We conduct business globally and, as a result, file numerous consolidated and separate income tax returns within and outside the U.S. For all of our U.S. subsidiaries, we file a consolidated federal income tax return. Income before income taxes is as follows:


(In millions)	2020		2019		2018
Current expense (benefit):
Federal	$	(1)	$	(48)	$	3
State	(76)		16		9
Non-U.S.	57		70		101
	(20)		38		113
Deferred expense (benefit):
Federal	3		112		60
State	5		(20)		(5)
Non-U.S.	(15)		(3)		(6)
	(7)		89		49
Income tax expense (benefit)	$	(27)	$	127	$	162


	2020	2019	2018
U.S. Federal statutory income tax rate	21.0%	21.0%	21.0%
Increase (decrease) resulting from:
State income tax audit settlement (net of federal impact)	(18.6)	—	—
Research and development tax credits (a)	(18.2)	(7.6)	(2.9)
Outside basis difference in assets held for sale	(2.7)	—	—
State income taxes (net of federal impact)	(1.2)	0.3	(0.1)
Non-U.S. tax rate differential and foreign tax credits (b)	10.8	1.4	1.3
U.S. tax reform enactment impact	—	—	(1.0)
U.S. amended returns tax rate differential	—	(1.2)	—
Gain on business disposition, primarily in non-U.S. jurisdictions	—	—	(5.0)
Other, net	(0.7)	(0.4)	(1.6)
Effective income tax rate	(9.6)%	13.5%	11.7%

(a)In 2020, the benefit of research and development tax credits as a percentage of pre-tax income was higher than prior periods primarily due to lower pre-tax income. In 2019, $61 million in benefits were recognized for additional tax credits related to prior years as a result of the completion of a research and development tax analysis.

(b)In 2020, the effective tax rate was unfavorably impacted by a $55 million inventory charge and special charges in a non-U.S. jurisdiction where tax benefits cannot be realized, along with a $10 million tax expense related to a decision to dividend cash back from select non-U.S. jurisdictions to the U.S., partially offset by a $14 million valuation allowance release.

Our unrecognized tax benefits represent tax positions for which reserves have been established, with unrecognized state tax benefits reflected net of applicable federal tax benefits. At the end of 2020, 2019 and 2018, if our unrecognized tax benefits were recognized in future periods, they would favorably impact our effective tax rate. A reconciliation of these unrecognized tax benefits is as follows:


(In millions)	2020		2019		2018
Balance at beginning of year	$	221	$	141	$	182
Additions for tax positions related to current year	11		9		5
Additions for tax positions of prior years	21		74		13
Reductions for settlements and expiration of statute of limitations	(69)		(1)		(22)
Reductions for tax positions of prior years	(1)		(2)		(37)
Balance at end of year	$	183	$	221	$	141

In 2020, certain tax positions related to state tax attributes were reduced by $68 million based on an audit settlement with respect to certain state income tax returns. In 2019, additional tax positions primarily reflect the completion of a research and development tax credit analysis for tax credits related to prior years. In 2018, certain tax positions related to research and development tax credits were reduced by $25 million based on new information, including interactions with the tax authorities and recent audit settlements.

In the normal course of business, we are subject to examination by tax authorities throughout the world. We are generally no longer subject to U.S. federal tax examinations for years before 2014, state and local income tax examinations for years before 2015, and non-U.S. income tax examinations for years before 2011. In 2019, we filed U.S. federal amended returns for 2012 and 2013 for additional research and development tax credits that are subject to examination.


(In millions)	January 2, 2021		January 4, 2020
U.S. operating loss and tax credit carryforwards (a)	$	320	$	235
Obligation for pension and postretirement benefits	287		289
Accrued liabilities (b)	202		214
Deferred compensation	100		95
Operating lease liabilities	97		70
Non-U.S. operating loss and tax credit carryforwards (c)	65		52
Property, plant and equipment, principally depreciation	(199)		(153)
Amortization of goodwill and other intangibles	(171)		(160)
Valuation allowance on deferred tax assets	(157)		(145)
Operating lease right-of-use assets	(95)		(68)
Other leasing transactions, principally leveraged leases	(79)		(80)
Prepaid pension benefits	(44)		(29)
Other, net	16		(51)
Deferred taxes, net	$	342	$	269

(a)At January 2, 2021, U.S. operating loss and tax credit carryforward benefits of $283 million expire through 2040 if not utilized and $37 million may be carried forward indefinitely.

(c)At January 2, 2021, non-U.S. operating loss and tax credit carryforward benefits of $29 million expire through 2040 if not utilized and $36 million may be carried forward indefinitely.

We believe earnings during the period when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not more than likely, a valuation allowance is provided.


(In millions)	January 2, 2021		January 4, 2020
Manufacturing group:
Deferred tax assets, net of valuation allowance	$	423	$	341
Deferred tax liabilities	(19)		(4)
Finance group – Deferred tax liabilities	(62)		(68)
Net deferred tax asset	$	342	$	269

Non-U.S. and U.S. state income taxes have not been provided for on basis differences in certain investments, primarily as a result of unremitted earnings in foreign subsidiaries that are indefinitely reinvested, totaled $1.7 billion at January 2, 2021 and January 4, 2020. Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to withholding and income taxes payable to various non-U.S. jurisdictions and U.S. states. Determination of the deferred tax liability associated with indefinitely reinvested earnings is not practicable due to multiple factors, including the complexity of non-U.S. tax laws and tax treaty interpretations, exchange rate fluctuations, and the uncertainty of available credits or exemptions under U.S. federal and state tax laws.