Xerox Holdings CorpXRX
Xerox Holdings Corp Income Taxes Disclosure
Income and Other Taxes
Loss before income taxes was as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Domestic loss | $ | (877) | $ | (89) | $ | (319) | ||||||||||||||
| Foreign (loss) income | (339) | 61 | (6) | |||||||||||||||||
| Loss before Income taxes | $ | (1,216) | $ | (28) | $ | (325) | ||||||||||||||
The components of Income tax expense (benefit) were as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Federal Income Taxes | ||||||||||||||||||||
| Current | $ | (15) | $ | 21 | $ | (5) | ||||||||||||||
| Deferred | (44) | (65) | (16) | |||||||||||||||||
| Foreign Income Taxes | ||||||||||||||||||||
| Current | 34 | 18 | 23 | |||||||||||||||||
| Deferred | 149 | 21 | (2) | |||||||||||||||||
| State Income Taxes | ||||||||||||||||||||
| Current | (4) | — | 6 | |||||||||||||||||
| Deferred | (15) | (24) | (9) | |||||||||||||||||
| Income tax expense (benefit) | $ | 105 | $ | (29) | $ | (3) | ||||||||||||||
A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate was as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| U.S. federal statutory income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||||
| Nondeductible expenses | (0.8) | % | (32.2) | % | (3.6) | % | ||||||||||||||
| Effect of tax law changes | — | % | — | % | 0.1 | % | ||||||||||||||
| Change in valuation allowance for deferred tax assets | (16.0) | % | 15.6 | % | (2.2) | % | ||||||||||||||
| State taxes, net of federal benefit | 1.0 | % | (21.9) | % | 0.3 | % | ||||||||||||||
| Audit and other tax return adjustments | 0.6 | % | 83.0 | % | (1.6) | % | ||||||||||||||
| Tax-exempt income, credits and incentives | 1.1 | % | 59.0 | % | 8.7 | % | ||||||||||||||
Foreign rate differential adjusted for U.S. taxation of foreign profits(1) | (0.5) | % | (32.3) | % | (0.1) | % | ||||||||||||||
| Stock-based compensation | (0.2) | % | (13.0) | % | (0.6) | % | ||||||||||||||
| Goodwill impairment | (15.3) | % | — | % | (22.0) | % | ||||||||||||||
| Divestitures | 0.2 | % | 25.3 | % | — | % | ||||||||||||||
| Other | 0.3 | % | (0.9) | % | 0.9 | % | ||||||||||||||
| Effective income tax rate | (8.6) | % | 103.6 | % | 0.9 | % | ||||||||||||||
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(1)The “U.S. taxation of foreign profits” represents the U.S. tax, net of foreign tax credits, associated with actual and deemed repatriations of earnings from our non-U.S. subsidiaries.
On a consolidated basis, we paid a total of $65, $51 and $50 in income taxes to federal, foreign and state jurisdictions during the three years ended December 31, 2024, 2023 and 2022, respectively.
Income taxes were allocated to the following items:
| Year Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Income tax expense (benefit) on Loss before income taxes | $ | 105 | $ | (29) | $ | (3) | ||||||||||||||
| Income tax (expense) benefit Common shareholders' equity: | ||||||||||||||||||||
| Changes in defined benefit plans | (10) | 93 | 70 | |||||||||||||||||
| Cash flow hedges | (1) | 1 | (1) | |||||||||||||||||
| Translation adjustments | (8) | — | — | |||||||||||||||||
| Additional paid-in capital | 6 | — | — | |||||||||||||||||
Unrecognized Tax Benefits and Audit Resolutions
We recognize tax liabilities when, despite our belief that our tax return positions are supportable, we believe that certain positions may not be fully sustained upon review by tax authorities. Each period, we assess uncertain tax positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement - the more-likely-than-not recognition threshold. Where we have determined that our tax return filing position does not satisfy the more likely than not recognition threshold, we have recorded no tax benefit. These assessments require the use of considerable estimates and judgments and can increase or decrease our effective tax rate, as well as impact our operating results. A difference in the ultimate resolution of uncertain tax positions from what is currently estimated could have a material impact on our results of operations and financial condition.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a variety of jurisdictions. We are also subject to ongoing tax examinations in numerous jurisdictions due to the extensive geographical scope of our operations. As a result, we have received, and may in the future receive, proposed tax adjustments and tax assessments in multiple jurisdictions. We regularly assess the likelihood of the outcomes resulting from these ongoing tax examinations as part of our continuing assessment of uncertain tax positions to determine our provision for income taxes. The specific timing of when the resolution of each tax position will be reached is uncertain. As of December 31, 2024, we do not believe that there are any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Balance at January 1 | $ | 140 | $ | 110 | $ | 107 | ||||||||||||||
| Additions related to current year | 1 | 1 | 3 | |||||||||||||||||
| Additions related to prior years positions | — | 57 | 4 | |||||||||||||||||
| Reductions related to prior years positions | — | (14) | — | |||||||||||||||||
Settlements with taxing authorities(1) | (29) | (13) | — | |||||||||||||||||
| Reductions related to lapse of statute of limitations | (18) | (2) | (3) | |||||||||||||||||
| Currency | 1 | 1 | (1) | |||||||||||||||||
| Balance at December 31 | $ | 95 | $ | 140 | $ | 110 | ||||||||||||||
_____________
(1)The majority of settlements did not result in the utilization of cash.
Included in the balances at December 31, 2024, 2023 and 2022 are $(2), $(31) and $1, respectively, of tax positions that are highly certain of realizability but for which there is uncertainty about the timing or that they may be reduced through an indirect benefit from other taxing jurisdictions. Because of the impact of deferred tax accounting, other than for the possible incurrence of interest and penalties, the disallowance of these positions would not affect the annual effective tax rate.
Within income tax expense, we recognize interest and penalties accrued on unrecognized tax benefits, as well as interest received from favorable settlements. We had $0, $(2) and $(1) accrued for the payment of interest and penalties associated with unrecognized tax benefits at December 31, 2024, 2023 and 2022, respectively.
In the U.S., we are no longer subject to U.S. federal income tax examinations for years before 2017. With respect to our major foreign jurisdictions, we are no longer subject to tax examinations by tax authorities for years before 2017.
Deferred Income Taxes
At December 31, 2024 we have not provided deferred taxes on our undistributed pre-1987 E&P of approximately $292, as such undistributed earnings have been determined to be indefinitely reinvested and we currently do not plan to initiate any action that would precipitate a deferred tax impact. The net change from the amount at December 31, 2023 of $310 was predominately due to currency impacts as well as the disposition of certain foreign subsidiaries. Additionally, we have also not provided deferred taxes on the outside basis differences in our investments in foreign subsidiaries that are unrelated to undistributed earnings. These basis differences are also indefinitely reinvested. A determination of the unrecognized deferred taxes related to these components is not practicable.
The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows:
| December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Deferred Tax Assets | ||||||||||||||
| Research and development | $ | 227 | $ | 225 | ||||||||||
| Post-retirement medical benefits | 43 | 50 | ||||||||||||
| Net operating losses | 322 | 384 | ||||||||||||
| Operating reserves, accruals and deferrals | 232 | 215 | ||||||||||||
| Tax credit carryforwards | 80 | 106 | ||||||||||||
| Deferred and share-based compensation | 22 | 40 | ||||||||||||
| Pension | 122 | 147 | ||||||||||||
| Finance lease and installment sales | 64 | — | ||||||||||||
| Operating lease liabilities | 33 | 43 | ||||||||||||
| Other | 68 | 57 | ||||||||||||
| Subtotal | 1,213 | 1,267 | ||||||||||||
| Valuation allowance | (511) | (375) | ||||||||||||
| Total | $ | 702 | $ | 892 | ||||||||||
| Deferred Tax Liabilities | ||||||||||||||
| Finance lease and installment sales | $ | — | $ | 36 | ||||||||||
| Intangibles and goodwill | 84 | 116 | ||||||||||||
| Unremitted earnings of foreign subsidiaries | 26 | 25 | ||||||||||||
| Operating lease ROU assets | 41 | 41 | ||||||||||||
| Other | 21 | 24 | ||||||||||||
| Total | $ | 172 | $ | 242 | ||||||||||
| Total Deferred taxes, net | $ | 530 | $ | 650 | ||||||||||
| Reconciliation to the Consolidated Balance Sheets | ||||||||||||||
| Deferred tax assets | $ | 615 | $ | 745 | ||||||||||
Deferred tax liabilities(1) | (85) | (95) | ||||||||||||
| Total Deferred taxes, net | $ | 530 | $ | 650 | ||||||||||
_____________
(1)Represents the deferred tax liabilities recorded in Other long-term liabilities - refer to Note 14 - Supplementary Financial Information.
We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and the amounts reported, as well as net operating loss and tax credit carryforwards. Deferred tax assets are assessed for realizability and, where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. We apply judgment in assessing the realizability of these deferred tax assets and the need for any valuation allowances. In determining the amount of deferred tax assets that are more-likely-than-not to be realized, we considered historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The deferred tax assets requiring significant judgment are U.S. tax credit carryforwards with a limited life.
The net change in the total valuation allowance for the three years ended December 31, 2024, 2023 and 2022 was an increase of $136, $9 and $9, respectively. The valuation allowance relates primarily to certain net operating loss carryforwards, tax credit carryforwards and deductible temporary differences for which we have concluded it is more-likely-than-not that these items will not be realized in the ordinary course of operations.
Although realization is not assured, we have concluded that it is more-likely-than-not that the deferred tax assets, for which a valuation allowance was determined to be unnecessary, will be realized in the ordinary course of operations based on the available positive and negative evidence, including scheduling of deferred tax liabilities and projected income from operating activities. The amount of the net deferred tax assets considered realizable, however, could change in the near term if future income or income tax rates are higher or lower than currently estimated, or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences.
At December 31, 2024, we had tax credit carryforwards of $80 available to offset future income taxes, of which $1 is available to carryforward indefinitely while the majority of the remaining $79 will begin to expire in 2025 and 2026, if not utilized. We also had net operating loss carryforwards for income tax purposes of $473 that will begin to expire in 2024 through 2043, if not utilized, and $1.4 billion available to offset future taxable income indefinitely.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.