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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 10. Income Taxes
Income (loss) before income taxes consisted of the following:
(Millions)202320222021
United States$(12,091)$3,861 $3,716 
International2,403 2,531 3,488 
Total$(9,688)$6,392 $7,204 
Provision (benefit) for income taxes consisted of the following:
(Millions)202320222021
Currently payable
Federal$376 $606 $756 
State78 76 104 
International679 621 597 
Deferred
Federal(3,074)(612)(219)
State(504)(76)(25)
International(246)(2)72 
Total$(2,691)$612 $1,285 
Components of deferred tax assets and (liabilities) are comprised of the following:
(Millions)20232022
Deferred tax assets:
Accruals not currently deductible
Employee benefit costs$235 $232 
Product and other claims3,989 610 
Miscellaneous accruals160 117 
Stock-based compensation275 259 
Advanced payments76 173 
Net operating/capital loss/state tax credit carryforwards147 120 
Foreign tax credits164 112 
Research and experimentation capitalization 657 418 
Lease liabilities192 210 
Other157 102 
Gross deferred tax assets6,052 2,353 
Valuation allowance(706)(115)
Total deferred tax assets5,346 2,238 
Deferred tax liabilities:
Accelerated depreciation(535)(586)
Intangible assets(226)(901)
Right-of-use asset(194)(210)
Other— (141)
Total deferred tax liabilities(955)(1,838)
Net deferred tax assets$4,391 $400 
As displayed in the table above, as of December 31, 2023, the Company has provided $706 million of valuation allowance against certain of these deferred tax assets based on management’s determination that it is more-likely-than-not that the tax benefits related to these assets will not be realized.
The net deferred tax assets are included as components of Other Assets and Other Liabilities within the Consolidated Balance Sheet. At December 31, 2023, 3M’s deferred tax assets, a component of other assets on the consolidated balance sheet, also included a balance of approximately $3.6 billion as a result of the 2023 pre-tax charges related to the PWS Settlement and the CAE Settlement (both discussed in Note 18). See Note 7 “Supplemental Balance Sheet Information” for further details.
As of December 31, 2023, the Company had tax effected operating losses, capital losses, and tax credit carryovers for federal (approximately $167 million), state (approximately $78 million), and international (approximately $65 million), with all amounts before limitation impacts and valuation allowances. Federal tax attribute carryovers will expire after one to ten years, the state after one to eleven years, and the international after one year to an indefinite carryover period.
A reconciliation of the U.S. federal statutory income tax rate to 3M's worldwide effective income tax rate is provided below:
Note: A positive rate reconciliation percent for the year ended 2023 is a tax benefit on a pretax loss.
202320222021
Statutory U.S. tax rate21.0 %21.0 %21.0 %
Food Safety divestiture(8.4)— 
State income taxes - net of federal benefit3.5 — 0.9 
International income taxes - net0.7 (0.4)(1.2)
Global Intangible Low Taxed Income (GILTI)(0.4)0.7 0.7 
Foreign Derived Intangible Income (FDII)1.1 (2.3)(3.1)
U.S. research and development credit0.6 (1.0)(0.7)
Reserves for tax contingencies0.5 — 0.6 
Employee share-based payments(0.2)(0.6)
All other - net0.8 0.2 0.2 
Effective worldwide tax rate27.8 %9.6 %17.8 %
The effective tax rates for 2023, 2022, and 2021 were 27.8 percent on a pre-tax loss, 9.6 percent on pre-tax income and 17.8 percent on pre-tax income, respectively. The primary factors that impacted the 2023 rate were the charges related to the PWS Settlement and the CAE Settlement (as discussed in Note 18). The primary factors that impacted the 2022 rate were the charges related to steps toward resolving Combat Arms Earplugs litigation (as discussed in Note 18) and the tax efficient structure associated with the split-off of the Food Safety business (as discussed in Note 3).
The 2017 Tax Cuts and Jobs Act (TCJA) involved a transition tax that is payable over eight years beginning in 2018. As of December 31, 2023 and December 31, 2022, 3M reflected $218 million and $380 million, respectively, in long term income taxes payable. As of December 31, 2023 and December 31, 2022, 3M reflected $189 million and $126 million, respectively, payable within one year associated with the transition tax.
The IRS completed its field examination of the Company’s U.S. federal income tax returns through 2018, but the years 2005 through 2018 have not closed as the Company is in the process of resolving issues identified during those examinations. Currently, the Company is under examination by the IRS for its U.S. federal income tax returns for the years ended 2019 and 2020. In addition to the U.S. federal examination, there is also audit activity in several U.S. state and foreign jurisdictions where the Company is subject to ongoing tax examinations and governmental assessments, which could be impacted by evolving political environments in those jurisdictions. As of December 31, 2023, no taxing authority proposed significant adjustments to the Company’s tax positions for which the Company is not adequately reserved.
It is reasonably possible that the amount of unrecognized tax benefits could significantly change within the next 12 months. The Company has ongoing federal, state and international income tax audits in various jurisdictions and evaluates uncertain tax positions that may be challenged by local tax authorities and not fully sustained. These uncertain tax positions are reviewed on an ongoing basis and adjusted in light of facts and circumstances including progression of tax audits, developments in case law and closing statutes of limitation. At this time, the Company is not able to estimate the range by which these potential events could impact 3M’s unrecognized tax benefits within the next 12 months.
The Company recognizes the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows:
(Millions)202320222021
Gross UTB Balance at January 1$927 $1,071 $1,113 
Additions based on tax positions related to the current year11 115 91 
Additions for tax positions of prior years63 36 22 
Reductions for tax positions of prior years(53)(138)(60)
Settlements(34)(118)(57)
Reductions due to lapse of applicable statute of limitations(114)(39)(38)
Gross UTB Balance at December 31$800 $927 $1,071 
The total amount of net UTB, if recognized, would affect the effective tax rate by $884 million as of December 31, 2023. The ending net UTB results from adjusting the gross balance for deferred items, interest and penalties, and deductible taxes. The net UTB is included as components of Other Assets, Accrued Income Taxes, and Other Liabilities within the Consolidated Balance Sheet.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized in the consolidated statement of income on a gross basis approximately $76 million of expense, $1 million of expense, and $14 million of expense in 2023, 2022, and 2021, respectively. The amount of interest and penalties recognized may be an expense or benefit due to new or remeasured unrecognized tax benefit accruals. At December 31, 2023, and December 31, 2022, accrued interest and penalties in the consolidated balance sheet on a gross basis were $188 million and $116 million, respectively. Included in these interest and penalty amounts are interest and penalties related to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
As a result of certain employment commitments and capital investments made by 3M, income from certain foreign operations in the following countries is subject to reduced tax rates or, in some cases, is exempt from tax for years through the following: China (2025), Switzerland (2026), Brazil (2029) and Singapore (2032). The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $112 million (20 cents per diluted share) in 2023, $170 million (30 cents per diluted share) in 2022, and $204 million (36 cents per diluted share) in 2021.
As of December 31, 2023, the Company has approximately $16.1 billion of undistributed earnings in its foreign subsidiaries. Approximately $7.8 billion of these earnings are no longer considered permanently reinvested. The incremental tax cost to repatriate these earnings to the US is immaterial. The Company has not provided deferred taxes on approximately $8.3 billion of undistributed earnings from non-U.S. subsidiaries as of December 31, 2023 which are indefinitely reinvested in operations. Because of the multiple avenues by which to repatriate the earnings to minimize tax cost, and because a large portion of these earnings are not liquid, it is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.