Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

6. INCOME TAXES

Federal and foreign income tax expense consisted of the following:

	Year Ended December 31
$ in millions	2024		2023		2022
Federal income tax expense:
Current	$	628	$	949	$	1,289
Deferred	204		(670)		(353)
Total federal income tax expense	832		279		936
Foreign income tax expense:
Current	13		15		3
Deferred	(3)		(4)		1
Total foreign income tax expense	10		11		4
Total federal and foreign income tax expense	$	842	$	290	$	940

Earnings before income taxes associated with the company’s foreign operations are not material in the periods presented.

Income tax expense differs from the amount computed by multiplying earnings before income taxes by the statutory federal income tax rate due to the following:

	Year Ended December 31
$ in millions	2024				2023				2022
Income tax expense at statutory rate	$	1,053	21.0	%	$	493	21.0	%	$	1,226	21.0	%
Research credit	(361)		(7.2)		(210)		(8.9)		(177)		(3.0)
Foreign derived intangible income	13		0.3		(63)		(2.7)		(66)		(1.1)
Settlements with taxing authorities	—		—		(1)		—		(86)		(1.5)
Net interest expense	145		2.9		69		2.9		22		0.4
Other, net	(8)		(0.2)		2		0.1		21		0.3
Total federal and foreign income taxes	$	842	16.8	%	$	290	12.4	%	$	940	16.1	%

The 2024 ETR increased to 16.8 percent from 12.4 percent in 2023 primarily due to the impact of the prior year B-21 charge and the MTM adjustment on our ETR. The 2024 MTM benefit increased the 2024 ETR by 0.4 percentage points, whereas the prior year B-21 charge and MTM expense collectively reduced the 2023 ETR by 3.8 percentage points. The 2024 ETR also reflects a net reduction in tax reserves largely due to a recent federal court decision, partially offset by higher interest expense on unrecognized tax benefits.

The 2023 ETR decreased to 12.4 percent from 16.1 percent in 2022 primarily due to lower earnings before income taxes as a result of the B-21 charge and MTM expense, which collectively reduced the 2023 ETR by 3.8 percentage points. The 2022 MTM benefit increased the 2022 ETR by 1.2 percentage points.

Income tax payments, net of refunds received, were $880 million, $1.2 billion and $1.5 billion for the years ended December 31, 2024, 2023 and 2022, respectively. Taxes receivable, which are included in Prepaid expenses and other current assets in the consolidated statements of financial position, were $517 million and $1.5 billion as of December 31, 2024 and 2023, respectively.

Net interest expense within the company’s federal, foreign and state income tax provisions was $164 million, $62 million, and $29 million for the years ended December 31, 2024, 2023, and 2022, respectively.

The Organization for Economic Co-operation and Development issued Pillar Two model rules for a global minimum tax of 15% effective January 1, 2024. While it is uncertain whether the United States will enact legislation to adopt Pillar Two, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar Two. Pillar Two had no impact on our 2024 ETR, and we do not currently expect Pillar Two to significantly impact our ETR going forward.

Uncertain Tax Positions

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. During the fourth quarter of 2024, the company entered into an agreed RAR for certain matters related to the company’s 2018-2020 federal income tax returns, largely related to our methods of accounting associated with the timing of revenue recognition and related costs under IRC Section 451(b), resulting in a $766 million reduction to our unrecognized tax benefits and an immaterial impact to income tax expense. The matters not addressed by the agreed RAR related to the company’s 2018-2020 federal tax returns are currently under Internal Revenue Service (IRS) examination.

During the second quarter of 2023, the company entered into an agreed RAR for certain matters related to the company’s 2014-2017 federal income tax returns, resulting in a $90 million reduction to our unrecognized tax benefits and an immaterial impact to income tax expense. The matters not addressed by the agreed RAR related to the company’s 2014-2017 federal income tax returns and refund claims related to its 2007-2016 federal tax returns are currently under review by the IRS Appeals Office.

In the second quarter of 2023, the California Franchise Tax Board approved a resolution of the state examination primarily related to California state apportionment in the company’s 2007 to 2016 tax years, resulting in a $95 million reduction to our unrecognized tax benefits and an $11 million reduction to unallocated corporate expense.

Tax returns for open tax years related to state and foreign jurisdictions remain subject to examination. As state income taxes are generally considered allowable and allocable costs, any individual or aggregate state examination impacts are not expected to have a material impact on our financial results. Amounts currently subject to examination related to foreign jurisdictions are not material.

The company’s unrecognized tax benefits, excluding accrued interest and penalties of $373 million, $305 million and $216 million as of December 31, 2024, 2023 and 2022, respectively, are presented below:

	December 31
$ in millions	2024		2023		2022
Unrecognized tax benefits at beginning of the year	$	1,994	$	1,663	$	1,630
Additions based on tax positions related to the current year	236		276		262
Additions for tax positions of prior years	90		254		6
Reductions for tax positions of prior years	(106)		(9)		(124)
Settlements with taxing authorities	(766)		(189)		(110)
Other, net	(1)		(1)		(1)
Net change in unrecognized tax benefits	(547)		331		33
Unrecognized tax benefits at end of the year	$	1,447	$	1,994	$	1,663

The 2024 decrease in unrecognized tax benefits was primarily related to the settlement of certain matters related to the company’s methods of accounting associated with the timing of revenue recognition under IRC Section 451(b) as discussed above, partially offset by additional reserves on current year tax positions related to 451(b) (prior to settlement) and research credits. It is reasonably possible that within the next 12 months the company’s unrecognized tax benefits may increase by approximately $100 million.

If the income tax benefits from these tax positions are ultimately realized, $914 million of federal and foreign tax benefits would reduce the company’s ETR.

Inclusive of accrued interest and penalties, the company’s current unrecognized tax benefits of $345 million and $964 million as of December 31, 2024 and 2023, respectively, are included in Other current liabilities in the consolidated statements of financial position.

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. Net deferred tax assets and liabilities are classified as non-current in the consolidated statements of financial position.

The tax effects of temporary differences and carryforwards that gave rise to year-end deferred federal, state and foreign tax balances, as presented in the consolidated statements of financial position, are as follows:

	December 31
$ in millions	2024		2023
Deferred Tax Assets
Retiree benefits	$	—	$	115
Capitalized research and experimental expenditures	4,816		3,380
Accrued employee compensation	386		400
Provisions for accrued liabilities	468		509
Inventory	36		279
Stock-based compensation	37		35
Operating lease liabilities	557		575
Tax credits	562		557
Other	241		215
Gross deferred tax assets	7,103		6,065
Less: valuation allowance	(526)		(517)
Net deferred tax assets	6,577		5,548
Deferred Tax Liabilities
Retiree benefits	153		—
Goodwill	534		534
Purchased intangibles	69		83
Property, plant and equipment, net	827		805
Operating lease right-of-use assets	554		563
Contract accounting differences	2,714		2,437
Other	127		106
Deferred tax liabilities	4,978		4,528
Total net deferred tax assets	$	1,599	$	1,020

Realization of deferred tax assets is primarily dependent on generating sufficient taxable income in future periods. The company believes it is more-likely-than-not our net deferred tax assets will be realized.

At December 31, 2024, the company has available tax credits and unused net operating losses of $627 million and $318 million, respectively, that may be applied against future taxable income. The majority of tax credits and net operating losses expire between 2025 and 2047, however, some may be carried forward indefinitely. Due to the uncertainty of the realization of the tax credits and net operating losses, the company has recorded valuation allowances of $343 million and $42 million, respectively, as of December 31, 2024.

Undistributed Foreign Earnings

As of December 31, 2024, the company has accumulated undistributed earnings generated by our foreign subsidiaries and most have been taxed in the U.S. We intend to indefinitely reinvest these earnings, as well as future earnings from our foreign subsidiaries to fund our international operations. In addition, we expect future U.S. cash generation will be sufficient to meet future U.S. cash needs.