Valuation allowance for tax credit carryforward

[Table of Conten](#i207805ce14724a60909000a6c8cb9e11_7)[t](#i207805ce14724a60909000a6c8cb9e11_7)[s](#i207805ce14724a60909000a6c8cb9e11_7)Deferred taxes associated with U.S. entities from continuing operations consist of net deferred tax liabilities of approximately $698 million and $550 million inclusive of valuation allowances of $52 million and $25 million as of December 31, 2021 and December 31, 2020, respectively. Deferred taxes associated with non-U.S. entities from continuing operations consist of net deferred tax liabilities of $0.1 million and $23 million, inclusive of valuation allowances of $21 million and $22 million, as of December 31, 2021 and December 31, 2020, respectively. Our valuation allowance increased by $27 million and by $3 million during the years ended December 31, 2021 and December 31, 2020, respectively, due primarily to foreign net operating losses in both years and acquired domestic tax attributes in 2021.As of December 31, 2021, our U.S. and non-U.S. net operating loss carryforwards totaled $1.8 billion, of which $285 million is related to federal net operating loss carryforwards, $1.0 billion is related to state net operating loss carryforwards, and $483 million is related to non-U.S. net operating loss carryforwards. Included in deferred tax assets as of December 31, 2021 are tax benefits for U.S. and non-U.S. net operating loss carryforwards totaling $182 million, before applicable valuation allowances of $53 million. Certain of these losses can be carried forward indefinitely and others can be carried forward to various dates from 2022 through 2041. Recognition of some of these loss carryforwards is subject to an annual limit, which may cause them to expire before they are used.As of December 31, 2021, our U.S. and non-U.S. tax credit carryforwards totaled $33 million, which is primarily related to U.S. tax credit carryforwards. Certain of these credits can be carried forward indefinitely and other can be carried forward to various dates from 2022 through 2041. As of December 31, 2021, we maintain a $15 million valuation allowance related to certain tax credit carryforwards.Unrecognized Tax BenefitsWe recognize tax benefits from uncertain tax positions only if, in our assessment, it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in evaluating tax positions and determining income tax provisions. We re-evaluate the technical merits of our tax positions and may recognize an uncertain tax benefit in certain in certain circumstances, including when: (i) a tax audit is completed; (ii) applicable tax laws change, including a tax case ruling or legislative guidance; or (iii) the applicable statute of limitations expires. We recognize potential accrued interest and penalties associated with unrecognized tax positions in income tax expense.As of December 31, 2021, gross unrecognized tax benefits for continuing and discontinued operations were $193 million ($217 million total, including $25 million associated with interest and penalties, and net of the impact of $1 million of indirect tax benefits). As of December 31, 2020, gross unrecognized tax benefits for continuing and discontinued operations were $200 million ($224 million total, including $26 million associated with interest and penalties, and net of the impact of $2 million of indirect tax benefits). We recognized approximately $6 million, $10 million and $8 million in potential interest and penalties associated with uncertain tax positions during 2021, 2020, and 2019, respectively. To the extent taxes are not assessed with respect to uncertain tax positions, substantially all amounts accrued (including interest and penalties and net of indirect offsets) will be reduced and reflected as a reduction of the overall income tax provision. Unrecognized tax benefits and associated accrued interest and penalties are included in our income tax provision.The Company is subject to examination in the United States, various states, and foreign jurisdictions for the tax years 2010 to 2021. These examinations include filings of tax returns prior to our separation from Danaher, tax returns of enterprises no longer in our portfolio, and tax returns for pre-acquisition periods of enterprises added to our portfolio. Significant obligations are detailed in the tax matters agreements in connection with the separation of Fortive from Danaher on July 1, 2016, the split-off of the A&S business on October 1, 2018, and the Vontier separation on October 9, 2020.Some examinations may conclude in the next twelve months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not practical to estimate the effect, if any, of any amount of such change during the next twelve months to previously recorded uncertain tax positions in connection with the audits. The Company does not anticipate that there will be a material increase or decrease in the total amount of unrecognized tax benefits in the next twelve months.91
