Cummins Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES (Tables)

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2020

Schedule of Income before Income Tax, Domestic and Foreign

The following table summarizes income before income taxes:


	Years ended December 31,
In millions	2020		2019		2018

U.S. income	$	1,134	$	1,677	$	1,239
Foreign income	1,204		1,157		1,514
Income before income taxes	$	2,338	$	2,834	$	2,753

Schedule of Components of Income Tax Expense (Benefit)

Income tax expense (benefit) consists of the following:


	Years ended December 31,
In millions	2020		2019		2018
Current
U.S. federal and state	$	162	$	288	$	303
Foreign	358		282		348
Impact of tax law changes	—		—		153
Total current income tax expense	520		570		804
Deferred
U.S. federal and state	2		(32)		(71)
Foreign	22		28		(26)
Impact of tax law changes	(17)		—		(141)
Total deferred income tax expense (benefit)	7		(4)		(238)
Income tax expense	$	527	$	566	$	566

Schedule of Effective Income Tax Rate Reconciliation

A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate was as follows:


	Years ended December 31,
	2020		2019		2018
Statutory U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
State income tax, net of federal effect	1.0		1.1		0.9
Differences in rates and taxability of foreign subsidiaries and joint ventures	3.6		1.5		(0.2)
Research tax credits	(1.3)		(1.5)		(1.2)
Foreign derived intangible income	(1.2)		(1.3)		(1.3)
Impact of tax law changes	(0.7)		—		0.5
Other, net	0.1		(0.8)		0.9
Effective tax rate	22.5	%	20.0	%	20.6	%

Schedule of Other Income Tax Adjustments

The India Tax Law Change resulted in the following adjustments to the Consolidated Statements of Net Income for the year ended December 31, 2020:




In millions	Favorable (Unfavorable)
Equity, royalty and interest income from investees	$	37
Income tax expense (1)	17
Less: Net income attributable to noncontrolling interests	(19)

Net income statement impact	$	35



(1) The adjustment to "Income tax expense" includes $15 million of favorable discrete items.

Schedule of Deferred Tax Assets and Liabilities

Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax (liabilities) assets were as follows:


	December 31,
In millions	2020		2019
Deferred tax assets
U.S. and state carryforward benefits	$	223	$	207
Foreign carryforward benefits	159		157
Employee benefit plans	273		279
Warranty expenses	445		427

Lease liabilities	107		122
Accrued expenses	93		76
Other	52		44
Gross deferred tax assets	1,352		1,312
Valuation allowance	(346)		(317)
Total deferred tax assets	1,006		995
Deferred tax liabilities
Property, plant and equipment	(258)		(260)
Unremitted income of foreign subsidiaries and joint ventures	(185)		(181)
Employee benefit plans	(229)		(222)
Lease assets	(103)		(120)
Other	(77)		(77)
Total deferred tax liabilities	(852)		(860)
Net deferred tax assets	$	154	$	135

Our Consolidated Balance Sheets contain the following tax related items:


	December 31,
In millions	2020		2019
Prepaid expenses and other current assets

Refundable income taxes	$	172	$	191
Other assets
Deferred income tax assets	479		441
Long-term refundable income taxes	23		23
Other accrued expenses
Income tax payable	82		52
Other liabilities
One-time transition tax	289		293
Deferred income tax liabilities	325		306

Schedule of Unrecognized Tax Benefits Roll Forward

A reconciliation of unrecognized tax benefits for the years ended December 31, 2020, 2019 and 2018 was as follows:


	December 31,
In millions	2020		2019		2018
Balance at beginning of year	$	77	$	71	$	41
Additions to current year tax positions	9		23		10
Additions to prior years' tax positions	49		5		27
Reductions to prior years' tax positions	(13)		(11)		(2)
Reductions for tax positions due to settlements with taxing authorities	—		(11)		(5)

Balance at end of year	$	122	$	77	$	71