
In millions	2020		2019		2018
Current:
Federal	$	25	$	32	$	47
State	13		7		15
Foreign	45		84		68
Total current provision	83		123		130
Deferred:
Federal	30		1		—
State	94		(1)		(16)
Foreign	(7)		5		(2)
Total deferred expense (benefit)	117		5		(18)
Total tax provision	$	200	$	128	$	112


In millions	2020		2019		2018
Tax at federal statutory rate	$	180	$	235	$	188
State, net of federal benefit	19		18		13
Research and other credits	(19)		(37)		(23)
Change in valuation allowance	69		(2)		(12)


Impact of foreign operations	(47)		(57)		(59)
Impact of foreign derived intangible income (FDII) deduction	(11)		(4)		(1)
Cost sharing adjustment	28		—		—
Investments in consolidated variable interest entities	(2)		(5)		9
Impact of U.S. Tax Reform	—		—		11
Stock compensation	(18)		(20)		(24)
Other	1		—		10
Total tax provision	$	200	$	128	$	112

The determination of the impact of the Tax Cuts and Jobs Act that was enacted on December 22, 2017 (U.S. Tax Reform) may change following future legislation or further interpretation of the U.S. Tax Reform based on the publication of proposed U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities. We continue to evaluate the impacts of U.S. Tax Reform as we interpret the legislation, including the global intangible low-taxed income (GILTI) provisions which subject our foreign earnings to a minimum level of tax. We have elected to account for GILTI as a period cost in our consolidated financial statements.

The impact of foreign operations primarily represents the difference between the actual provision for income taxes for our legal entities that operate primarily in jurisdictions that have statutory tax rates lower than the U.S. federal statutory tax rate of 21%. The most significant tax benefits from foreign operations were from our earnings in Singapore and the United Kingdom, which had statutory tax rates of 17% and 19%, respectively, in 2020. The impact of foreign operations also includes the impact of GILTI and the U.S. foreign tax credit impact of non-U.S. earnings and uncertain tax positions related to foreign items.

On June 22, 2020, the Supreme Court denied petition for certiorari for Altera Corporation v. Commissioner. This effectively means the Ninth Circuit decision that stock-based compensation must be included in intercompany cost sharing is final. As a result, tax expense of $28 million was recorded in 2020.


In millions	January 3, 2021		December 29, 2019
Deferred tax assets:
Net operating losses	$	26	$	21
Tax credits	70		63
Other accruals and reserves	21		12
Stock compensation	17		20

Cost sharing adjustment	—		21
Other amortization	17		16
Operating lease liabilities	156		158

Other	53		45
Total gross deferred tax assets	360		356
Valuation allowance on deferred tax assets	(81)		(13)
Total deferred tax assets	279		343
Deferred tax liabilities:
Purchased intangible amortization	(27)		(27)
Convertible debt	(20)		(30)
Property and equipment	(34)		(47)
Operating lease right-of-use assets	(108)		(111)
Investments	(137)		(60)
Other	(6)		(5)
Total deferred tax liabilities	(332)		(280)
Deferred tax (liabilities) assets, net	$	(53)	$	63

A valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis and includes a review of all available positive and negative evidence, including operating results and forecasted ranges of future taxable income. Based on the available evidence as of January 3, 2021, we were not able to conclude it is more likely than not certain deferred tax assets will be realized. Therefore, a valuation allowance of $81 million was recorded against certain U.S. and foreign deferred tax assets. Tax expense of $68 million was recorded in 2020 related to establishing a valuation allowance against the deferred tax asset for California research and development credits; this included $62 million from the existing balance of these credits at the beginning of the year.

As of January 3, 2021, we had net operating loss carryforwards for federal and state tax purposes of $19 million and $120 million, respectively, which will begin to expire in 2021 and 2025, respectively, unless utilized prior. We also had federal and state tax credit carryforwards of $1 million and $115 million, which will begin to expire in 2037 and 2022, respectively, unless utilized prior.

Pursuant to Section 382 and 383 of the Internal Revenue Code, utilization of net operating losses and credits may be subject to annual limitations in the event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of net operating losses and credits prior to utilization. The deferred tax assets as of January 3, 2021 are net of any previous limitations due to Section 382 and 383.

Our manufacturing operations in Singapore operate under various tax holidays and incentives that begin to expire in 2023. These tax holidays and incentives resulted in a $30 million, $33 million, and $36 million decrease to the provision for income taxes in 2020, 2019, and 2018, respectively. These tax holidays and incentives resulted in an increase in diluted earnings per share attributable to Illumina stockholders of $0.20, $0.22, and $0.24, in 2020, 2019, and 2018, respectively.

It is our intention to indefinitely reinvest the historical earnings of our foreign subsidiaries generated prior to 2017 to ensure sufficient working capital and to expand existing operations outside the United States. Accordingly, state and

foreign income and withholding taxes have not been provided on $1,159 million of undistributed earnings of foreign subsidiaries as of January 3, 2021. In the event we are required to repatriate funds from outside of the United States, such repatriation would be subject to local laws, customs, and tax consequences. As of January 3, 2021, we asserted that $164 million of foreign earnings would not be indefinitely reinvested, and accordingly, recorded a deferred tax liability of $5 million.


In millions	January 3, 2021		December 29, 2019		December 30, 2018
Balance at beginning of year	$	79	$	88	$	79
Increases related to prior year tax positions	2		1		1
Decreases related to prior year tax positions	—		—		(1)
Increases related to current year tax positions	12		12		12
Decreases related to lapse of statute of limitations	(13)		(22)		(3)
Balance at end of year	$	80	$	79	$	88

Included in the balance of uncertain tax positions as of January 3, 2021 and December 29, 2019, was $68 million of net unrecognized tax benefits that, if recognized, would reduce the effective income tax rate in future periods.

Any interest and penalties related to uncertain tax positions are reflected in the provision for income taxes. We recognized income of $1 million and $3 million in 2020 and 2019, respectively, and recognized expense of $3 million in 2018, related to potential interest and penalties on uncertain tax positions. We recorded a liability for potential interest and penalties of $6 million and $7 million as of January 3, 2021 and December 29, 2019, respectively.

Tax years 1997 to 2019 remain subject to future examination by the major tax jurisdictions in which we are subject to tax. The Internal Revenue Service recently began an examination of the U.S. Corporation Income Tax Returns for tax years 2017 and 2018. Given the uncertainty of potential adjustments from examination as well as the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized tax benefits could change significantly over the next 12 months. Due to the number of years remaining that are subject to examination, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.