
	Year Ended December 31,
(in millions)	2020		2019		2018
Federal:
Current	$	1,450	$	1,646	$	1,716
Deferred	(164)		(843)		324
	1,286		803		2,040
State:
Current	198		135		162
Deferred	(97)		(42)		(17)
	101		93		145
Foreign:
Current	155		124		175
Deferred	38		(1,224)		(21)
	193		(1,100)		154
Income tax expense (benefit)	$	1,580	$	(204)	$	2,339

The 2019 income tax benefit included a $1.2 billion deferred tax benefit related to intangible asset transfers from a foreign subsidiary to Ireland and the United States. In the fourth quarter of 2019, we completed an intra-entity asset transfer of certain intangible assets from a foreign subsidiary to Ireland. The transaction resulted in a step-up of the Irish tax-deductible basis in the transferred assets, and accordingly, created a temporary difference where the tax basis exceeded the book basis of such intangible assets. As a result, we recognized a deferred tax asset of $1.2 billion on our Consolidated Financial Statements. We expect to be able to realize the deferred tax asset resulting from this intra-entity asset transfer. The impact of the intangible asset transfer from a foreign subsidiary to the United States was not material.

The 2018 income tax expense included a $588 million deferred tax charge related to a transfer of acquired intangible assets from a foreign subsidiary to the United States. This transaction did not result in a step-up of the U.S. tax-deductible basis; and as a result, we recognized a deferred tax liability of $588 million for the temporary difference where the book basis exceeded the tax basis of these acquired intangible assets.


	Year Ended December 31,
	2020		2019		2018
Federal statutory rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	4.2	%	0.4	%	0.6	%
Foreign earnings at different rates	(10.0)	%	2.5	%	(0.9)	%
Research and other credits	(6.9)	%	(1.9)	%	(1.1)	%
US tax on foreign earnings	7.2	%	4.3	%	2.1	%
Deferred tax - intra-entity transfer of intangible assets	0.6	%	(24.0)	%	7.5	%
Settlement of tax examinations	(10.2)	%	(2.4)	%	(1.9)	%
Acquired IPR&D and related charges	56.2	%	—	%	—	%
Changes in valuation allowance	6.7	%	—	%	—	%
Non-taxable unrealized gain / loss on investment	23.0	%	(5.0)	%	—	%
Other	2.9	%	1.1	%	2.7	%
Effective tax rate	94.7	%	(4.0)	%	30.0	%

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:


	December 31,
(in millions)	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	587	$	184
Stock-based compensation	113		113
Reserves and accruals not currently deductible	444		423
Excess of tax basis over book basis of intangible assets	1,177		1,232
Upfront and milestone payments	1,144		988
Research and other credit carryforwards	219		247
Equity investments	116		—
Liability related to future royalties	247		—
Other, net	311		168
Total deferred tax assets before valuation allowance	4,358		3,355
Valuation allowance	(398)		(217)
Total deferred tax assets	3,960		3,138
Deferred tax liabilities:
Property, plant and equipment	(202)		(88)
Excess of book basis over tax basis of intangible assets	(6,168)		(1,401)
Other	(202)		(93)
Total deferred tax liabilities	(6,572)		(1,582)
Net deferred tax assets (liabilities)	$	(2,612)	$	1,556

The valuation allowance was $398 million and $217 million at December 31, 2020 and 2019, respectively. The increase of our valuation allowance in 2020 was primarily related to acquired attributes related to Forty Seven and Immunomedics acquisitions, and unrealized losses on our equity method investments reflected as acquired IPR&D expenses.

The valuation allowance decreased to $217 million at December 31, 2019 from $331 million at December 31, 2018, primarily due to a reduction in net operating loss carryforwards under the asset recognition framework and corresponding valuation allowance with respect to certain foreign jurisdictions.

At December 31, 2020, we had U.S. federal net operating loss and tax credit carryforwards of approximately $1.5 billion. and $61 million, respectively, which will start to expire in 2021, if not utilized. In addition, we had state net operating loss and tax credit carryforwards of approximately $1.8 billion and $673 million, respectively. The state net operating loss will start to expire in 2021 if not utilized and state tax credit carryforwards will start to expire in 2022 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 income tax purposes, the statute of limitations is open for 2013 and onwards and 2010 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 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, $1.2 billion and $1.6 billion at December 31, 2020 and 2019, respectively, if recognized, would reduce our effective tax rate in the period of recognition. Interest and penalties related to unrecognized tax benefits included as part of income tax expense (benefit) on our Consolidated Statements of Income were $(82) million and $105 million for the years ended December 31, 2020 and 2019, respectively. Interest and penalties related to unrecognized tax benefits for the year ended December 31, 2018 was not material. Accrued interest and penalties related to unrecognized tax benefits were $177 million and $259 million at December 31, 2020 and 2019, respectively. As of December 31, 2020, we do not believe that it is reasonably possible that our unrecognized tax benefits will significantly change in the next 12 months.


	Year Ended December 31,
(in millions)	2020		2019		2018
Balance, beginning of period	$	2,031	$	1,595	$	2,181
Tax positions related to current year:
Additions	121		138		64
Reductions	—		—		—
Tax positions related to prior years:
Additions	398		405		125
Reductions	(481)		—		—
Settlements	(454)		(104)		(774)
Lapse of statute of limitations	(1)		(3)		(1)
Balance, end of period	$	1,614	$	2,031	$	1,595