Tax Credit Carryforward, Valuation Allowance

[Table of Contents](#i43d04c9d26874e33802bdf64c458414a_7)The components of deferred taxes follow: 

|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |
|   | December 31, |
|   | 2021 |  | 2020 |
| Deferred tax assets: |   |  |   |
| Foreign tax credits | $ | 1,536  |  |  | $ | 1,641  |  |
| Accrued expenses | 1,193  |  |  | 1,194  |  |
|  |  |  |  |
|  |  |  |  |
| Net operating losses (NOLs) | 2,220  |  |  | 2,443  |  |
| Employee benefit plans | 105  |  |  | 177  |  |
|  |  |  |  |
| Other | 252  |  |  | 227  |  |
| Deferred tax assets | 5,306  |  |  | 5,682  |  |
| Valuation allowances | (4,087) |  |  | (4,732) |  |
| Net deferred tax assets | 1,219  |  |  | 950  |  |
|  |  |  |  |
| Deferred tax liabilities: |   |  |   |
| Property, plant, equipment and mine development costs | (4,492) |  |  | (4,489) |  |
|  |  |  |  |
| Undistributed earnings | (807) |  |  | (694) |  |
| Other | (152) |  |  | (175) |  |
| Total deferred tax liabilities | (5,451) |  |  | (5,358) |  |
| Net deferred tax liabilities | $ | (4,232) |  |  | $ | (4,408) |  |

  
Tax Attributes. At December 31, 2021, FCX had (i) U.S. foreign tax credits of $1.5 billion that will expire between 2022 and 2027, (ii) U.S. federal net operating losses (NOLs) of $6.1 billion that primarily expire between 2036 and 2037, of which $0.2 billion can be carried forward indefinitely, (iii) U.S. state NOLs of $10.9 billion that primarily expire between 2022 and 2041, (iv) Spanish NOLs of $0.5 billion that can be carried forward indefinitely and (v) Indonesia NOLs of $0.9 billion that expire between 2022 and 2026.  
Valuation Allowances. On the basis of available information at December 31, 2021, including positive and negative evidence, FCX has provided valuation allowances for certain of its deferred tax assets where it believes it is more- likely-than-not that some portion or all of such assets will not be realized. Valuation allowances totaled $4.1 billion at December 31, 2021, and covered all of FCX’s U.S. foreign tax credits and U.S. federal NOLs, substantially all of its U.S. state NOLs, and a portion of its foreign NOLs. Valuation allowances totaled $4.7 billion at December 31, 2020, and covered all of FCX’s U.S. foreign tax credits, U.S. federal NOLs, foreign net operating losses and substantially all of its U.S. state NOLs.   
The valuation allowance related to FCX’s U.S. foreign tax credits totaled $1.5 billion at December 31, 2021. FCX has operations in tax jurisdictions where statutory income taxes and withholding taxes are in excess of the U.S. federal income tax rate. Valuation allowances are recognized on foreign tax credits for which no benefit is expected to be realized.  
The valuation allowance related to FCX’s U.S. federal, state and foreign NOLs totaled $2.0 billion and other deferred tax assets totaled $561 million at December 31, 2021. NOLs and deferred tax assets represent future deductions for which a benefit will only be realized to the extent these deductions offset future income. FCX develops an estimate of which future tax deductions will be realized and recognizes a valuation allowance to the extent these deductions are not expected to be realized in future periods.  
Valuation allowances will continue to be carried on U.S. foreign tax credits, U.S. federal, state and foreign NOLs and U.S. federal, state and foreign deferred tax assets, until such time that (i) FCX generates taxable income against which any of the assets, credits or NOLs can be used, (ii) forecasts of future income provide sufficient positive evidence to support reversal of the valuation allowances or (iii) FCX identifies a prudent and feasible means of securing the benefit of the assets, credits or net operating losses that can be implemented.   
The $645 million net decrease in the valuation allowances during 2021 is primarily related to a $219 million decrease associated with U.S. federal NOLs utilized during 2021, a $105 million decrease related to expirations of U.S. foreign tax credits and $228 million decrease associated with PT Rio Tinto NOLs resulting from positive evidence supporting future taxable income against which net operating losses can be used. Changes in assumptions about future taxable income against which PT Rio Tinto NOLs can be utilized resulted from delays in timing of the anticipated merger of PT Rio Tinto into PT-FI. 144
