Clearwater Paper Corp

NOTE 6 Income Taxes

INCOME TAX PROVISION (BENEFIT)

The components of income tax provision (benefit) is comprised of the following:

The income tax provision (benefit) differs from the amount computed by applying the statutory federal income tax rate to income (loss) before income taxes due to the following:

1 In 2022, Idaho revised their state income tax rate. Given our expected utilization, we recorded an offset to our valuation allowances for the amount of this reduction.

2 In 2022, we adjusted our tax positions under audit related to the disallowance of a previously taken federal tax credits based upon interpretation of the law.

DEFERRED TAXES

The tax effects of significant temporary differences creating deferred tax assets and liabilities at December 31 were:

Net deferred tax assets (liabilities) consist of:

1 Included in "Other assets, net" on our accompanying December 31, 2023 and 2022 Consolidated Balance Sheets.

We have tax benefits associated with state jurisdictions totaling $2.9 million which expire between 2024 and 2042.

UNCERTAIN TAX POSITIONS

The following table provides a roll forward of our unrecognized tax benefits.

During 2022, we ceased operations in our wholly owned subsidiary, Cellu Tissue Holdings, Inc. and recorded a $68.4 million reserve for an estimated uncertain tax position relating to a worthless stock deduction for our investment which represented a full reserve of the tax effects of that position. During 2023, an additional $10.4 million was recorded as a reserve for uncertain tax positions relating to state income tax effects of the worthless stock deduction. During the year ended December 31, 2023, we filed our U.S. 2022 tax return reflecting this position and requested a tax refund which was generated primarily due to the worthless stock deduction. Prior to December 31, 2023, we received this refund. Given the continued uncertainty of sustaining this position on the worthless stock deduction, we did not recognize the benefit and continue to record as an uncertain tax position. We have requested a ruling from the IRS in connection with the worthless stock deduction and expect a determination in 2024.

As of December 31, 2023, the unrecognized tax benefits of $80.9 million were reflected in our Consolidated Balance sheets as a reduction to taxes receivable of $35.0 million (included in Receivables, net), a reduction to deferred tax assets (included in Other assets, net) of $17.9 million, "Accounts Payable and accrued liabilities" of $26.0 million and "Deferred tax liabilities and other long-term obligations" of $2.0 million. As of December 31, 2022, the unrecognized tax benefits of $70.4 million were reflected in our Consolidated Balance sheets as a reduction to taxes receivable of $26.0 million (included in Receivables, net), a reduction to deferred tax assets (included in Other assets, net) of $43.1 million, and "Deferred tax liabilities and other long-term obligations" of $1.3 million.

Unrecognized tax benefits as of December 31, 2023, if recognized, would have favorably impacted our effective tax rate by decreasing our tax provision by $80.9 million. We reflect accrued interest related to tax obligations, as well as penalties, in our provision for income taxes. For the year ended December 31, 2023, we accrued interest of $1.5 million and penalties of $0.2 million. For the years ended December 31, 2022 and 2021, we accrued interest of less than $0.4 million each year in our income tax provision and no penalties in our income tax provision.

We have operations in many states within the U.S. and are subject, at times, to tax audits in these jurisdictions. During 2022, we effectively settled federal tax years 2015 through 2019, however such years remain subject to exam until the U.S. federal exam is formally closed. With a few exceptions, we are no longer subject to state and local tax examination for years prior to 2018.