2021 2020
Current
Federal $ 83  $ 111  $ 42 
State 23  27  12 
Foreign 28  17  11 
134  155  65 
Deferred
Federal 2  (38) (82)
State (6) (2) (3)
Foreign —  1  (3)
(4) (39) (88)
Provision/(benefit) for income taxes $ 130  $ 116  $ (23)

Pre-tax income/(loss) for domestic and foreign operations attributable to continuing operations consisted of the following (in millions):
Year Ended December 31,
2022 2021 2020
Domestic $ 326  $ 314  $ (326)
Foreign 160  115  50 
Income/(loss) before income taxes $ 486  $ 429  $ (276)
Deferred income tax assets and liabilities were comprised of the following (in millions):
As of December 31,
2022 2021
Deferred income tax assets:
Provision for doubtful accounts and loan loss allowance for vacation ownership contract receivables $ 179  $ 180 
Foreign tax credit carryforward 69  77 
Accrued liabilities and deferred income 76  76 
Other comprehensive income 78  73 
Net operating loss carryforward 33  33 
Tax basis differences in assets of foreign subsidiaries 12  11 
Other 88  89 
Valuation allowance (a)
(151) (156)
Deferred income tax assets 384  383 
Deferred income tax liabilities:
Installment sales of vacation ownership interests 701  700 
Depreciation and amortization 220  227 
Other comprehensive income 57  53 
Estimated VOI recoveries 47  46 
Other 15  18 
Deferred income tax liabilities 1,040  1,044 
Net deferred income tax liabilities $ 656  $ 661 
Reported in:
Other assets $ 23  $ 25 
Deferred income taxes 679  686 
Net deferred income tax liabilities $ 656  $ 661 
(a)     The valuation allowance of $151 million at December 31, 2022, relates to foreign tax credits, net operating loss carryforwards, and certain deferred tax assets of $52 million, $20 million, and $79 million. The valuation allowance of $156 million at December 31, 2021, relates to foreign tax credits, net operating loss carryforwards, and certain deferred tax assets of $56 million, $21 million, and $79 million. The valuation allowance will be reduced when and if the Company determines it is more likely than not that the related deferred income tax assets will be realized.

As of December 31, 2022, the Company’s net operating loss carryforwards primarily relate to state and foreign net operating losses of $17 million and $14 million. The state net operating losses are due to expire at various dates, but no later than 2042 for those that cannot be carried forward indefinitely. The majority of the foreign net operating losses can be carried forward indefinitely. As of December 31, 2022, the Company had $69 million of foreign tax credits. These foreign tax credits expire between the 2022 and 2032 tax years.

The Company’s effective income tax rate differs from the U.S. federal statutory rate as follows:
Year Ended December 31,
2022 2021 2020
Federal statutory rate 21.0% 21.0% 21.0%
State and local income taxes, net of federal tax benefits 2.4 4.5 (0.9)
Taxes on foreign operations at rates different than U.S. federal statutory rates (2.0) (3.2) (0.9)
Taxes on foreign income, net of tax credits 3.1 3.5 0.2
Valuation allowance (0.2) 1.8 (7.1)
Installment sale interest 1.1 1.3 (0.8)
Other 1.3 (1.9) (3.2)
26.7% 27.0% 8.3%
The following table summarizes the activity related to the Company’s unrecognized tax benefits (in millions):
Year Ended December 31,
  2022 2021 2020
Beginning balance $ 27  $ 26  $ 29 
Increases related to tax positions taken during a prior period —  2  — 
Increases related to tax positions taken during the current period 2  2  2 
Decreases related to tax positions taken during a prior period (3) —  (2)
Decreases as a result of a lapse of the applicable statute of limitations (1) (3) (3)
Ending balance $ 25  $ 27  $ 26 

The gross amount of the unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate were $20 million, $22 million, and $22 million as of December 31, 2022, 2021, and 2020. The Company records potential penalties and interest as a component of Provision/(benefit) for income taxes on the Consolidated Statements of Income/(Loss) related to these unrecognized tax benefits. During 2022, penalties and interest decreased by $1 million. During 2021 and 2020 penalties and interest increased by $1 million in each respective year. The Company had a liability for potential penalties of $4 million as of December 31, 2022, 2021, and 2020, and potential interest of $10 million, $11 million, and $10 million as of December 31, 2022, 2021, and 2020. Such liabilities are reported as a component of Accrued expenses and other liabilities on the Consolidated Balance Sheets.

The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $2 million within 12 months of the current reporting date due to the expiration of certain statutes of limitations. The Company does not expect other changes to the unrecognized tax benefits balance to be significant.

The Company files U.S. federal and state, and foreign income tax returns in jurisdictions with varying statutes of limitations. With few exceptions, the Company is no longer subject to U.S. federal income tax examinations for years prior to 2019 and state and local income tax examinations prior to 2016. In significant foreign jurisdictions, generally years prior to 2015 are no longer subject to income tax examinations by their respective tax authorities.

The Company asserts that substantially all undistributed foreign earnings will be reinvested indefinitely as of December 31, 2022. In the event the Company determines not to continue to assert that all or part of its undistributed foreign earnings are permanently reinvested, such a determination in the future could result in the accrual and payment of additional foreign withholding taxes, as well as U.S. taxes on currency transaction gains and losses, the determination of which is not practicable.

The Company made cash income tax payments, net of refunds, of $153 million, $110 million, and $50 million during 2022, 2021, and 2020. In addition, the Company made cash income tax payments, net of refunds, of $8 million during 2020 related to discontinued operations. Such payments exclude income tax related payments made to or refunded by the Company’s former parent Cendant and Wyndham Hotels.