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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income before income taxes consists of the following:
Year Ended December 31,
(in millions)202320222021
Domestic$5,467 $4,439 $8,587 
Foreign1,392 1,375 (309)
Income before income taxes$6,859 $5,814 $8,278 
Income tax expense consists of the following:
Year Ended December 31,
(in millions)202320222021
Federal:
Current$(1,781)$(2,539)$(1,776)
Deferred1,126 1,502 250 
(655)(1,037)(1,526)
State:
Current(80)(32)(228)
Deferred(170)154 (185)
(250)122 (413)
Foreign:
Current(381)(232)(185)
Deferred39 (101)47 
(342)(333)(138)
Income tax expense$(1,247)$(1,248)$(2,077)
The reconciliation between the federal statutory tax rate applied to Income before income taxes and our effective tax rate is summarized as follows:
Year Ended December 31,
202320222021
Federal statutory rate21.0 %21.0 %21.0 %
State taxes, net of federal benefit2.3 %(2.0)%2.5 %
Foreign earnings at different rates(0.2)%(0.6)%(0.3)%
Research and other credits(4.3)%(2.7)%(1.6)%
US tax on foreign earnings1.0 %2.7 %1.1 %
Foreign-derived intangible income deduction(2.1)%(3.8)%(1.6)%
Tax examinations(4.7)%(0.2)%(0.7)%
Acquired IPR&D & related charges1.3 %1.4 %— %
Changes in valuation allowance0.9 %1.2 %1.5 %
Non-taxable unrealized loss on investment0.2 %0.7 %1.8 %
Other2.8 %3.8 %1.4 %
Effective tax rate18.2 %21.5 %25.1 %
Significant components of our deferred tax assets and liabilities are as follows:
December 31,
(in millions)20232022
Deferred tax assets:  
Net operating loss carryforwards$417 $430 
Stock-based compensation94 95 
Reserves and accruals not currently deductible644 645 
Excess of tax basis over book basis of intangible assets1,041 1,067 
Upfront and milestone payments1,271 1,298 
Research and other credit carryforwards283 233 
Equity investments221 196 
Liability related to future royalties296 278 
Capitalized R&D expenditures1,623 784 
Other, net320 263 
Total deferred tax assets before valuation allowance6,210 5,289 
Valuation allowance(663)(599)
Total deferred tax assets5,547 4,690 
Deferred tax liabilities:
Property, plant and equipment(274)(234)
Excess of book basis over tax basis of intangible assets(5,481)(5,728)
Other(184)(160)
Total deferred tax liabilities(5,939)(6,122)
Net deferred tax assets (liabilities)$(392)$(1,432)
The valuation allowance increased by $64 million and $79 million for the years ended December 31, 2023 and December 31, 2022, respectively, primarily due to unrealized losses on our equity investments which are subject to a full valuation allowance.
As of December 31, 2023, we had U.S. federal net operating loss and tax credit carryforwards of approximately $388 million and $12 million, respectively, which will start to expire in 2025 and 2024, respectively, if not utilized. In addition, we had state net operating loss and tax credit carryforwards of approximately $2.7 billion and $1.0 billion, respectively, which will start to expire in 2024, if not utilized. Utilization of net operating losses and tax credits may be subject to an annual limitation due to ownership change limitations provided in the Internal Revenue Code of 1986, as amended, and similar state provisions. This annual limitation may result in the expiration of the net operating losses and credits before utilization.
We file federal, state and foreign income tax returns in the U.S. and in many foreign jurisdictions. For federal income tax purposes, the statute of limitations is open for 2016 and onwards and 2013 and onwards for California income tax purposes. For certain acquired entities, the statute of limitations is open for all years from inception due to our utilization of their net operating losses and credits carried over from prior years.
Our income tax returns are subject to audit by federal, state and foreign tax authorities. We are currently under examination by the Internal Revenue Service for our 2016 to 2018 tax years. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. We periodically evaluate our exposures associated with our tax filing positions.
Of the total unrecognized tax benefits, $929 million and $946 million as of December 31, 2023 and 2022, respectively, if recognized, would reduce our effective tax rate in the period of recognition. Interest and penalties related to unrecognized tax benefits included income tax benefit of $35 million, income tax benefit of $3 million, and income tax expense of $41 million on our Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021, respectively. Accrued interest and penalties related to unrecognized tax benefits were $180 million and $215 million as of December 31, 2023 and 2022, respectively. We believe that it is reasonably possible that our unrecognized tax benefits may further decrease by approximately $400 million in the next 12 months due to potential resolutions with a tax authority.
The following is a rollforward of our total gross unrecognized tax benefits:
Year Ended December 31,
(in millions)202320222021
Beginning balance$1,959 $1,713 $1,614 
Tax positions related to current year:
Additions265 129 147 
Reductions— — — 
Tax positions related to prior years:
Additions109 225 161 
Reductions(315)(31)(179)
Settlements(42)(10)(28)
Lapse of statute of limitations(13)(68)(2)
Ending balance$1,962 $1,959 $1,713 
In connection with the Tax Cuts and Jobs Act, we recorded a federal income tax payable for transition tax on the mandatory deemed repatriation of foreign earnings that is payable over an eight-year period. Federal income tax payable for transition tax was $2.4 billion and $3.5 billion as of December 31, 2023 and 2022, respectively.
The following table summarizes the anticipated timing of payments associated with this transition tax as of December 31, 2023:
(in millions)Amount
2024$1,182 
20251,252 
Total$2,434