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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
INCOME TAXES
The components of income before income taxes and the provision for income taxes were as follows:
(millions)202220212020
Income before income taxes
United States$623 $1,158 $1,018 
Foreign574 808 583 
 1,197 1,966 1,601 
Income taxes
Currently payable
Federal151 188 129 
State31 44 26 
Foreign108 117 100 
 290 349 255 
Deferred
Federal(37)40 56 
State(8)4 9 
Foreign(1)81 3 
 (46)125 68 
Total income taxes$244 $474 $323 
The difference between the U.S. federal statutory tax rate and the Company’s effective income tax rate was:
202220212020
U.S. statutory income tax rate21.0 %21.0 %21.0 %
Foreign rates varying from U.S. statutory rate(2.6)(1.6)(2.4)
State income taxes, net of federal benefit1.4 1.9 1.8 
Cost (benefit) of remitted and unremitted foreign earnings1.5 0.6 1.0 
Net change in valuation allowance3.4 2.7 1.4 
Statutory rate changes, deferred tax impact0.2 0.7 0.2 
U.S. deemed repatriation tax— — (2.0)
Foreign derived intangible income(1.8)(0.8)(0.4)
Other(2.7)(0.4)(0.4)
Effective income tax rate20.4 %24.1 %20.2 %
As presented in the preceding table, the Company’s 2022 consolidated effective tax rate was 20.4%, as compared to 24.1% in 2021 and 20.2% in 2020.

The lower effective tax rate for the year ended December 31, 2022 as compared to prior year was mainly due to mark-to-market loss items and the resulting impact on mix of earnings.

The 2021 effective income tax rate was unfavorably impacted by the following items. During the second quarter of 2021, the Company recorded tax expense of $23 million as a result of tax legislation enacted in the UK in June 2021, which increased the statutory UK tax rate from 19 percent to 25 percent for tax periods after April 1, 2023. The Company revalued its net deferred tax balances related to the UK business to reflect the increased tax rate. During the third quarter, the Company determined that certain foreign deferred tax assets were no longer more likely than not to be realized in the future and a full valuation allowance totaling $20 million was recorded on a discrete period basis.

The 2020 effective income tax rate was favorably impacted by the reversal of a liability for uncertain tax positions of $32 million, resulting from the finalization of a tax examination during the third quarter. The reserves were related to the Company's estimate of the transition tax liability in conjunction with the finalization of accounting under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.
Transition tax on foreign earnings: The transition tax is a tax on the previously untaxed accumulated and current earnings and profits of certain of our foreign subsidiaries. In order to determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 earnings and profits (E&P) of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. E&P is similar to retained earnings of the subsidiary, but requires other adjustments to conform to U.S. tax rules. During the third quarter of 2020, the Company reversed $32 million of a liability previously recorded as a result of the finalization of an IRS tax examination.

As of December 31, 2022, approximately $800 million of unremitted earnings were considered indefinitely reinvested. The unrecognized deferred tax liability for these earnings is estimated at approximately $43 million. However, this estimate could change based on the manner in which the outside basis difference associated with these earnings reverses.

Management monitors the Company’s ability to utilize certain future tax deductions, operating losses and tax credit carryforwards, prior to expiration. Changes resulting from management’s assessment will result in impacts to deferred tax assets and the corresponding impacts on the effective income tax rate. Valuation allowances were recorded to reduce deferred tax assets to an amount that will, more likely than not, be realized in the future. The total tax benefit of carryforwards at year-end 2022 and 2021 were $363 million and $363 million, respectively, with related valuation allowances at year-end 2022 and 2021 of $263 million and $248 million, respectively. Of the total carryforwards at year-end 2022, $21 million expire in 5 years or less, $79 million expire in 2027 and later, and $263 million do not expire.

The following table provides an analysis of the Company’s deferred tax assets and liabilities as of year-end 2022 and 2021:

  
Deferred tax
assets		Deferred tax
liabilities
(millions)2022202120222021
U.S. state income taxes$— $— $27 $11 
Advertising and promotion-related15 14 — — 
Wages and payroll taxes19 27 — — 
Inventory valuation19 16 — — 
Employee benefits64 19 — — 
Operating loss, credit and other carryforwards363 363 — — 
Hedging transactions— 13 37 — 
Depreciation and asset disposals— — 286 264 
Operating lease right-of-use assets— — 138 146 
Operating lease liabilities139 144 — — 
Trademarks and other intangibles— — 549 540 
Deferred compensation27 19 — — 
Stock options28 33 — — 
Other56 54 — — 
730 702 1,037 961 
Less valuation allowance(263)(248)— — 
Total deferred taxes$467 $454 $1,037 $961 
Net deferred tax asset (liability)$(570)$(507)  
Classified in balance sheet as:
Other assets$190 $215 
Other liabilities(760)(722)  
Net deferred tax asset (liability)$(570)$(507)  
The change in valuation allowance reducing deferred tax assets was:
(millions)202220212020
Balance at beginning of year$248 $192 $146 
Additions charged to income tax expense (a)44 59 62 
Reductions credited to income tax expense(3)(6)(24)
Acquisition of noncontrolling interest— 13  — 
Currency translation adjustments(26)(10)8 
Balance at end of year$263 $248 $192 
(a) During 2021, the Company increased the valuation allowance $20 million to fully reserve for net deferred tax assets of a foreign subsidiary. During 2020, the Company increased the valuation allowance by $41 million related to the revaluation of its investment in a foreign subsidiary.

Uncertain tax positions
The Company is subject to federal income taxes in the U.S. as well as various state, local, and foreign jurisdictions. The Company’s 2022 provision for U.S. federal income taxes represents approximately 50% of the Company’s consolidated income tax provision. The Company was chosen to participate in the Internal Revenue Service (IRS) Compliance Assurance Program (CAP) beginning with the 2008 tax year. As a result, with limited exceptions, the Company is no longer subject to U.S. federal examinations by the IRS for years prior to 2020. The Company is under examination for income and non-income tax filings in various state and foreign jurisdictions.

As of December 31, 2022, the Company has classified $18 million of unrecognized tax benefits as a current tax liability. Managements estimate of reasonably possible changes in unrecognized tax benefits during the next twelve months consists of the current liability expected to be settled within one year, offset by approximately $3 million of projected additions during the next twelve months related primarily to ongoing intercompany transfer pricing activity. Management is currently unaware of any issues under review that could result in significant additional payments, accruals, or other material deviation in this estimate.
Following is a reconciliation of the Company’s total gross unrecognized tax benefits as of the years ended December 31, 2022, January 1, 2022 and January 2, 2021. For the 2022 year, approximately $30 million represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.
(millions)202220212020
Balance at beginning of year$50 $65 $90 
Tax positions related to current year:
Additions6 5 5 
Tax positions related to prior years:
Additions1 5 8 
Reductions (a)(18)(13)(35)
Settlements(1)(9)(2)
Lapses in statutes of limitation(2)(3)(1)
Balance at end of year$36 $50 $65 
(a) During the third quarter of 2020, the Company released $32 million of tax reserves as a result of finalization of an IRS tax examination.
During the year ended December 31, 2022, the Company recognized $1 million of tax related interest, increasing the balance to $8 million at year-end. During the year ended January 1, 2022, the Company paid tax-related interest totaling $2 million and recognized $(4) million of tax related interest, increasing the balance to $7 million at year-end. During the year ended January 2, 2021, the Company paid tax-related interest totaling $1 million and recognized $3 million of tax-related interest, increasing the balance to $13 million at year-end.