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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income before income taxes and the income tax provision consisted of the following (in millions), and our consolidated income tax provision for 2021 was elevated due to the income tax expense associated with the gains we recognized from the Coinbase and Bakkt transactions.
Year Ended December 31,
202120202019
Income before income taxes
Domestic
$4,179 $1,449 $1,333 
Foreign
1,519 1,317 1,148 
Total
$5,698 $2,766 $2,481 
Income tax provision
Current tax expense:
Federal
$533 $166 $189 
State
267 136 124 
Foreign
292 264 241 
Total
$1,092 $566 $554 
Deferred tax expense (benefit):
Federal
$258 $73 $(21)
State
92 (42)(4)
Foreign
187 61 (8)
$537 $92 $(33)
Total income tax expense$1,629 $658 $521 
A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate is as follows:
Year Ended December 31,
202120202019
Statutory federal income tax rate
21 %21 %21 %
State and local income taxes, net of federal benefit
4 3 4 
Foreign tax rate differential
— (1)(1)
Current year tax benefit from foreign derived intangible income
(1)(1)(1)
Deferred tax from foreign tax law change and Bakkt transaction4 2 — 
Unrecognized tax benefits1 1 — 
State apportionment changes— (1)— 
Other
— — (2)
Total provision for income taxes
29 %24 %21 %
Our effective tax rates were 29%, 24% and 21% in 2021, 2020 and 2019, respectively. The effective tax rate in 2021 is higher than in 2020 primarily due to the deferred income tax impacts from the U.K. tax law changes as well as the Bakkt transaction. In June 2021, the U.K. enacted a corporate income tax rate increase from 19% to 25% effective April 1, 2023.
The effective tax rate in 2020 was higher than in 2019 primarily due to U.K. tax law changes enacted in July 2020, which increased the corporate income tax rate from 17% to 19% effective April 1, 2020. This U.K. deferred tax impact was partially offset by favorable state apportionment changes as a result of our acquisition of Ellie Mae, as well as favorable changes in certain international tax provisions as part of the TCJA in 2020.
On November 15, 2021, the Infrastructure Investment and Jobs Act was signed into law. On March 11, 2021, the American Rescue Plan Act, or ARPA, was signed into law. The ARPA enacted certain provisions that are relevant to corporate income tax. On March 27, 2020, the CARES Act was enacted and certain income tax related relief was provided under the CARES Act. These provisions did not have a material impact on our income tax provision for 2021, 2020 or 2019.
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As a result of the U.K. corporate income tax rate change from 19% to 25% enacted in June 2021, and from 17% to 19% enacted in 2020, we revalued the U.K. deferred tax assets and liabilities accordingly. Certain unrecognized tax benefits associated with our acquisition of Ellie Mae are presented as a reduction to related deferred tax assets. During the fourth quarter of 2021, we deconsolidated Bakkt and treat it as an equity investment within our consolidated financial statements resulting in a pre-tax gain of $1.4 billion (Note 3). The deferred tax liability with respect to the equity investment in Bakkt is $424 million as of December 31, 2021 and is reflected in the following table, which summarizes the significant components of our deferred tax liabilities and assets as of December 31, 2021 and 2020 (in millions):
As of December 31,
20212020
Deferred tax assets:
Deferred and stock-based compensation
$76 $82 
Liability reserve
59 49 
Tax credits
12 14 
Loss carryforward
115 115 
Deferred revenue
23 26 
Lease liability77 93 
Other
20 33 
Total
382 412 
Valuation allowance
(99)(95)
Total deferred tax assets, net of valuation allowance
$283 $317 
Deferred tax liabilities:
Property and equipment
$(172)$(153)
Acquired intangibles
(3,660)(3,606)
Right of use asset(58)(75)
Equity investment(493)(46)
Total deferred tax liabilities
$(4,383)$(3,880)
Net deferred tax liabilities
$(4,100)$(3,563)
Reported as:
Net non-current deferred tax liabilities
$(4,100)$(3,563)
A reconciliation of the beginning and ending amount of deferred income tax valuation allowance is as follows (in millions):
Year Ended December 31,
202120202019
Beginning balance of deferred income tax valuation allowance
$95 $119 $119 
Charges against goodwill
— 2 1 
Increases/(Decreases)4 (26)(1)
Ending balance of deferred income tax valuation allowance
$99 $95 $119 
We recognize valuation allowances on deferred tax assets if, based on the weight of the evidence, we believe that it is more likely than not that some or all of the deferred tax assets will not be realized. We recorded a valuation allowance for deferred tax assets of $99 million and $95 million as of December 31, 2021 and 2020, respectively. Decreases in 2020 primarily relate to certain tax attributes that expired during the year and increased future taxable capital gains. Increases charged against goodwill primarily relate to deferred tax assets arising on acquisitions.
The majority of our undistributed earnings of our non-U.S. subsidiaries are subject to the Global Intangible Low-Taxed Income provisions under the TCJA and, as such, are subject to immediate U.S. income taxation and can be distributed to the U.S. with no material additional income tax consequences in the future. Consequently, these earnings are not considered to be indefinitely reinvested and the related tax impact is included in our income tax provision for 2021, 2020 and 2019.
However, our non-U.S. subsidiaries’ cumulative undistributed earnings as of December 31, 2021, 2020 and 2019 that are not subject to the Global Intangible Low-Taxed Income provisions are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes has been made in the accompanying consolidated financial statements. Further, a determination of the unrecognized deferred tax liability is not practicable. An estimate of these indefinitely reinvested undistributed earnings as of December 31, 2021, based on post-income tax earnings under U.S. GAAP, is $5.8 billion.
As of December 31, 2021 and 2020, we have gross U.S. federal net operating loss carryforwards of $120 million and $125 million, respectively, and gross state and local net operating loss carryforwards of $137 million and $241 million, respectively. The net decrease of federal, state and local net operating loss carryforwards are primarily due to losses utilized in the current year. The net operating loss carryforwards are available to offset future taxable income until they expire, with amounts beginning in 2026. In addition, as of December 31, 2021 and 2020, we have gross foreign net operating loss carryforwards of $293 million and $276 million, respectively. The majority of gross foreign net operating losses are not expected to be realizable in future periods and have related valuation allowances.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
Year Ended December 31,
202120202019
Beginning balance of unrecognized tax benefits
188 103 $98 
Additions/(reductions) related to acquisitions (1)58 — 
Additions based on tax positions taken in current year
41 21 17 
Additions based on tax positions taken in prior years
3 14 9 
Reductions based on tax positions taken in prior years
(2)— (1)
Reductions resulting from statute of limitation lapses
— (5)(13)
Reductions related to settlements with taxing authorities
— (3)(7)
Ending balance of unrecognized tax benefits
$229 $188 $103 
As of December 31, 2021 and 2020, the balance of unrecognized tax benefits which would, if recognized, affect our effective tax rate was $194 million and $109 million, respectively. It is reasonably possible, as a result of settlements of ongoing audits or statute of limitations expirations, that unrecognized tax benefits could increase as much as $35 million and decrease as much as $36 million within the next 12 months. Of the $229 million in unrecognized tax benefits as of December 31, 2021, $193 million is recorded within other non-current liabilities and $36 million is recorded within other current liabilities.
We recognize interest and penalties accrued on income tax uncertainties as a component of income tax expense. In 2021, 2020 and 2019, we recognized $10 million, $6 million and $5 million, respectively, of income tax expense for interest and penalties. As of December 31, 2021 and 2020, accrued interest and penalties were $49 million and $39 million, respectively. Of the $49 million in accrued interest and penalties as of December 31, 2021, $20 million is recorded within other non-current liabilities and $29 million is recorded within other current liabilities in the accompanying consolidated balance sheet.
We or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The following table summarizes open tax years by major jurisdiction:
JurisdictionOpen Tax Years
U.S. Federal2017 - 2021
U.S. States2009 - 2021
U.K.2019 - 2021
Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, including interest and penalties, have been provided for any adjustments expected to result from open tax years.