Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
11. INCOME TAXES
The income tax provision/(benefit) consists of the following:
Year Ended December 31,
2021 2020 2019
Current
Federal $ 65  $ (5) $ 40 
State 16  (2) 3 
Foreign 11  4  21 
92  (3) 64 
Deferred
Federal (5) (10) (3)
State —  (8) (10)
Foreign 4  (5) (1)
(1) (23) (14)
(Benefit from)/provision for income taxes $ 91  $ (26) $ 50 
Pretax income/(loss) for domestic and foreign operations consisted of the following:
Year Ended December 31,
2021 2020 2019
Domestic $ 312  $ (113) $ 175 
Foreign 23  (45) 32 
Pretax (loss)/income $ 335  $ (158) $ 207 
Deferred Taxes
Deferred income tax assets and liabilities are comprised of the following:
As of December 31,
2021 2020
Deferred income tax assets:
Accrued liabilities and deferred revenues $ 77  $ 74 
Tax credits (a)
7  8 
Provision for doubtful accounts 10  9 
Net operating loss carryforward (b)
21  25 
Other comprehensive income and other 14  22 
Valuation allowance (c)
(27) (26)
Deferred income tax assets 102  112 
Deferred income tax liabilities:
Depreciation and amortization 444  446 
Other 19  16 
Deferred income tax liabilities 463  462 
Net deferred income tax liabilities $ 361  $ 350 
Reported in:
Other non-current assets $ 5  $ 9 
Deferred income taxes 366  359 
Net deferred income tax liabilities $ 361  $ 350 
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(a)    As of December 31, 2021, the Company had $7 million of foreign tax credits. The foreign tax credits expire no later than 2031.
(b)    As of December 31, 2021, the Company’s net operating loss carryforwards primarily relate to state net operating losses, which are due to expire at various dates, but no later than 2041.
(c)    The valuation allowance of $27 million at December 31, 2021 relates to net operating loss carryforwards, certain deferred tax assets and foreign tax credits of $17 million, $6 million and $4 million, respectively. The valuation allowance of $26 million at December 31, 2020 relates to net operating loss carryforwards, certain deferred tax assets and foreign tax credits of $16 million, $3 million and $7 million, respectively. 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.
Although the one-time mandatory deemed repatriation tax during 2017 and the territorial tax system created as a result of U.S. tax reform generally eliminate U.S. federal income taxes on dividends from foreign subsidiaries, the Company continues to assert that all of the undistributed foreign earnings of $24 million will be reinvested indefinitely as of December 31, 2021. 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 and U.S. taxes on currency transaction gains and losses, the determination of which is not practicable due to the complexities associated with the hypothetical calculation.
The Company’s effective income tax rate differs from the U.S. federal statutory rate as follows for the years ended December 31:
2021 2020 2019
Federal statutory rate 21.0  % 21.0  % 21.0  %
State and local income taxes, net of federal tax benefits 3.1  5.5  (3.8)
Taxes on foreign operations at rates different than U.S. federal statutory rates 2.0  (2.1) 5.0 
Taxes on foreign income, net of tax credits 0.3  1.2  (0.5)
Nondeductible executive compensation 0.7  (1.9) 1.1 
Nondeductible goodwill impairment —  (1.8) — 
Valuation allowances 0.5  (5.2) 1.9 
Other (0.4) (0.2) (0.5)
27.2  % 16.5  % 24.2  %
The effective income tax rate for 2021, 2020 and 2019 differs from the U.S. Federal income tax rate of 21% primarily due to state taxes and U.S. and foreign taxes, including withholding taxes on the Company’s international operations. During 2020, our effective tax rate was lower primarily related to goodwill impairment charges that are nondeductible for tax purposes and valuation allowances for certain deferred tax attributes. During 2019, the tax effect was partially offset by a one-time state tax benefit resulting from a settlement with state taxing authorities and from a change in the Company’s state income tax filing position due to its spin-off from former Parent.
The following table summarizes the activity related to the Company’s unrecognized tax benefits as of December 31:
2021 2020 2019
Beginning balance $ 9  $ 11  $ 13 
Increases related to tax positions taken during a prior period 1  —  2 
Increases related to tax positions taken during the current period —  1  — 
Decreases related to settlements with taxing authorities —  —  (3)
Decreases as a result of a lapse of the applicable statute of limitations (2) (3) (1)
Decreases related to tax positions taken during a prior period (1) —  — 
Ending balance $ 7  $ 9  $ 11 

The gross amount of the unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate was $7 million, $9 million and $11 million as of December 31, 2021, 2020 and 2019, respectively. The Company recorded both accrued interest and penalties related to unrecognized tax benefits as a component of provision for/(benefit from) income taxes on the Consolidated Statements of Income/(Loss). The amount of potential penalties and interest related to these unrecognized tax benefits recorded in the provision for income taxes was immaterial during 2021 and a benefit of $1 million during both 2020 and 2019. The Company had a liability for potential penalties of $1 million as of December 31, 2021 and 2020, and $2 million as of December 31, 2019 and potential interest of $2 million, as of December 31, 2021, 2020 and 2019. Such liabilities are reported as a component of accrued expenses and other current liabilities and other non-current liabilities on the Consolidated Balance Sheets. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.
On May 30, 2018 the Company completed its acquisition of La Quinta Holdings, Inc.’s (“LQ”) hotel franchising and hotel management business. LQ, and then affiliated entities in existence prior to their acquisition by the Company, were under audit by the Internal Revenue Service (“IRS”) for tax years ended December 31, 2010 to December 31, 2016. As part of the LQ acquisition, CorePoint Lodging, Inc. (“CorePoint”) has agreed to indemnify the Company for any obligations and expenses arising from any adjustments made in connection with tax years 2010 to 2013 IRS audits, including any amounts owed by LQ with respect to subsequent taxable years as a result of the disallowance of net operating losses or other tax attributes and any legal defense and accounting expenses that arise. On November 29, 2021, CorePoint and the IRS entered into a settlement agreement for tax years 2010 to 2013 relating to entities that remain with CorePoint. The agreed-upon adjustments to the 2010 to 2013 tax returns filed for these CorePoint entities are therefore not expected to impact the Company. The Company has not recorded a liability for tax, penalty, or interest related to this settlement because such settlement relates to entities that remain with CorePoint and accordingly CorePoint is responsible for payment of these amounts for the audit years being adjusted. Subsequent to December 31, 2021, the Company received a letter from the IRS that states they completed their review of the examination of the Company's tax returns. As a result, there are no changes to the Company's reported tax for tax years up through 2016.
The Company files income tax returns in the U.S. federal and state jurisdictions, as well as in foreign jurisdictions. Prior to its spin-off, the Company was part of a consolidated U.S. federal income tax return and consolidated state returns with its former Parent and other subsidiaries that are not included in its Consolidated Financial Statements. Income taxes as presented in the Company’s Consolidated Financial Statements prior to its spin-off presented current and deferred income taxes of the consolidated federal tax filing attributed to the Company using the separate return method. The separate return method applies the accounting guidance for income taxes to the financial statements as if the Company was a separate taxpayer. The 2015 through 2021 tax years generally remain subject to examination by federal tax authorities, the years 2015 through pre-spin off 2018 tax years as part of the Company’s former Parent filing. The 2015 through 2021 tax years generally remain subject to examination by many state tax authorities. In significant foreign jurisdictions, the 2014 through the 2021 tax years generally remain subject to examination by their respective tax authorities. The statute of limitations is scheduled to expire within 12 months of the reporting date in certain taxing jurisdictions, and the Company therefore believes that it is reasonably possible that the total amount of its unrecognized tax benefits could decrease by $4 million to $5 million.
The Company made cash income tax payments, net of refunds, of $114 million during 2021. The Company received income tax refunds, net of payments, of $9 million and made cash income tax payments, net of refunds, of $59 million during 2020 and 2019, respectively. The 2019 payments exclude $195 million of tax payments related to assumed liabilities in connection with the La Quinta acquisition. Additionally, the Company had $48 million and $24 million of income tax receivables as of December 31, 2021 and 2020, respectively, which was reported on other current assets on the Consolidated Balance Sheets.