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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Income before income taxes consists of the following:
Year Ended December 31,
(in millions)202220212020
Domestic$4,439 $8,587 $2,505 
Foreign1,375 (309)(836)
Income before income taxes$5,814 $8,278 $1,669 
Income tax expense consists of the following:
Year Ended December 31,
(in millions)202220212020
Federal:
Current$(2,539)$(1,776)$(1,450)
Deferred1,502 250 164 
(1,037)(1,526)(1,286)
State:
Current(32)(228)(198)
Deferred154 (185)97 
122 (413)(101)
Foreign:
Current(232)(185)(155)
Deferred(101)47 (38)
(333)(138)(193)
Income tax expense$(1,248)$(2,077)$(1,580)
The reconciliation between the federal statutory tax rate applied to Income before income taxes and our effective tax rate is summarized as follows:
Year Ended December 31,
202220212020
Federal statutory rate21.0 %21.0 %21.0 %
State taxes, net of federal benefit(2.0)%2.5 %4.2 %
Foreign earnings at different rates(0.6)%(0.3)%(10.0)%
Research and other credits(2.7)%(1.6)%(6.9)%
US tax on foreign earnings2.7 %1.1 %7.2 %
Foreign-derived intangible income deduction(3.8)%(1.6)%(8.0)%
Settlement of tax examinations(0.2)%(0.7)%(10.2)%
Acquired IPR&D & related charges1.4 %— %56.2 %
Changes in valuation allowance1.2 %1.5 %6.7 %
Non-taxable unrealized loss on investment0.7 %1.8 %23.0 %
Other3.8 %1.4 %11.5 %
Effective tax rate21.5 %25.1 %94.7 %
Significant components of our deferred tax assets and liabilities are as follows:
December 31,
(in millions)20222021
Deferred tax assets:  
Net operating loss carryforwards$430 $413 
Stock-based compensation95 117 
Reserves and accruals not currently deductible645 700 
Excess of tax basis over book basis of intangible assets1,067 1,157 
Upfront and milestone payments1,298 1,310 
Research and other credit carryforwards233 249 
Equity investments196 129 
Liability related to sale of future royalties278 274 
Capitalized R&D expenditures784 — 
Other, net263 292 
Total deferred tax assets before valuation allowance5,289 4,641 
Valuation allowance(599)(520)
Total deferred tax assets4,690 4,121 
Deferred tax liabilities:
Property, plant and equipment(234)(227)
Excess of book basis over tax basis of intangible assets(5,728)(6,719)
Other(160)(192)
Total deferred tax liabilities(6,122)(7,138)
Net deferred tax assets (liabilities)$(1,432)$(3,017)
The valuation allowance increased from $520 million as of December 31, 2021 to $599 million as of December 31, 2022, primarily due to unrealized losses on our equity investments which are subject to a full valuation allowance, and increased from $398 million as of December 31, 2020 to $520 million as of December 31, 2021, primarily due to California research and development tax credits.
As of December 31, 2022, we had U.S. federal net operating loss and tax credit carryforwards of approximately $199 million and $7 million, respectively, which will start to expire in 2023, if not utilized. In addition, we had state net operating loss and tax credit carryforwards of approximately $2.7 billion and $879 million, respectively, which will start to expire in 2024 and 2023, respectively, if not utilized. Utilization of net operating losses and tax credits may be subject to an annual limitation due to ownership change limitations provided in the Internal Revenue Code of 1986, as amended, and similar state provisions. This annual limitation may result in the expiration of the net operating losses and credits before utilization.
We file federal, state and foreign income tax returns in the U.S. and in many foreign jurisdictions. For federal income tax purposes, the statute of limitations is open for 2016 and onwards and 2013 and onwards for California income tax purposes. For certain acquired entities, the statute of limitations is open for all years from inception due to our utilization of their net operating losses and credits carried over from prior years.
Our income tax returns are subject to audit by federal, state and foreign tax authorities. We are currently under examination by the Internal Revenue Service and Irish tax authorities for our 2016 to 2018 tax years. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. We periodically evaluate our exposures associated with our tax filing positions.
Of the total unrecognized tax benefits, $946 million and $800 million as of December 31, 2022 and 2021, respectively, if recognized, would reduce our effective tax rate in the period of recognition. Interest and penalties related to unrecognized tax benefits included income tax benefit of $3 million, income tax expense of $41 million and income tax benefit of $82 million on our Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 respectively. Accrued interest and penalties related to unrecognized tax benefits were $215 million and $218 million as of December 31, 2022 and 2021, respectively. As of December 31, 2022, we do not believe that it is reasonably possible that our unrecognized tax benefits will significantly change in the next 12 months.
The following is a rollforward of our total gross unrecognized tax benefits:
Year Ended December 31,
(in millions)202220212020
Beginning balance$1,713 $1,614 $2,031 
Tax positions related to current year:
Additions129 147 121 
Reductions— — — 
Tax positions related to prior years:
Additions225 161 398 
Reductions(31)(179)(481)
Settlements(10)(28)(454)
Lapse of statute of limitations(68)(2)(1)
Ending balance$1,959 $1,713 $1,614 
In connection with the Tax Cuts and Jobs Act, we recorded a federal income tax payable for transition tax on the mandatory deemed repatriation of foreign earnings that is payable over an eight-year period. Federal income tax payable for transition tax was $3.5 billion and $4.0 billion as of December 31, 2022 and 2021, respectively.
The following table summarizes the anticipated timing of payments associated with this transition tax as of December 31, 2022:
(in millions)Amount
2023$886 
20241,182 
20251,477 
Total$3,546