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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
In August 2022, the U.S. Government enacted legislation commonly referred to as the Inflation Reduction Act that became effective January 1, 2023. The main provisions of the Inflation Reduction Act that impact us are: (i) a 15% corporate alternative minimum tax (“Corporate AMT”) and (ii) a 1% excise tax on share repurchases, which is recorded in equity on our consolidated statements of stockholders’ equity (deficit).
We are considered an “applicable corporation” for purposes of Corporate AMT. We expect our regular federal income tax liability will generally exceed our Corporate AMT liability; however, certain unique circumstances may result in our Corporate AMT liability exceeding our regular federal income tax liability, including when tax losses are reported in a different year than book losses. For the year ended December 31, 2023, we made estimated payments based on a Corporate AMT liability as a result of tax losses we intend to claim related to our former investment in JUUL, as discussed below.
Earnings (losses) before income taxes and provision (benefit) for income taxes consisted of the following:
For the Years Ended December 31,
(in millions)202320222021
Earnings (losses) before income taxes:
United States$10,971 $7,628 $4,239 
Outside United States(43)(239)(415)
Total$10,928 $7,389 $3,824 
Provision (benefit) for income taxes:
Current:
Federal$2,346 $1,968 $1,965 
State and local681 603 542 
Outside United States1 1 2 
3,028 2,572 2,509 
Deferred:
Federal(133)(893)(1,190)
State and local(97)(54)30 
(230)(947)(1,160)
Total provision for income taxes$2,798 $1,625 $1,349 
Our U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The U.S. federal income tax statute of limitations remains open for the year 2017 and forward, with years 2017 through 2020 currently under examination by the Internal Revenue Service (“IRS”) as part of an audit conducted in the ordinary course of business. State statutes of limitations will also generally remain open for the year 2017 and forward. Certain of our state tax returns are currently under examination by various states as part of routine audits conducted in the ordinary course of business.
A reconciliation of the beginning and ending unrecognized tax benefits was as follows:
For the Years Ended December 31,
(in millions)202320222021
Balance at beginning of year$69 $53 $74 
Additions based on tax positions related to the current year1,548 1 — 
Additions for tax positions of prior years— 16 40 
Reductions for tax positions due to lapse of statutes of limitations— — (5)
Reductions for tax positions of prior years(6)— (23)
Tax settlements(3)(1)(33)
Balance at end of year$1,608 $69 $53 
The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2023, was $35 million, along with $1,573 million affecting deferred taxes, a portion of which would also impact the effective tax rate due to the release of a valuation allowance, as discussed below. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2022, was $44 million, along with $25 million affecting deferred taxes.
For the year ended December 31, 2023, we recognized a $6.4 billion ordinary loss for cash tax purposes with respect to a portion of our tax basis associated with our former investment in JUUL. For financial statement purposes, we fully reserved for the tax benefit associated with this ordinary loss by recording an unrecognized tax benefit, pending the IRS’s review of our tax position. We recorded a tax benefit associated with the ordinary loss of $1,505 million and a reduction to our current income taxes payable. We also recorded a $1,548 million increase in a long-term liability for unrecognized tax benefits related to this tax position, partially offset by a $43 million deferred federal benefit for state taxes. There was no impact to our consolidated statement of earnings. In addition, the $1,548 million increase in unrecognized tax benefits was partially offset by $428 million associated with an indirect deferred tax benefit caused by our estimated Corporate AMT credit carryforward, resulting in a net increase of $1,120 million in other liabilities on our consolidated balance sheet at December 31, 2023. If recognized for financial statement purposes in a future period, this unrecognized tax benefit would impact the effective tax rate due to the release of a valuation allowance against this temporary difference.
At December 31, 2023, 2022 and 2021, the amount of accrued interest and penalties on our consolidated balance sheets was $36 million, $18 million and $11 million, respectively. For the years ended December 31, 2023, 2022 and 2021, we recognized in our consolidated statements of earnings $20 million, $8 million and $(4) million, respectively, of gross interest (income) expense and penalties associated with uncertain tax positions. We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision.
We are subject to income taxation in many jurisdictions. Unrecognized tax benefits reflect the differences between tax positions we have taken or expect to take on income tax returns and the amounts recognized in our financial statements. Resolution of the related tax positions with the relevant tax authorities may take many years to complete, and such timing is not entirely within our control. It is reasonably possible that within the next 12 months certain examinations will be resolved, which could result in a decrease in unrecognized tax benefits of approximately $15 million.
A reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to earnings before income taxes was as follows:
For the Years Ended December 31,
202320222021
(dollars in millions)$%$%$%
U.S. federal statutory rate$2,295 21.0 %$1,552 21.0 %$803 21.0 %
Increase (decrease) resulting from:
State and local income taxes, net of federal tax benefit463 4.2 435 5.9 451 11.8 
Tax basis in foreign investments34 0.3 11 0.1 25 0.7 
Uncertain tax positions8 0.1 — — (25)(0.7)
Investment in ABI(37)(0.3)(24)(0.3)(16)(0.4)
Investment in JUUL53 0.5 306 4.1 7 0.2 
Investment in Cronos11 0.1 30 0.4 128 3.3 
Valuation allowance releases— — (664)(9.0)(15)(0.4)
Other(29)(0.3)(21)(0.2)(9)(0.2)
Effective tax rate$2,798 25.6 %$1,625 22.0 %$1,349 35.3 %
The tax provision (benefit) in 2023 included state tax expense, net of federal benefit, of $463 million and tax expense of $53 million for a valuation allowance recorded against a deferred tax asset related to the disposition of our former investment in JUUL.
The tax provision (benefit) in 2022 included tax benefits of $664 million due primarily to the release of valuation allowances related to the anticipated ability to utilize a portion of existing capital losses. These tax benefits were partially offset by tax expense of $306 million for a valuation allowance recorded against a deferred tax asset related to the decreases in the estimated fair value of our former investment in JUUL and by the state tax treatment of the impairment charge on our investment in ABI.
The tax provision (benefit) in 2021 was impacted by the state tax treatment of the impairment charge on our investment in ABI. The tax provision (benefit) in 2021 also included net tax expense of $128 million related to our investment in Cronos, including an addition to a valuation allowance on a deferred tax asset.
The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following at December 31:
(in millions)20232022
Deferred income tax assets:
Accrued postretirement and postemployment benefits$302 $303 
Settlement charges644 729 
JUUL related losses2,028 3,001 
Investment in Cronos397 407 
IQOS deferred gain
691 — 
Net operating losses and tax credit carryforwards217 31 
Other125 — 
Total deferred income tax assets4,404 4,471 
Deferred income tax liabilities:
Property, plant and equipment(237)(233)
Intangible assets(3,210)(2,849)
Investment in ABI(1,391)(1,226)
Accrued pension costs(81)(70)
Other— (115)
Total deferred income tax liabilities(4,919)(4,493)
Valuation allowances(2,256)(2,800)
Net deferred income tax liabilities$(2,771)$(2,822)
At December 31, 2023, we had estimated gross federal, state and foreign tax net operating losses (“NOLs”) of $644 million, $700 million and $38 million, respectively. The federal NOLs and a majority of the foreign NOLs have indefinite carryforward periods. If not used, a majority of the state NOLs will expire in 2039 through 2043.
A reconciliation of the beginning and ending valuation allowances was as follows:
For the Years Ended December 31,
(in millions)202320222021
Balance at beginning of year$2,800 $3,097 $2,817 
Additions to valuation allowance charged to income tax expense114 429 401 
Reductions to valuation allowance credited to income tax benefit(6)(730)(118)
Foreign currency translation(1)4 (3)
Additions to valuation allowance due to NJOY Transaction (no impact to earnings)12 — — 
Reductions to valuation allowance offset to deferred tax asset (no impact to earnings)(663)— — 
Balance at end of year$2,256 $2,800 $3,097 
We determine deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. We record a valuation allowance when it is more likely than not that some portion or all of a deferred tax asset will not be realized. We determine the realizability of deferred tax assets based on the weight of all available positive and negative evidence. In reaching this determination, we consider the character of the assets and the possible sources of taxable income of the appropriate character within the available carryback and carryforward periods available under the tax law. As has occurred in prior periods, there is a potential that sufficient positive evidence may be available in future periods to cause us to reduce or eliminate the valuation allowance on certain deferred tax assets. That change to the valuation allowance would result in the recognition of previously unrecognized deferred tax assets and a decrease in income tax expense in the period the release is recorded.
The additions to valuation allowances during 2023 were primarily due to deferred tax assets recorded in connection with our former investment in JUUL. The reductions to valuation allowances during 2023 were primarily due to the reduction of a deferred tax asset for the portion of our JUUL capital losses that is now part of our tax basis in the shares of a foreign subsidiary. This outside basis difference of the foreign subsidiary is not recognized as a deferred tax asset since we do not expect the temporary difference to reverse in the foreseeable future. The cumulative valuation allowance at December 31, 2023 was primarily attributable to deferred tax assets recorded in connection with our tax basis in the shares of a domestic subsidiary ($1,808 million) and our investment in Cronos ($397 million).
The additions to valuation allowances during 2022 were primarily due to deferred tax assets recorded in connection with decreases in the estimated fair value of our former investment in JUUL. The reductions to valuation allowances during 2022 were primarily due to the anticipated ability to utilize a portion of existing losses related to our former investment in JUUL and the abandonment of our Cronos warrant. The cumulative valuation allowance at December 31, 2022 was primarily attributable to deferred tax assets recorded in connection with our former investment in JUUL ($2,394 million) and our investment in Cronos ($379 million).
The changes in valuation allowances during 2021 were primarily due to deferred tax assets recorded in connection with our investment in Cronos. The cumulative valuation allowance at December 31, 2021 was primarily attributable to deferred tax assets recorded in connection with our former investment in JUUL ($2,652 million) and our investment in Cronos ($407 million).
For a discussion regarding our former investment in JUUL, the impairment of our investment in ABI and our investment in Cronos, see Note 7. Investments in Equity Securities.