Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income Tax Provisions

Federal and foreign income tax expense for continuing operations consisted of the following (in millions):

	2023		2022		2021
Federal income tax expense (benefit):
Current	$	1,574	$	1,618	$	1,325
Deferred	(503)		(776)		(194)
Total federal income tax expense	1,071		842		1,131
Foreign income tax expense (benefit):
Current	102		87		93
Deferred	5		19		11
Total foreign income tax expense	107		106		104
Total federal and foreign income tax expense	$	1,178	$	948	$	1,235

Our total net state income tax expense was $115 million for 2023, $124 million for 2022, and $195 million for 2021. State income taxes are allowable costs in establishing prices for the products and services we sell to the U.S. Government. Therefore, state income tax expenses are included in our cost of sales, as general and administrative costs. As a result, the impact of certain transactions on our operating profit and of other matters presented in these consolidated financial statements is disclosed net of state income taxes.

A reconciliation of the U.S. federal statutory income tax expense to actual income tax expense for continuing operations is as follows (in millions):

	2023				2022				2021
	Amount		Rate		Amount		Rate		Amount		Rate
Income tax expense at the U.S. federal statutory tax rate	$	1,701	21.0	%	$	1,403	21.0	%	$	1,585	21.0	%
Research and development tax credit	(227)		(2.8)		(178)		(2.7)		(118)		(1.6)
Foreign derived intangible income deduction	(185)		(2.3)		(176)		(2.6)		(170)		(2.3)
Tax deductible dividends	(69)		(0.9)		(67)		(1.0)		(65)		(0.9)
Excess tax benefits for stock-based payment awards	(25)		(0.3)		(42)		(0.6)		(28)		(0.4)
Other, net	(17)		(0.2)		8		0.1		31		0.6
Income tax expense	$	1,178	14.5	%	$	948	14.2	%	$	1,235	16.4	%

The rates for all periods benefited from research and development tax credits, tax deductions for foreign derived intangible income, dividends paid to our defined contribution plans with an employee stock ownership plan feature and employee equity awards.

Uncertain Tax Positions

The change in unrecognized tax benefits were as follows (in millions):

	2023		2022		2021
Balance at January 1	$	1,622	$	69	$	50
Additions based on tax positions related to the current year	50		1,572		23
Additions for tax positions of prior years	32		5		30
Reductions for tax positions of prior years	(1,526)		(2)		(19)
Settlements with tax authorities	(33)		(23)		(14)
Other, net	1		1		(1)
Balance at December 31	$	146	$	1,622	$	69

As of December 31, 2022, our liabilities associated with uncertain tax positions were $1.6 billion. For the year ended December 31, 2023, our liabilities associated with uncertain tax positions decreased to $146 million with a corresponding decrease to net deferred tax assets primarily resulting from our analysis of IRS Notice 2023-63 released on September 8, 2023 confirming that certain expenditures incurred in the performance of cost-type contracts are not subject to capitalization. The reduction in uncertain tax positions had an immaterial impact to our effective tax rate. It is reasonably possible that within the next twelve months, our liabilities associated with uncertain tax positions may increase by an immaterial amount.

This uncertain tax position will have an immaterial impact to our effective tax rate if recognized.

We recognize accrued interest and penalties related to unrecognized tax benefits as part of our income tax expense. As of December 31, 2023 and 2022, our accrued interest and penalties related to unrecognized tax benefits were not material.

Deferred Income Taxes

The primary components of our federal and foreign deferred income tax assets and liabilities at December 31 were as follows (in millions):

	2023		2022
Deferred tax assets related to:
Pensions	$	1,485	$	1,340
Accrued compensation and benefits	731		718
Contract accounting methods	508		510
Research and development expenditures	1,251		2,268
Foreign company operating losses and credits	19		20
Other (a)	487		471
Valuation allowance	(32)		(31)
Deferred tax assets, net	4,449		5,296
Deferred tax liabilities related to:
Goodwill and intangible assets	494		449
Property, plant and equipment	415		503
Other (a)	597		605
Deferred tax liabilities	1,506		1,557
Net deferred tax assets	$	2,943	$	3,739

(a)Includes deferred tax assets and liabilities related to lease liability and ROU asset.

We and our subsidiaries file federal income tax returns in the U.S. and income tax returns in various foreign jurisdictions. With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examination for the years before 2016 with respect to various foreign jurisdictions and before 2018 for federal income taxes in the U.S.

We withdrew from the IRS Compliance Assurance Process (CAP) program in 2022 starting with our 2021 tax return. Examinations of the years 2018 to 2020 remain under IRS review. We are also subject to taxation in various states and foreign jurisdictions including Australia, Canada, India, Italy, Japan, Poland, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities.

Our federal and foreign income tax payments, net of refunds, were $1.8 billion in 2023, $1.6 billion in 2022 and $1.4 billion in 2021.