INCOME TAXES - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
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| Income Tax Disclosure [Abstract] | ||
| INCOME TAXES | INCOME TAXES Our effective tax rate for both the three months ended March 31, 2021 and March 31, 2020 was approximately 22.8%. The recognition in income tax of excess tax benefits related to share-based compensation reduced our effective rate by 1.1% for the three months ended March 31, 2021 compared to 0.7% in the same period of 2020. Other items that impacted our effective tax rate in the first quarter of 2021 compared to 2020 included unfavorable changes in uncertain tax positions.
As discussed in our Annual Report on Form 10-K for the year ended December 31, 2020, we have recognized liabilities for uncertain tax positions. We reevaluate these uncertain tax positions on a quarterly basis. A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. However, an estimate of the range of reasonably possible outcomes cannot be made. Items that may cause changes to unrecognized tax benefits include the timing of interest deductions and the allocation of income and expense between tax jurisdictions. These changes could result from the settlement of ongoing litigation, the completion of ongoing examinations, the expiration of the statutes of limitations or other unforeseen circumstances.
In the first quarter of 2021, we recognized an income tax expense of $788 million related to pre-tax mark-to-market income of $3.3 billion on our pension and postretirement defined benefit plans. This income tax expense was generated at a higher average tax rate than the U.S. federal statutory tax rate because it included the effect of U.S. state and local taxes.
As discussed in note 18, we recognized pre-tax transformation strategy costs of $118 million in the first quarter of 2021 compared to $45 million in the first quarter of 2020. As a result, we recorded an additional income tax benefit of $28 million in the first quarter of 2021 compared to $10 million in the first quarter of 2020. This benefit was generated at a higher average tax rate than the U.S. federal statutory tax rate primarily due to the effect of U.S. state and local taxes and foreign taxes.
We recorded a pre-tax valuation allowance against assets held for sale of $66 million during the first quarter of 2021. As a result, we recorded an additional income tax benefit of $16 million. This income tax benefit was generated at a higher average tax rate than the U.S. federal statutory tax rate due to the effect of U.S. state and local taxes.
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| Transformation cost | $ 118 | $ 45 |