Federal and foreign income tax expense consisted of the following:


	Year Ended December 31
$ in millions	2020		2019		2018
Federal income tax expense:
Current	$	246	$	758	$	292
Deferred	288		(474)		213
Total federal income tax expense	534		284		505
Foreign income tax expense:
Current	3		10		7
Deferred	2		6		1
Total foreign income tax expense	5		16		8
Total federal and foreign income tax expense	$	539	$	300	$	513

Income tax expense differs from the amount computed by multiplying earnings before income taxes by the statutory federal income tax rate due to the following:


	Year Ended December 31
$ in millions	2020				2019				2018
Income tax expense at statutory rate	$	783	21.0	%	$	535	21.0	%	$	786	21.0	%
Research credit	(206)		(5.5)		(216)		(8.5)		(186)		(5.0)
Foreign derived intangible income	(55)		(1.5)		(28)		(1.1)		(16)		(0.4)
Stock compensation - excess tax benefits	(10)		(0.2)		(14)		(0.5)		(27)		(0.7)



Impacts related to the 2017 Tax Act	—		—		—		—		(84)		(2.2)

Other, net	27		0.7		23		0.9		40		1.0
Total federal and foreign income taxes	$	539	14.5	%	$	300	11.8	%	$	513	13.7	%

The year to date 2020 effective tax rate increased to 14.5 percent from 11.8 percent in the same period of 2019. MTM expense reduced the 2020 effective tax rate by 1.3 percentage points and the 2019 effective tax rate by 3.7 percentage points.

The year to date 2019 effective tax rate decreased to 11.8 percent from 13.7 percent in the same period of 2018. MTM expense reduced the 2019 effective tax rate by 3.7 percentage points and the 2018 effective tax rate by 1.1 percentage points. In addition, the company’s effective tax rate for 2019 reflects an increase in benefits for research credits and FDII of $30 million and $12 million, respectively, and the absence of an $84 million benefit associated with the 2017 Tax Act realized in 2018.

In March 2020, the CARES Act was enacted. The CARES Act includes certain changes to U.S. tax law that impact the company, including a technical correction to the 2017 Tax Cuts and Jobs Act, which makes certain qualified improvement property eligible for bonus depreciation. The CARES Act did not have a significant impact on the company’s 2020 effective tax rate. In addition, in December 2020, final revenue recognition regulations under IRC Section 451(b) were issued, which did not have a significant impact on the company’s 2020 effective tax rate. We are evaluating the impact of the 451(b) regulations on 2021 and beyond.

Income tax payments, net of refunds received, were $312 million, $324 million and $270 million for the years ended December 31, 2020, 2019 and 2018, respectively. Taxes receivable, which are included in Prepaid expenses and other current assets in the consolidated statements of financial position, were $792 million and $551 million as of December 31, 2020 and 2019, respectively.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Northrop Grumman 2014-2018 federal tax returns and refund claims related to its 2007-2016 federal tax returns are currently under Internal Revenue Service (IRS) examination. In addition, legacy Orbital ATK federal tax returns for the year ended March 31, 2015, the nine-month transition period ended December 31, 2015 and calendar years 2016-2017 are currently under appeal with the IRS.

Tax returns for open tax years related to state and foreign jurisdictions remain subject to examination. As state income taxes are generally considered allowable and allocable costs, any individual or aggregate state examination impacts are not expected to have a material impact on our financial results. Amounts currently subject to examination related to foreign jurisdictions are not material.

The change in unrecognized tax benefits during 2020, 2019 and 2018, excluding interest, is as follows:


	December 31
$ in millions	2020		2019		2018
Unrecognized tax benefits at beginning of the year	$	1,223	$	748	$	283
Additions based on tax positions related to the current year	187		158		293
Additions for tax positions of prior years	270		400		207
Reductions for tax positions of prior years	(190)		(65)		(23)
Settlements with taxing authorities	(7)		(15)		(7)
Other, net	(2)		(3)		(5)
Net change in unrecognized tax benefits	258		475		465
Unrecognized tax benefits at end of the year	$	1,481	$	1,223	$	748

Our 2020 increase in unrecognized tax benefits was primarily related to state apportionment, our methods of accounting associated with the timing of revenue recognition and related costs, and the 2017 Tax Act. It is reasonably possible that within the next 12 months our unrecognized tax benefits related to the final revenue recognition regulations under IRC Section 451(b), as referenced above, and future regulatory interpretations of existing tax laws may change. At this time, we cannot reasonably estimate these changes.

Our unrecognized tax liabilities, which include $144 million of accrued interest and penalties, are included in other current and non-current liabilities in the consolidated statements of financial position. If the income tax benefits from these tax positions are ultimately realized, $607 million of federal and foreign tax benefits would reduce the company’s effective tax rate.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. Net deferred tax assets and liabilities are classified as non-current in the consolidated statements of financial position.

The tax effects of significant temporary differences and carryforwards that gave rise to year-end deferred federal, state and foreign tax balances, as presented in the consolidated statements of financial position, are as follows:


	December 31
$ in millions	2020		2019
Deferred Tax Assets
Retiree benefits	$	1,738	$	1,827
Accrued employee compensation	360		336
Provisions for accrued liabilities	232		166
Inventory	849		684
Stock-based compensation	40		38
Operating lease liabilities	435		411
Tax credits	343		166
Other	112		73
Gross deferred tax assets	4,109		3,701
Less: valuation allowance	(307)		(160)
Net deferred tax assets	3,802		3,541
Deferred Tax Liabilities
Goodwill	533		515
Purchased intangibles	201		262
Property, plant and equipment, net	737		584
Operating lease right-of-use assets	423		404
Contract accounting differences	1,513		1,225
Other	84		43
Deferred tax liabilities	3,491		3,033
Total net deferred tax assets	$	311	$	508

Realization of deferred tax assets is primarily dependent on generating sufficient taxable income in future periods. The company believes it is more-likely-than-not our net deferred tax assets will be realized.

At December 31, 2020, the company has available tax credits and unused net operating losses of $419 million and $364 million, respectively, that may be applied against future taxable income. The majority of tax credits and net operating losses expire in 2022 through 2046, however, some may be carried forward indefinitely. Due to the uncertainty of the realization of the tax credits and net operating losses, the company has recorded valuation allowances of $221 million and $31 million as of December 31, 2020, respectively.