v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
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,
 202020212022
Domestic operations$37,576 $77,016 $61,307 
Foreign operations10,506 13,718 10,021 
Total$48,082 $90,734 $71,328 
Provision for income taxes consisted of the following (in millions):
Year Ended December 31,
 202020212022
Current:
Federal and state$4,789 $10,126 $17,120 
Foreign1,687 2,692 2,434 
Total6,476 12,818 19,554 
Deferred:
Federal and state1,552 2,018 (8,052)
Foreign(215)(135)(146)
Total1,337 1,883 (8,198)
Provision for income taxes$7,813 $14,701 $11,356 
The reconciliation of federal statutory income tax rate to our effective income tax rate was as follows:
Year Ended December 31,
 202020212022
U.S. federal statutory tax rate21.0 %21.0 %21.0 %
Foreign income taxed at different rates(0.3)0.2 3.0 
Foreign-derived intangible income deduction(3.0)(2.5)(5.4)
Stock-based compensation expense(1.7)(2.5)(1.2)
Federal research credit(2.3)(1.6)(2.2)
Deferred tax asset valuation allowance1.4 0.6 0.9 
State and local income taxes1.1 1.0 0.8 
Other0.0 0.0 (1.0)
Effective tax rate16.2 %16.2 %15.9 %
In 2022, there was an increase in the U.S. Foreign Derived Intangible Income tax deduction from the effects of capitalization and amortization of R&D expenses in 2022 as required by the 2017 Tax Cuts and Jobs Act.
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,
20212022
Deferred tax assets:
Accruals and reserves not currently deductible$1,816 $1,956 
Tax credits5,179 6,002 
Net operating losses1,790 2,557 
Operating leases2,503 2,711 
Capitalized research and development(1)
1,843 10,381 
Other1,665 3,244 
Total deferred tax assets14,796 26,851 
Valuation allowance(7,129)(9,553)
Total deferred tax assets net of valuation allowance7,667 17,298 
Deferred tax liabilities:
Property and equipment, net(5,237)(6,607)
Net investment gains(3,229)(2,361)
Operating leases(2,228)(2,491)
Other(946)(1,092)
Total deferred tax liabilities(11,640)(12,551)
Net deferred tax assets (liabilities)$(3,973)$4,747 
(1)As required by the 2017 Tax Cuts and Jobs Act, effective January 1, 2022, our research and development expenditures were capitalized and amortized which resulted in substantially higher cash taxes for 2022 with an equal amount of deferred tax benefit.
As of December 31, 2022, our federal, state, and foreign net operating loss carryforwards for income tax purposes were approximately $6.4 billion, $14.6 billion, and $1.8 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 the majority of the 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, 2022, our Federal and California research and development credit carryforwards for income tax purposes were approximately $400 million and $5.8 billion, respectively. If not utilized, the Federal R&D credit will begin to expire in 2037 and the California R&D credit can be carried over indefinitely. We believe the majority of the federal tax credit and state tax credit is not likely to be realized.
As of December 31, 2022, our investment tax credit carryforwards for state income tax purposes were approximately $931 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, 2022, we maintained a valuation allowance with respect to California deferred tax assets, certain federal net operating losses, certain state net operating losses and 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,
 202020212022
Beginning gross unrecognized tax benefits$3,377 $3,837 $5,158 
Increases related to prior year tax positions372 529 253 
Decreases related to prior year tax positions(557)(263)(437)
Decreases related to settlement with tax authorities(45)(329)(140)
Increases related to current year tax positions690 1,384 2,221 
Ending gross unrecognized tax benefits$3,837 $5,158 $7,055 
We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. The total amount of gross unrecognized tax benefits was $3.8 billion, $5.2 billion, and $7.1 billion as of December 31, 2020, 2021, and 2022, respectively, of which $2.6 billion, $3.7 billion, and $5.3 billion, if recognized, would affect our effective tax rate, respectively.
As of December 31, 2021 and 2022, we accrued $270 million and $346 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 2015 through 2021 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 resolutions occur. 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 $1.8 billion in the next 12 months. Positions that may be resolved include various U.S. and non-U.S. matters.