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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes Income from continuing operations before income taxes consisted of the following (in millions):
Year Ended December 31,
 201920202021
Domestic operations$16,426 $37,576 $77,016 
Foreign operations23,199 10,506 13,718 
Total$39,625 $48,082 $90,734 
Provision for income taxes consisted of the following (in millions):
Year Ended December 31,
 201920202021
Current:
Federal and state$2,424 $4,789 $10,126 
Foreign2,713 1,687 2,692 
Total5,137 6,476 12,818 
Deferred:
Federal and state286 1,552 2,018 
Foreign(141)(215)(135)
Total145 1,337 1,883 
Provision for income taxes$5,282 $7,813 $14,701 
The reconciliation of federal statutory income tax rate to our effective income tax rate was as follows:
Year Ended December 31,
 201920202021
U.S. federal statutory tax rate21.0 %21.0 %21.0 %
Foreign income taxed at different rates(4.9)(0.3)0.2 
Foreign-derived intangible income deduction(0.7)(3.0)(2.5)
Stock-based compensation expense(0.7)(1.7)(2.5)
Federal research credit(2.5)(2.3)(1.6)
Deferred tax asset valuation allowance0.0 1.4 0.6 
State and local income taxes1.1 1.1 1.0 
Effective tax rate13.3 %16.2 %16.2 %
Our effective tax rate for 2019 was affected significantly by earnings realized in foreign jurisdictions with statutory tax rates lower than the federal statutory tax rate because substantially all of the income from foreign operations was earned by an Irish subsidiary. As of December 31, 2019, we have simplified our corporate legal entity structure and now license intellectual property from the U.S. that was previously licensed from Bermuda resulting in an increase in the portion of our income earned in the U.S.
On July 27, 2015, the U.S. Tax Court, in an opinion in Altera Corp. v. Commissioner, invalidated the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. The U.S. Tax Court issued the final decision on December 28, 2015. As a result of that decision, we recorded a tax benefit related to the anticipated reimbursement of cost share payment for previously shared stock-based compensation costs.
On June 7, 2019, the U.S. Court of Appeals for the Ninth Circuit overturned the 2015 Tax Court decision in Altera Corp. v. Commissioner, and upheld the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. As a result of the Ninth Circuit court decision, our cumulative net tax benefit of $418 million related to previously shared stock-based compensation costs was reversed in the year ended December 31, 2019.
In 2020, there was an increase in valuation allowance for net deferred tax assets that are not likely to be realized relating to certain of our Other Bets.
Deferred Income Taxes
Deferred income taxes reflect the net 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 our deferred tax assets and liabilities were as follows (in millions):
As of December 31,
20202021
Deferred tax assets:
Accrued employee benefits$580 $549 
Accruals and reserves not currently deductible1,049 1,816 
Tax credits3,723 5,179 
Net operating losses1,085 1,790 
Operating leases2,620 2,503 
Intangible assets1,525 2,034 
Other981 925 
Total deferred tax assets11,563 14,796 
Valuation allowance(4,823)(7,129)
Total deferred tax assets net of valuation allowance6,740 7,667 
Deferred tax liabilities:
Property and equipment, net(3,382)(5,237)
Net investment gains(1,901)(3,229)
Operating leases(2,354)(2,228)
Other(1,580)(946)
Total deferred tax liabilities(9,217)(11,640)
Net deferred tax assets (liabilities)$(2,477)$(3,973)
As of December 31, 2021, our federal, state, and foreign net operating loss carryforwards for income tax purposes were approximately $5.6 billion, $4.6 billion, and $1.7 billion respectively. If not utilized, the federal net operating loss carryforwards will begin to expire in 2023, foreign net operating loss carryforwards will begin to expire in 2025 and the state net operating loss carryforwards will begin to expire in 2028. It is more likely than not that certain net operating loss carryforwards will not be realized; therefore, we have recorded a valuation allowance against them. The net operating loss carryforwards are subject to various annual limitations under the tax laws of the different jurisdictions.
As of December 31, 2021, our California R&D carryforwards for income tax purposes were approximately $5.0 billion that can be carried over indefinitely. We believe the state tax credit is not likely to be realized.
As of December 31, 2021, our investment tax credit carryforwards for state income tax purposes were approximately $700 million and will begin to expire in 2025. We use the flow-through method of accounting for investment tax credits. We believe this tax credit is not likely to be realized.
As of December 31, 2021, we maintained a valuation allowance with respect to California deferred tax assets, certain federal net operating losses, certain state tax credits, net deferred tax assets relating to certain Other Bets, and certain foreign net operating losses that we believe are not likely to be realized. We continue to reassess the remaining valuation allowance quarterly, and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.
Uncertain Tax Positions
The following table summarizes the activity related to our gross unrecognized tax benefits (in millions):
Year Ended December 31,
 201920202021
Beginning gross unrecognized tax benefits$4,652 $3,377 $3,837 
Increases related to prior year tax positions938 372 529 
Decreases related to prior year tax positions(143)(557)(263)
Decreases related to settlement with tax authorities(2,886)(45)(329)
Increases related to current year tax positions816 690 1,384 
Ending gross unrecognized tax benefits$3,377 $3,837 $5,158 
The total amount of gross unrecognized tax benefits was $3.4 billion, $3.8 billion, and $5.2 billion as of December 31, 2019, 2020, and 2021, respectively, of which $2.3 billion, $2.6 billion, and $3.7 billion, if recognized, would affect our effective tax rate, respectively.
As of December 31, 2020 and 2021, we accrued $222 million and $270 million in interest and penalties in provision for income taxes, respectively.
We file income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. Our two major tax jurisdictions are the U.S. federal and Ireland. We are subject to the continuous examination of our income tax returns by the IRS and other tax authorities. The IRS is currently examining our 2016 through 2018 tax returns. We have also received tax assessments in multiple foreign jurisdictions asserting transfer pricing adjustments or permanent establishment. We continue to defend any and all such claims as presented.
The tax years 2014 through 2020 remain subject to examination by the appropriate governmental agencies for Irish tax purposes. There are other ongoing audits in various other jurisdictions that are not material to our financial statements.
We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. We continue to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.
We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management's expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. Although the timing of resolution, settlement, and closure of audits is not certain, it is reasonably possible that our unrecognized tax benefits from certain U.S. federal, state and non U.S. tax positions could decrease by approximately $2.0 billion in the next 12 months. Positions that may be resolved include various U.S. and non-U.S. matters.