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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Tax Disclosure | INCOME TAXES Income before provision for income taxes consists of the following (in millions):
|  | Year Ended December 31,
|  | 2017 |  | 2016 |  | 2015
Domestic |  | $ | 8,099 |  |  | $ | 7,646 |  |  | $ | 7,953 |
Foreign |  | 5,430 |  |  | 9,451 |  |  | 13,706 |
Total income before provision for income taxes |  | $ | 13,529 |  |  | $ | 17,097 |  |  | $ | 21,659 |
The provision for income taxes consists of the following (in millions):
|  | Year Ended December 31,
|  | 2017 |  | 2016 |  | 2015
Federal: |  |  |  |  |  |
Current |  | $ | 8,817 |  |  | $ | 3,351 |  |  | $ | 3,568 |
Deferred |  | (123 | ) |  | (85 | ) |  | (313 | )
|  | 8,694 |  |  | 3,266 |  |  | 3,255 |
State: |  |  |  |  |  |  |  |  |
Current |  | 97 |  |  | 131 |  |  | 158 |
Deferred |  | (20 | ) |  | 28 |  |  | (21 | )
|  | 77 |  |  | 159 |  |  | 137 |
Foreign: |  |  |  |  |  |
Current |  | 54 |  |  | 261 |  |  | 212 |
Deferred |  | 60 |  |  | (77 | ) |  | (51 | )
|  | 114 |  |  | 184 |  |  | 161 |
Provision for income taxes |  | $ | 8,885 |  |  | $ | 3,609 |  |  | $ | 3,553 |
On December 22, 2017, the Tax Cuts and Jobs Act (Tax Reform) was signed into law making significant changes to the Internal Revenue Code of 1986, as amended. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, implementation of a modified territorial tax system and a repatriation tax on deemed repatriated earnings of foreign subsidiaries. We calculated a provisional estimate of the impact from Tax Reform in our 2017 income tax provision in accordance with our interpretation of Tax Reform and guidance available as of the date of this filing. As a result, we recorded an estimated $5.5 billion net charge to income tax expense in the fourth quarter of 2017, the period in which Tax Reform was enacted. This amount includes: i) a provisional $308 million deferred tax benefit related to the re-measurement of certain deferred tax assets and liabilities, based on the revised rates at which they are expected to reverse in the future, and ii) a provisional $5.8 billion charge related to the transition tax on the mandatory deemed repatriation of accumulated foreign earnings determined as of December 31, 2017. The provisional transition tax charge includes federal (net of certain offsetting adjustments related to unrecognized tax benefits), state and local, and foreign withholding tax on the accumulated foreign earnings, which are no longer considered indefinitely reinvested as of December 31, 2017. The accrued federal liability for the transition tax of $6.1 billion will be payable over an eight year period. As of December 31, 2017, $487 million of the transition tax was recorded within Other accrued liabilities and $5.6 billion was recorded in Long-term income taxes payable on our Consolidated Balance Sheets. In accordance with the U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 118 (“SAB 118”), we have determined that the $308 million of the deferred tax benefit recorded in connection with the re-measurement of certain deferred tax assets and liabilities and the $5.8 billion of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings are provisional and subject to further adjustment during the measurement period (not to exceed one year from the enactment of Tax Reform). Given the complexity of Tax Reform, we may be refining our estimates of these provisional amounts as further guidance is issued from the U.S. Treasury, the SEC and the FASB. In February 2018, we repatriated $28.0 billion of cash, cash equivalents and marketable securities to our parent company headquartered in the United States. Prior to the enactment of Tax Reform, these earnings were considered indefinitely reinvested and no U.S. taxes had been provided. In 2017, U.S. taxes have been provided on these earnings through the accrual of the Tax Reform transition tax. Additionally, we are continuing to evaluate the accounting policy election required with regard to the tax on Global Intangible Low-Taxed Income (the Global Minimum Tax). The FASB allows companies to adopt a policy election to account for the Global Minimum Tax under one of two methods: (i) account for the Global Minimum Tax as a component of tax expense in the period in which a company is subject to the rules (the period cost method), or (ii) account for the Global Minimum Tax in a company’s measurement of deferred taxes (the deferred method). We have not elected a method and will only do so after our completion of the analysis of the Global Minimum Tax provisions. Our election method will depend, in part, on analyzing expected future U.S. taxable income inclusions related to Global Minimum Tax under both methodologies in order to determine the most appropriate method. Should we decide to elect the deferred method of accounting for the Global Minimum Tax, it is possible that our provisional estimate for re-measuring our deferred taxes may materially change. We will finalize the analysis for the accounting policy election during the measurement period. The reconciliation between the federal statutory tax rate applied to income before taxes and our effective tax rate is summarized as follows:
|  | Year Ended December 31,
|  | 2017 |  | 2016 |  | 2015
Federal statutory rate |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State taxes, net of federal benefit |  | 0.1 | % |  | 0.7 | % |  | 0.5 | %
Foreign earnings at different rates |  | (10.0 | )% |  | (15.3 | )% |  | (18.5 | )%
Research and other credits |  | (0.6 | )% |  | (0.7 | )% |  | (0.7 | )%
Transition Tax |  | 42.9 | % |  | — | % |  | — | %
Deferred Tax Revaluation |  | (2.3 | )% |  | — | % |  | — | %
Other |  | 0.6 | % |  | 1.4 | % |  | 0.1 | %
Effective tax rate |  | 65.7 | % |  | 21.1 | % |  | 16.4 | %
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 our deferred tax assets and liabilities are as follows (in millions):
|  | December 31,
|  | 2017 |  | 2016
Deferred tax assets: |  |  |  |
Net operating loss carryforwards |  | $ | 322 |  |  | $ | 175 |
Stock-based compensation |  | 165 |  |  | 212 |
Reserves and accruals not currently deductible |  | 336 |  |  | 617 |
Deferred revenue |  | 27 |  |  | 56 |
Depreciation related |  | 56 |  |  | 88 |
Research and other credit carryforwards |  | 293 |  |  | 147 |
Other, net |  | 102 |  |  | 221 |
Total deferred tax assets before valuation allowance |  | 1,301 |  |  | 1,516 |
Valuation allowance |  | (162 | ) |  | (126 | )
Total deferred tax assets |  | 1,139 |  |  | 1,390 |
Deferred tax liabilities: |  |  |  |  |  |
Intangibles |  | (1,316 | ) |  | (104 | )
Other |  | (70 | ) |  | (31 | )
Total deferred tax liabilities |  | (1,386 | ) |  | (135 | )
Net deferred tax assets (liabilities) |  | $ | (247 | ) |  | $ | 1,255 |
The valuation allowance was $162 million as of December 31, 2017, $126 million as of December 31, 2016 and $6 million as of December 31, 2015. The increase of our valuation allowance from December 31, 2016 to December 31, 2017 was primarily related to Kite. At December 31, 2017, we had U.S. federal net operating loss carryforwards of approximately $1.1 billion. The federal net operating loss carryforwards will start to expire in 2021, if not utilized. We also had federal tax credit carryforwards of approximately $107 million which will start to expire in 2020, if not utilized. In addition, we had state net operating loss and tax credit carryforwards of approximately $627 million and $355 million, respectively. The state net operating loss and tax credit carryforwards will start to expire in 2018 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 United States and in many foreign jurisdictions. For federal and California income tax purposes, the statute of limitations is open for 2010 and onwards. 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 IRS for the tax years from 2010 to 2014 and by various state and foreign jurisdictions. 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, $1.8 billion at both December 31, 2017 and 2016, if recognized, would reduce our effective tax rate in the period of recognition. We have continued to classify interest and penalties related to unrecognized tax benefits as part of our income tax provision on our Consolidated Statements of Income. We had accrued interest and penalties related to unrecognized tax benefits of $112 million as of December 31, 2017 and $50 million as of December 31, 2016. As of December 31, 2017, we believe that it is reasonably possible that our unrecognized tax benefits will decrease by approximately $800 million in the next 12 months due to potential settlement of tax examinations and lapse of statute of limitations. The following is a rollforward of our total gross unrecognized tax benefits (in millions):
|  | December 31,
|  | 2017 |  | 2016 |  | 2015
Balance, beginning of period |  | $ | 1,852 |  |  | $ | 1,350 |  |  | $ | 661 |
Tax positions related to current year: |  |  |  |  |  |  |  |  |
Additions |  | 299 |  |  | 522 |  |  | 675 |
Reductions |  | — |  |  | — |  |  | — |
Tax positions related to prior years: |  |  |  |  |  |  |  |
Additions |  | 67 |  |  | 33 |  |  | 45 |
Reductions |  | (16 | ) |  | (3 | ) |  | — |
Settlements |  | (12 | ) |  | (49 | ) |  | (24 | )
Lapse of statute of limitations |  | (9 | ) |  | (1 | ) |  | (7 | )
Balance, end of period |  | $ | 2,181 |  |  | $ | 1,852 |  |  | $ | 1,350 |

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