The Company no longer intends to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, we recorded the taxes associated with the future remittance of these earnings. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, the Company will continue to permanently reinvest these earnings. As of December 31, 2020, such undistributed earnings were approximately $12 billion, excluding other comprehensive income amounts. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts.


(dollars in millions)	2020		2019		2018
Current:
United States:
Federal	$	324	$	(100)	$	(68)
State	45		(58)		1
Foreign	305		541		402
	674		383		335
Future:
United States:
Federal	(264)		121		45
State	258		56		58
Foreign	(93)		(139)		660
	(99)		38		763
Income tax expense	$	575	$	421	$	1,098
Attributable to items credited (charged) to equity	$	(576)	$	40	$	501


	2020				2019				2018
(dollars in millions)	Amount		Rate		Amount		Rate		Amount		Rate
Statutory U.S. federal income tax rate	$	(494)	21.0	%	$	872	21.0	%	$	526	21.0	%
Tax on international activities	35		(1.5)		32		0.7		(25)		(1.0)
Tax audit settlements	—		—		(290)		(7.0)		—		—
U.S. tax reform	—		—		—		—		744		29.7
Tax charges related to Separation Transactions and Raytheon Merger	416		(17.7)		—		—		—		—
Disposals of businesses	177		(7.5)		—		—		—		—
U.S. research and development credit	(142)		6.1		(101)		(2.4)		(73)		(2.9)
Goodwill impairment	668		(28.4)		—		—		—		—
State income tax, net	(56)		2.4		16		0.4		(6)		(0.2)
Foreign Derived Intangible Income (FDII)	(83)		3.5		(138)		(3.3)		(102)		(4.1)
Other	54		(2.3)		30		0.7		34		1.3
Effective income tax rate	$	575	(24.4)	%	$	421	10.1	%	$	1,098	43.8	%

The 2020 negative effective tax rate is a result of having tax expense of $575 million on a loss from continuing operations before income taxes of $2,353 million. The loss from continuing operations before income taxes includes the $3,183 million goodwill impairment as described in “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets,” most of which is non-deductible for tax purposes. Tax expense includes net deferred tax charges of $367 million resulting from the Separation Transactions and the Raytheon Merger primarily related to the impairment of deferred tax assets, and incremental tax expense of $177 million related to the disposal of businesses, including the sales of the Collins Aerospace and RIS businesses and the entry into a definitive agreement to sell Forcepoint, as described in “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets.” As a result of the Separation Transactions and the restructuring charges recognized in 2020, tax expense also includes $49 million related to revaluation of the tax benefit for certain international tax incentives, as the Company no longer expects to meet the incentive requirements. Also included in the 2020 effective tax rate are tax benefits of $142 million associated with U.S. research and development credits and $83 million associated with FDII.

The 2019 effective tax rate includes tax benefits of $290 million primarily associated with the conclusion of the audit by the Examination Division of the Internal Revenue Service for the Company’s 2014, 2015 and 2016 tax years and the filing by a subsidiary of the Company to participate in an amnesty program offered by the Italian Tax Authority. The 2019 effective tax rate also includes tax benefits of $138 million associated with FDII and $101 million related to U.S. research and development credits.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) was enacted. The 2018 effective tax rate reflects a net charge of $744 million for TCJA related adjustments. The amount primarily relates to non-U.S. taxes that will become due when previously reinvested earnings of certain international subsidiaries are remitted. The 2018 effective tax rate also includes tax benefits of $102 million associated with FDII and $73 million related to U.S. research & development credits.


(dollars in millions)	2020		2019
Future income tax benefits:
Insurance and employee benefits	$	3,004	$	959
Inventory and contract balances	822		664

Warranty provisions	220		208
Other basis differences	637		614
Tax loss carryforwards	196		348
Tax credit carryforwards	959		930
Valuation allowances	(757)		(432)
	$	5,081	$	3,291
Future income taxes payable:
Goodwill and Intangible assets	$	7,786	$	4,205
Fixed assets	1,637		1,016
Other basis differences	151		638
	$	9,574	$	5,859

Unrecognized Tax Benefits. At December 31, 2020, we had gross tax-effected unrecognized tax benefits of $1,225 million, of which $1,216 million, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and interest expense related to unrecognized tax benefits for the years ended December 31, 2020, 2019 and 2018 is as follows:


(dollars in millions)	2020		2019		2018
Balance at January 1	$	1,347	$	1,619	$	1,189
Additions for tax positions related to the current year	125		131		192
Additions for tax positions of prior years	323		73		344
Reductions for tax positions of prior years	(83)		(101)		(91)
Settlements	(48)		(375)		(15)
Separation of Carrier and Otis	(439)
Balance at December 31	$	1,225	$	1,347	$	1,619
Gross interest expense related to unrecognized tax benefits	$	50	$	57	$	37
Total accrued interest balance at December 31	141		249		255

As a result of the Separation Transactions and the Distributions in April 2020, we transferred unrecognized tax benefits to Carrier and Otis of $439 million and associated interest of approximately $165 million. Pursuant to the terms of the separation agreements, certain other unrecognized tax benefits retained by the Company will be subject to indemnification. Total unrecognized tax benefits at December 31, 2019 and 2018 include $437 million and $551 million of benefits related to discontinued operations, and associated interest of approximately $155 million in both periods.

In addition, as a result of the Raytheon Merger in April 2020, unrecognized tax benefits increased by $273 million, and associated interest of approximately $15 million, due to inclusion of items related to pre-merger Raytheon Company tax periods. The 2018 additions above include amounts related to the Rockwell Acquisition.

Management has determined that the distributions of Carrier and Otis on April 3, 2020, and certain related internal business separation transactions, qualified as tax-free under applicable law. In making these determinations, we applied the tax law in the relevant jurisdictions to our facts and circumstances and obtained tax rulings from the relevant taxing authorities, tax opinions, and/or other external tax advice related to the concluded tax treatment. If the completed distributions of Carrier or Otis, in each case, or certain internal business separation transactions, were to fail to qualify for tax-free treatment, the Company could be subject to significant liabilities, and there could be material adverse impacts on the Company’s business, financial condition, results of operations and cash flows in future reporting periods.

We conduct business globally and, as a result, Raytheon Technologies or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Germany, India, Philippines, Poland, Singapore, the United Kingdom and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2012.

During the fourth quarter of 2020, the Company recognized a non-cash gain of approximately $25 million, primarily tax, as a result of the statute of limitations expiration of the 2016 tax year of a subsidiary acquired as part of the RTC’s acquisition of Rockwell Collins.

amnesty filing in Italy made to resolve certain tax litigation. The Company also recognized a non-cash gain of approximately $40 million, primarily tax, as a result of the closure of an IRS audit of the 2014 tax year of a subsidiary acquired as part of RTC’s acquisition of Rockwell Collins. This gain was partially offset by the unfavorable pre-tax impact of a reversal of a related indemnity asset of approximately $23 million. Finally, the Company recognized net non-cash gains of approximately $18 million, including pre-tax interest of approximately $5 million, as a result of various federal, state and non-U.S. statute of limitations expirations and settlements with tax authorities.

The Examination Division of the IRS is currently auditing Raytheon Technologies tax years 2017 and 2018 and pre-merger Raytheon Company tax periods 2017, 2018 and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015 and 2016 filed prior to the Raytheon Merger.

The Examination Division of the IRS is also auditing pre-acquisition Rockwell Collins fiscal tax years 2016 and 2017, which is projected to close within the next six months. As a result of the projected closure of the audit of Rockwell Collins fiscal tax years 2016 and 2017, it is reasonably possible that the Company may recognize non-cash gains in the range of $50 million to $100 million, primarily tax, within the next six months.

It is reasonably possible that a net reduction within the range of $165 million to $475 million of unrecognized tax benefits may occur over the next 12 months as a result of the revaluation of uncertain tax positions arising from the issuance of legislation, regulatory or other guidance or developments in examinations, in appeals, or in the courts, or the closure of tax statutes.