

	Year Ended December 31,
	2017			2018			2019
Current:
Federal and state	$	12,608		$	2,153		$	2,424
Foreign	1,746			1,251			2,713
Total	14,354			3,404			5,137
Deferred:
Federal and state	220			907			286
Foreign	(43		)	(134		)	(141		)
Total	177			773			145
Provision for income taxes	$	14,531		$	4,177		$	5,282

The Tax Act enacted on December 22, 2017 introduced significant changes to U.S. income tax law. Effective 2018, the Tax Act reduced the U.S. statutory tax rate from 35% to 21% and created new taxes on certain foreign-sourced earnings and certain related-party payments.

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our consolidated financial statements as of December 31, 2017. As we collected and prepared necessary data, and interpreted the additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we made adjustments, over the course of 2018, to the provisional amounts including refinements to deferred taxes. The accounting for the tax effects of the Tax Act was completed as of December 31, 2018.

The Tax Act required us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. We recorded a provisional amount for our transitional tax liability and income tax expense of $10.2 billion as of December 31, 2017. Subsequent adjustments in 2018 and 2019 were not material.

Due to the change in the statutory tax rate from the Tax Act, we remeasured our deferred taxes as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a deferred tax benefit of $376 million to reflect the reduced U.S. tax rate and other effects of the Tax Act as of December 31, 2017.



	Year Ended December 31,
	2017		2018		2019
U.S. federal statutory tax rate	35.0	%	21.0	%	21.0	%
Foreign income taxed at different rates	(14.2	)	(4.9	)	(5.6	)
Effect of the Tax Act
Transition tax	37.6		(0.1	)	(0.6	)
Deferred tax effects	(1.4	)	(1.2	)	0.0
Federal research credit	(1.8	)	(2.4	)	(2.5	)
Stock-based compensation expense	(4.5	)	(2.2	)	(0.7	)
European Commission fines	3.5		3.1		1.0
Deferred tax asset valuation allowance	0.9		(2.0	)	0.0
State and local income taxes	0.1		(0.4	)	1.1
Other adjustments	(1.8	)	1.1		(0.4	)
Effective tax rate	53.4	%	12.0	%	13.3	%

Our effective tax rate for each of the years presented was affected by earnings realized in foreign jurisdictions with statutory tax rates lower than the federal statutory tax rate. Substantially all of the income from foreign operations was earned by an Irish subsidiary. Beginning in 2018, earnings realized in foreign jurisdictions are subject to U.S. tax in accordance with the Tax Act.

On July 27, 2015, the United States Tax Court, in an opinion in Altera Corp. v. Commissioner, invalidated the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. The U.S. Tax Court issued the final decision on December 28, 2015. As a result of that decision, we recorded a tax benefit related to the anticipated reimbursement of cost share payment for previously shared stock-based compensation costs.

On June 7, 2019, the United States Court of Appeals for the Ninth Circuit overturned the 2015 Tax Court decision in Altera Corp. v. Commissioner, and upheld the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. As a result of the Ninth Circuit court decision, our cumulative net tax benefit of $418 million related to previously shared stock-based compensation costs was reversed in the year ended December 31, 2019.

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows (in millions):



	As of December 31,
	2018			2019
Deferred tax assets:
Stock-based compensation expense	$	291		$	421
Accrued employee benefits	387			463
Accruals and reserves not currently deductible	902			1,047
Tax credits	1,979			3,264
Basis difference in investment in Arris	657			0
Prepaid cost sharing	597			0
Net operating losses	557			771
Operating leases	160			1,876
Other	21			390
Total deferred tax assets	5,551			8,232
Valuation allowance	(2,817		)	(3,502		)
Total deferred tax assets net of valuation allowance	2,734			4,730
Deferred tax liabilities:
Property and equipment, net	(1,382		)	(1,798		)
Renewable energy investments	(500		)	(466		)
Foreign Earnings	(111		)	(373		)
Net investment gains	(1,143		)	(1,074		)
Operating leases	0			(1,619		)
Other	(125		)	(380		)
Total deferred tax liabilities	(3,261		)	(5,710		)
Net deferred tax assets (liabilities)	$	(527	)	$	(980	)

As of December 31, 2019, our federal, state and foreign net operating loss carryforwards for income tax purposes were approximately $1.8 billion, $3.1 billion, and $1.9 billion respectively. If not utilized, the federal and foreign net operating loss carryforwards will begin to expire in 2021 and the state net operating loss carryforwards will begin to expire in 2020. It is more likely than not that certain net operating loss carryforwards will not be realized; therefore, we have recorded a valuation allowance against them. The net operating loss carryforwards are subject to various annual limitations under the tax laws of the different jurisdictions.

As of December 31, 2019, our California research and development credit carryforwards for income tax purposes were approximately $3.0 billion that can be carried over indefinitely. We believe the state tax credit is not likely to be realized.

As of December 31, 2019, we maintained a valuation allowance with respect to California deferred tax assets, certain federal net operating losses, certain state tax credits and certain foreign net operating losses that we believe are not likely to be realized. Due to gains from equity securities recognized, we released the valuation allowance in 2018 against the deferred tax asset for the book-to-tax basis difference in our investments in Arris shares received from the sale of the Motorola Home business to Arris in 2013. We continue to reassess the remaining valuation allowance quarterly and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.



	Year Ended December 31,
	2017			2018			2019
Beginning gross unrecognized tax benefits	$	5,393		$	4,696		$	4,652
Increases related to prior year tax positions	685			321			938
Decreases related to prior year tax positions	(257		)	(623		)	(143		)
Decreases related to settlement with tax authorities	(1,875		)	(191		)	(2,886		)
Increases related to current year tax positions	750			449			816
Ending gross unrecognized tax benefits	$	4,696		$	4,652		$	3,377

The total amount of gross unrecognized tax benefits was $4.7 billion, $4.7 billion, and $3.4 billion as of December 31, 2017, 2018, and 2019, respectively, of which, $3.0 billion, $2.9 billion, and $2.3 billion, if recognized, would affect our effective tax rate, respectively. The decrease in gross unrecognized tax benefits in 2017 and 2019 was primarily as a result of the resolution of multi-year audits.

We file income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions, our two major tax jurisdictions are the U.S. federal and Ireland. We are subject to the continuous examination of our income tax returns by the IRS and other tax authorities. The IRS completed its examination through our 2015 tax years; all issues have been concluded and the IRS will commence its examination of our 2016 through 2018 tax returns. We have also received tax assessments in multiple foreign jurisdictions asserting transfer pricing adjustments or permanent establishment. We continue to defend any and all such claims as presented.

The tax years 2011 through 2018 remain subject to examination by the appropriate governmental agencies for Irish tax purposes. There are other ongoing audits in various other jurisdictions that are not material to our financial statements.

We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. We continue to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.

We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management's expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. Although the timing of resolution, settlement, and closure of audits is not certain, we do not believe it is reasonably possible that our unrecognized tax benefits will materially change in the next 12 months.