Proposed adjustments to taxable income, self-insurance, other

[Table of Contents](#ia72a687f7b8a4bb1b43219ab5b663314_7)the Company had $12 million of valuation allowances related to other deferred tax asset balances that are not more likely than not of being realized.As of December 31, 2021, gross unrecognized tax benefits totaled approximately $1.1 billion (approximately $1.2 billion, net of the impact of $58 million of indirect tax benefits offset by $163 million associated with potential interest and penalties). As of December 31, 2020, gross unrecognized tax benefits totaled approximately $1.2 billion (approximately $1.4 billion, net of the impact of $148 million of indirect tax benefits offset by $354 million associated with potential interest and penalties). The Company recognized approximately $182 million of net tax benefits from the reversal of potential interest and penalties during 2021, and $41 million and $227 million of net tax expense from potential interest and penalties during 2020 and 2019, respectively, related to both continuing and discontinued operations associated with uncertain tax positions. To the extent unrecognized tax benefits (including interest and penalties) are recognized with respect to uncertain tax positions, approximately $1.1 billion and $1.4 billion as of December 31, 2021 and 2020, respectively, would reduce the tax expense and effective tax rate in future periods. The Company recognized interest and penalties related to unrecognized tax benefits within income taxes in the accompanying Consolidated Statements of Earnings. Unrecognized tax benefits and associated accrued interest and penalties are included in taxes, income and other accrued expenses as detailed in Note 13.A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding amounts accrued for potential interest and penalties related to both continuing and discontinued operations, is as follows ($ in millions):

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 2021 |  | 2020 |  | 2019 |
| Unrecognized tax benefits, beginning of year | $ | 1,175  |  |  | $ | 1,181  |  |  | $ | 986  |  |
| Additions based on tax positions related to the current year | 47  |  |  | 47  |  |  | 71  |  |
| Additions for tax positions of prior years | 166  |  |  | 24  |  |  | 197  |  |
| Reductions for tax positions of prior years | (100) |  |  | (20) |  |  | (16) |  |
| Acquisitions, divestitures and other | 53  |  |  | (30) |  |  | 7  |  |
| Lapse of statute of limitations | (219) |  |  | (13) |  |  | (51) |  |
| Settlements | (4) |  |  | (38) |  |  | (12) |  |
| Effect of foreign currency translation | (23) |  |  | 24  |  |  | (1) |  |
| Unrecognized tax benefits, end of year | $ | 1,095  |  |  | $ | 1,175  |  |  | $ | 1,181  |  |

The Company conducts business globally, and files numerous consolidated and separate income tax returns in the U.S. federal, state and non-U.S. jurisdictions. The non-U.S. countries in which the Company has a significant presence include China, Denmark, Germany, Singapore, Sweden, Switzerland and the United Kingdom. Excluding these jurisdictions, the Company believes that a change in the statutory tax rate of any individual non-U.S. country would not have a material effect on the Company’s Consolidated Financial Statements given the geographic dispersion of the Company’s taxable income.The Company and its subsidiaries are routinely examined by various U.S. and non-U.S. taxing authorities. The Internal Revenue Service (“IRS”) has completed substantially all of the examinations of the Company’s federal income tax returns through 2015 and is currently examining certain of the Company’s federal income tax returns for 2016 through 2018. In addition, the Company has subsidiaries in Austria, Belgium, Canada, China, Denmark, France, Germany, India, Japan, Korea, Switzerland, the United Kingdom and various other countries, states and provinces that are currently under audit for years ranging from 2004 through 2020.During the year ended December 31, 2020, the Company settled the IRS audits of its federal income tax returns for 2012 through 2015. In the audit, the IRS proposed significant adjustments to the Company’s taxable income of approximately $2.7 billion related to the deferral of tax on certain premium income related to the Company’s self-insurance programs. For income tax purposes, the recognition of certain premium income has been deferred in accordance with U.S. tax laws related to insurance. While the settlement of these matters was not material to the Company’s financial statements, the settlement does not preclude the IRS from proposing similar adjustments in future audits and the IRS has continued to examine the deferral of premium income related to self-insurance programs in its examination of the Company’s federal income tax returns for 2016 through 2018. The examination is ongoing and to date, the IRS has not proposed any adjustments related to the Company’s self-insurance programs. Due to the enactment of the TCJA in 2017 and the resulting reduction in the U.S. corporate tax rate for years after 2017, the Company remeasured its deferred tax liabilities related to the temporary differences associated with this deferred premium income from 35.0% to 21.0%. If the IRS proposes adjustments related to the Company’s self-insurance premiums with respect to years prior to the adoption of the TCJA and the Company is unsuccessful in defending its position, any taxes owed to the IRS may be computed under the previous 35.0% statutory tax rate and the Company may be required to remeasure the related deferred tax liabilities from 21.0% to 35.0%, which in addition to any interest due on the amounts 85
