Income Taxes

12 Months Ended

Dec. 31, 2019

The Company is subject to U.S. federal, state, and foreign income taxes. Components of income before income taxes consist of the following:



	Year Ended December 31,
	2019		2018		2017
United States	$	2,011.2	$	2,151.7	$	1,964.7
Foreign	417.9		401.8		113.8
	$	2,429.1	$	2,553.5	$	2,078.5

Components of income tax expense consist of the following:



	Year Ended December 31,
	2019			2018			2017
Current:
Federal	$	444.6		$	223.7		$	560.3
State	1.9			4.8			(4.1		)
Foreign	(2.6		)	20.6			4.8
Total current tax expense	443.9			249.1			561.0
Deferred:
Federal	(132.0		)	687.6			317.1
State	(1.7		)	(1.9		)	(1.3		)
Foreign	3.1			(825.7		)	3.2
Total deferred tax (benefit) expense	(130.6		)	(140.0		)	319.0
	$	313.3		$	109.1		$	880.0

A reconciliation of the U.S. statutory income tax rate to the Company's effective income tax rate is as follows:



	Year Ended December 31,
	2019		2018		2017
U.S. federal statutory tax rate	21.0	%	21.0	%	35.0	%
Income tax credits	(4.6	)	(2.6	)	(1.3	)
Stock-based compensation	(2.5	)	(2.5	)	(9.0	)
Foreign-derived intangible income deduction	(1.6	)	(1.0	)	—
Taxation of non-U.S. operations	(1.0	)	(1.9	)	0.7
Non-deductible Branded Prescription Drug Fee	0.7		0.6		1.7
Sale of non-inventory related assets between foreign subsidiaries	—		(6.3	)	—
Impact of change in U.S. corporate tax rate (the Act)	—		(2.7	)	15.7
Domestic production activities deduction	—		—		(2.6	)
Other permanent differences	0.9		(0.3	)	2.1
Effective income tax rate	12.9	%	4.3	%	42.3	%

The difference between the U.S. federal statutory rate and the Company's effective tax rate for each of the three years ended December 31, 2019, 2018, and 2017 is summarized in the table above. In 2018, the difference between the U.S. federal statutory rate of 21% and the Company's effective tax rate of 4.3% was partly attributable to the impact of the Company's sale of non-inventory related assets between foreign subsidiaries (including the associated impact of global intangible low-taxed income). In

2017, the difference between the U.S. federal statutory rate of 35% and the Company's effective tax rate of 42.3% was partly impacted by the charge related to the re-measurement of the Company's U.S. net deferred tax assets upon the enactment of the Act (see below).

In December 2017, the bill known as the "Tax Cuts and Jobs Act" (the "Act") was signed into law. The Act, which became effective with respect to most of its provisions as of January 1, 2018, significantly revised U.S. corporate income tax laws by, among other things, reducing the U.S. federal corporate income tax rate from 35% to 21%, changing the taxation of foreign earnings (including taxation of certain global intangible low-taxed income ("GILTI")), allowing for a foreign-derived intangible income deduction and immediate expensing for qualified assets, repealing the deduction for domestic manufacturing, and imposing further limitations on the deductibility of executive compensation. As a result of the Act being signed into law, the Company recognized a provisional charge of $326.2 million in the fourth quarter of 2017 related to the re-measurement of its U.S. net deferred tax assets at the lower enacted corporate tax rate. The provisional charge recorded in the fourth quarter of 2017 was an estimate, and the measurement of deferred tax assets was subject to further analysis, such as developing interpretations and clarifications of the provisions of the Act. During 2018, we recorded an income tax benefit of $68.0 million as a final adjustment to the provisional amount recorded as of December 31, 2017, which was partly attributable to our election to record deferred tax assets and liabilities for expected amounts of GILTI inclusions.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:



	As of December 31,
	2019			2018
Deferred tax assets:
Deferred compensation	$	519.7		$	458.2
Fixed assets and intangible assets	192.0			107.8
Accrued expenses	75.9			53.3
Deferred revenue	22.0			20.2
Other	—			33.3
Total deferred tax assets	809.6			672.8
Valuation allowance	(7.0		)	—
Deferred tax assets, net of valuation allowance	802.6			672.8

Deferred tax liabilities:
Other	(11.2		)	(2.7		)
Net deferred tax assets	$	791.4		$	670.1

The Company's 2015 through 2018 federal income tax returns remain open to examination by the IRS. The Company's 2015 and 2016 federal income tax returns are currently under audit by the IRS. In general, the Company's state income tax returns from 2016 to 2018 remain open to examination. The United States and many states generally have statutes of limitation ranging from 3 to 5 years; however, those statutes could be extended due to the Company's tax credit carryforward position. In general, tax authorities have the ability to review income tax returns in which the statute of limitation has previously expired to adjust the tax credits generated in those years.

The following table reconciles the beginning and ending amounts of unrecognized tax benefits. The amount of unrecognized tax benefits that, if settled, would impact the effective tax rate is $210.8 million, $189.5 million, and $146.2 million as of December 31, 2019, 2018, and 2017, respectively.



	2019			2018			2017
Balance as of January 1	$	189.5		$	146.2		$	117.2
Gross increases related to current year tax positions	37.9			51.4			49.0
Gross (decreases) increases related to prior year tax positions	(7.2		)	5.6			(5.6		)
Gross decreases due to settlements and lapse of statutes of limitations	(9.4		)	(13.7		)	(14.4		)
Balance as of December 31	$	210.8		$	189.5		$	146.2

In 2019, 2018 and 2017, the increases in unrecognized tax benefits primarily related to the Company's calculation of certain tax credits and other items related to the Company's international operations.

During 2019, 2018, and 2017, interest expense related to unrecognized tax benefits recorded by the Company was not material. The Company does not believe that it is reasonably possible that the resolution of tax exposures within the next twelve months would have a material impact on its unrecognized tax benefits as of December 31, 2019.