Income Taxes

The components of income before provision for income taxes for the years ended December 31, 2015, 2014, and 2013 are as follows (in millions):



	Year Ended December 31,
	2015		2014			2013
Domestic	$	2,802	$	4,918		$	3,197
Foreign	3,392		(8		)	(443		)
Income before provision for income taxes	$	6,194	$	4,910		$	2,754

The provision for income taxes consisted of the following (in millions):



	Year Ended December 31,
	2015			2014			2013
Current:
Federal	$	3,012		$	1,999		$	1,154
State	183			130			69
Foreign	123			96			68
Total current tax expense	3,318			2,225			1,291
Deferred:
Federal	(800		)	(240		)	(28		)
State	(17		)	(14		)	(7		)
Foreign	5			(1		)	(2		)
Total deferred tax benefit	(812		)	(255		)	(37		)
Provision for income taxes	$	2,506		$	1,970		$	1,254

A reconciliation of the U.S. federal statutory income tax rate of 35.0% to our effective tax rate is as follows (in percentages):



	Year Ended December 31,
	2015		2014		2013
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	2.0		1.4		1.6
Research tax credits	(1.4	)	(1.1	)	(4.7	)
Share-based compensation	2.2		6.5		5.2
Effect of non-U.S. operations	(0.9	)	(3.6	)	6.8
Other	3.5		1.9		1.6
Effective tax rate	40.4	%	40.1	%	45.5	%

Excess tax benefits associated with stock option exercises and other equity awards are credited to stockholders' equity. The income tax benefits resulting from stock awards that were credited to stockholders' equity were $1.72 billion, $1.85 billion and $602 million for the years ended December 31, 2015, 2014, and 2013, respectively.

Our deferred tax assets (liabilities) are as follows (in millions):



	December 31,
	2015			2014
Deferred tax assets:
Net operating loss carryforward	$	476		$	130
Tax credit carryforward	297			190
Share-based compensation	529			225
Accrued expenses and other liabilities	239			136
Other	34			21
Total deferred tax assets	1,575			702
Less: valuation allowance	(205		)	(101		)
Deferred tax assets, net of valuation allowance	1,370			601

Deferred tax liabilities:
Depreciation and amortization	(270		)	(101		)
Purchased intangible assets	(934		)	(1,190		)
Deferred foreign taxes	(15		)	—
Total deferred tax liabilities	(1,219		)	(1,291		)
Net deferred tax assets (liabilities)	$	151		$	(690	)

The valuation allowance was approximately $205 million and $101 million as of December 31, 2015 and 2014, respectively, primarily related to state tax credits that we do not believe will ultimately be realized.

As of December 31, 2015, the U.S. federal and state net operating loss carryforwards were $2.70 billion and $3.31 billion, which will begin to expire in 2032 and 2023, respectively, if not utilized. If realized, the impact of the net operating loss carryforwards will be recognized as a benefit of $655 million through additional paid in capital. We have federal and state tax credit carryforwards of $1.08 billion and $905 million, respectively, which will begin to expire in 2030 and 2032, respectively, if not utilized.

Utilization of our net operating loss and tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations could result in the expiration of the net operating loss and tax credit carryforwards before their utilization. The events that may cause ownership changes include, but are not limited to, a cumulative stock ownership change of greater than 50% over a three-year period.

Our net foreign pretax income includes jurisdictions with both pretax earnings and pretax losses. Our consolidated financial statements provide taxes for all related tax liabilities that would arise upon repatriation of earnings in the foreign jurisdictions where we do not intend to indefinitely reinvest those earnings outside the United States, and the amount of taxes provided for has been insignificant.

The following table reflects changes in the gross unrecognized tax benefits (in millions):



	Year Ended December 31,
	2015			2014			2013
Gross unrecognized tax benefits-beginning of period	$	1,682		$	1,316		$	164
Increases related to prior year tax positions	322			24			425
Decreases related to prior year tax positions	(52		)	—			(13		)
Increases related to current year tax positions	1,066			346			740
Decreases related to settlements of prior year tax positions	(1		)	(4		)	—
Gross unrecognized tax benefits-end of period	$	3,017		$	1,682		$	1,316

During all years presented, we recognized interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of income. The amount of interest and penalties accrued as of December 31, 2015 and 2014 was not material.

If the balance of gross unrecognized tax benefits of $3.02 billion as of December 31, 2015 was realized in a future period, this would result in a tax benefit of $2.40 billion within our provision of income taxes at such time.

On July 27, 2015, the United States Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of share-based compensation expense in an intercompany cost-sharing arrangement. This opinion concluded that related parties in a cost-sharing arrangement are not required to share share-based compensation. A final decision was issued by the Tax Court, however, this decision may be appealed by the Commissioner. The impact of the conclusions stated by the Tax Court in its opinion was not material to our consolidated financial statements.

We are subject to taxation in the United States and various other state and foreign jurisdictions. The material jurisdictions in which we are subject to potential examination include the United States and Ireland. We are under examination by the Internal Revenue Service (IRS) for our 2008 through 2010 tax years. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations, and we do not anticipate a significant impact to our gross unrecognized tax benefits within the next 12 months related to these years. Our 2011 and future years remain open to examination by the IRS. Our 2011 and future years remain open to examination in Ireland.

Although the timing of the resolution, settlement, and closure of any audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given 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.