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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
Note 16: Income Taxes

The Company's geographic sources of income before income taxes are as follows (in millions):
Year ended December 31,
202320222021
United States$2,222.2 $1,979.8 $873.2 
Foreign313.6 382.4 284.6 
Income before income taxes$2,535.8 $2,362.2 $1,157.8 
The Company's provision for income taxes is as follows (in millions):
Year ended December 31,
202320222021
Current:
Federal$372.7 $331.9 $8.0 
State and local21.6 31.8 4.8 
Foreign76.9 73.8 43.3 
471.2 437.5 56.1 
Deferred:
Federal(107.9)(36.9)89.2 
State and local13.2 25.7 7.8 
Foreign(26.3)32.1 (6.5)
(121.0)20.9 90.5 
Total provision$350.2 $458.4 $146.6 

A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate is as follows:
Year ended December 31,
202320222021
U.S. federal statutory rate21.0 %21.0 %21.0 %
Increase (decrease) resulting from:
  State and local taxes, net of federal tax benefit0.7 1.7 1.4 
Impact of foreign operations0.3 1.7 (2.0)
Foreign derived intangible income benefit(6.8)(7.4)(7.8)
Nondeductible goodwill — 3.1 — 
  Change in valuation allowance and related effects (1)0.5 (0.1)(0.4)
Share-based compensation costs(0.2)(0.5)(0.1)
U.S. federal R&D credit(0.4)(0.2)(0.4)
Non-deductible officer compensation0.3 0.3 0.4 
Impact of audit settlement(1.8)— — 
  Other (2)0.2 (0.2)0.6 
Total13.8 %19.4 %12.7 %
_______________________

(1)For the year ended December 31, 2023, this included a benefit of $13.7 million, or 0.5% related to a decrease in the valuation allowance for the expiration of Japan net operating losses ("NOLs"), partially netted with an offsetting expense of $15.3 million or 0.6% related to the expiration of those same Japan NOLs. For the year ended December 31, 2022, this included a benefit of $55.6 million, or 2.4% related to a decrease in the valuation allowance for the expiration of Japan NOLs, partially netted with an offsetting expense of $54.3 million, or 2.3% related to the expiration of those same Japan NOLs. For the year ended December 31, 2021, this included a benefit of $26.3 million, or 2.2% related to a decrease in the valuation allowance for the expiration of Japan NOLs, partially netted with an offsetting expense of $22.6 million, or 1.9% related to the expiration of those same Japan NOLs.
(2)For the year ended December 31, 2021, this included an expense of $8.5 million, or 0.7%, related to an election to waive Base Erosion Anti-Abuse Tax ("BEAT") deductions for all U.S. federal tax purposes for the 2021 tax year.

The Company's effective tax rate for 2023 was 13.8%, which differs from the U.S. federal income tax rate of 21%, primarily due to the benefit received from the Section 250 deduction related to FDII and a benefit due to the net release of unrecognized tax benefits as a result of effective settlement with tax authorities and lapse in statute of limitations.

The Company’s effective tax rate for 2022 was 19.4%, which differs from the U.S. federal income tax rate of 21%, primarily due to the benefit received from the Section 250 deduction related to FDII, partially offset by the impact of nondeductible goodwill.
The Company’s effective tax rate for 2021 was 12.7%, which differs from the U.S. federal income tax rate of 21%, primarily due to the benefit received from the Section 250 deduction related to FDII.

The tax effects of temporary differences in the recognition of income and expense for tax and financial reporting purposes that give rise to significant portions of the net deferred tax asset (liability) are as follows (in millions):

As of December 31,
20232022
NOL and tax credit carryforwards$227.6 $221.6 
163 (j) interest expense carryforward4.6 5.1 
Lease liabilities59.7 65.0 
ROU asset(58.9)(60.9)
Tax-deductible goodwill and amortizable intangibles(32.2)(35.9)
Capitalization of research and development expenses419.9 311.4 
Reserves and accruals60.2 79.1 
Property, plant and equipment(165.1)(156.3)
Inventories134.2 78.3 
Undistributed earnings of foreign subsidiaries(67.7)(64.2)
Share-based compensation9.7 7.5 
Pension5.8 7.5 
Convertible Debt108.1 27.0 
Other6.5 9.8 
Deferred tax assets and liabilities before valuation allowance712.4 495.0 
Valuation allowance(150.3)(152.4)
Net deferred tax asset$562.1 $342.6 

We have investment tax credits, which are accounted for pursuant to ASC 740, in Korea and the Czech Republic. We use the deferral method of accounting for investment tax credits under which the credits are recognized as reductions in the carrying value of the related assets. Deferred tax related to differences in GAAP versus tax carrying value is recorded pursuant to the gross-up method.

As of December 31, 2023 and 2022, the Company had approximately $22.2 million and $50.4 million, respectively, of U.S. federal NOL carryforwards, before the impact of unrecognized tax benefits. The decrease is due to current year utilization. These NOL carryforwards can be carried forward indefinitely until utilized. As of December 31, 2023 and 2022, the Company had approximately $6.6 million and $2.1 million, respectively, of U.S. federal credit carryforwards, before consideration of the impact of unrecognized tax benefits and the valuation allowance. The credits will expire in 2033 if unutilized. These NOL and credit carryforwards relate to acquisitions and, consequently, are limited in the amount that can be utilized in any one year.

As of December 31, 2023 and 2022, the Company had approximately $273.3 million and $324.6 million, respectively, of U.S. state NOL carryforwards, before consideration of valuation allowance or the impact of unrecognized tax benefits. The decrease is primarily due to current year utilization. The U.S. state NOL carryforwards will expire in varying amounts from 2024 to 2040, if unutilized. As of December 31, 2023 and 2022, the Company had $111.8 million and $123.5 million, respectively, of U.S. state credit carryforwards before consideration of valuation allowance or the impact of unrecognized tax benefits. The U.S. state credits will expire in varying amounts beginning in 2024 while a substantial amount of the state credits carryforward indefinitely.

As of December 31, 2023 and 2022, the Company had approximately $232.3 million and $268.3 million, respectively, of foreign NOL carryforwards, before consideration of valuation allowance. The decrease is primarily due to the expiration of Japan NOLs. As of December 31, 2023 and 2022, the Company had $93.5 million and $65.7 million, respectively, of foreign credit carryforwards before consideration of valuation allowance. A significant portion of the foreign NOLs and credit carryforwards will expire in varying amounts prior to 2025, if unutilized.

The Company maintains a partial valuation allowance of $76.0 million on its U.S. state deferred tax assets, primarily NOLs and credits. The remaining valuation allowance primarily relates to NOLs and tax credits in certain other foreign jurisdictions that
primarily expire in 2025.

As of December 31, 2023, the Company was not indefinitely reinvested with respect to the earnings of its foreign subsidiaries and has therefore accrued withholding taxes that would be owed upon future distributions of such earnings.
 
The activity for unrecognized gross tax benefits is as follows (in millions):
202320222021
Balance at beginning of year$136.8 $137.2 $151.0 
Acquired balances— — 9.3 
Additions for tax benefits related to the current year3.4 3.3 3.1 
Additions for tax benefits of prior years0.7 0.5 — 
Reductions for tax benefits of prior years(48.0)(0.3)(19.7)
Lapse of statute(9.9)(3.8)(2.7)
Settlements(15.3)(0.1)(3.8)
Balance at end of year$67.7 $136.8 $137.2 

Included in the December 31, 2023 balance of $67.7 million is $25.1 million related to unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. Also included in the balance of unrecognized tax benefits as of December 31, 2023 is $42.6 million of benefit that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes. Although the Company cannot predict the timing of resolution with taxing authorities, if any, the Company believes it is reasonably possible that its unrecognized tax benefits will be reduced by $3.9 million in the next 12 months due to settlement with tax authorities or expiration of the applicable statute of limitations.
 
The Company recognizes interest and penalties accrued related to uncertain tax positions in tax expense in the Consolidated Statements of Operations and Comprehensive Income. The Company recognized approximately $0.8 million of net tax benefit and $1.4 million of tax expense and $3.3 million of net tax benefit for interest and penalties during the year ended December 31, 2023, 2022 and 2021, respectively. The Company had approximately $2.0 million, $2.7 million, and $1.3 million of accrued interest and penalties as of December 31, 2023, 2022, and 2021, respectively.
The Company has completed its IRS examination for the 2017 and 2018 tax years. The Company has recognized a reduction in unrecognized tax benefits due to the effective settlement with the IRS and lapse in statute of limitations. Tax years prior to 2020 are generally not subject to examination by the IRS. For state tax returns, the Company is generally not subject to income tax examinations for tax years prior to 2019. With respect to jurisdictions outside the United States, the Company is generally not subject to examination for tax years prior to 2013.