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INCOME TAXES | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income before income taxes consists of the following:
|  | Year Ended December 31,
(in millions) |  | 2024 |  | 2023 |  | 2022
Domestic |  | $ | (876) |  |  | $ | 5,467 |  |  | $ | 4,439 |
Foreign |  | 1,566 |  |  | 1,392 |  |  | 1,375 |
Income before income taxes |  | $ | 690 |  |  | $ | 6,859 |  |  | $ | 5,814 |
Income tax expense consists of the following:
|  | Year Ended December 31,
(in millions) |  | 2024 |  | 2023 |  | 2022
Federal: |  |  |  |  |  |
Current |  | $ | 1,495 |  |  | $ | 1,781 |  |  | $ | 2,539 |
Deferred |  | (1,562) |  |  | (1,126) |  |  | (1,502) |
|  | (67) |  |  | 655 |  |  | 1,037 |
State: |  |  |  |  |  |
Current |  | 39 |  |  | 80 |  |  | 32 |
Deferred |  | (386) |  |  | 170 |  |  | (154) |
|  | (347) |  |  | 250 |  |  | (122) |
Foreign: |  |  |  |  |  |
Current |  | 519 |  |  | 381 |  |  | 232 |
Deferred |  | 106 |  |  | (39) |  |  | 101 |
|  | 625 |  |  | 342 |  |  | 333 |
Income tax expense |  | $ | 211 |  |  | $ | 1,247 |  |  | $ | 1,248 |
The reconciliation between the federal statutory tax rate applied to Income before income taxes and our effective tax rate is summarized as follows(1):
|  | Year Ended December 31,
|  | 2024 |  | 2023 |  | 2022
Federal statutory rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State taxes, net of federal benefit |  | (43.6) | % |  | 2.3 | % |  | (2.0) | %
Foreign earnings at different rates |  | 10.9 | % |  | (0.2) | % |  | (0.6) | %
Research and other credits |  | (31.6) | % |  | (4.3) | % |  | (2.7) | %
US tax on foreign earnings |  | 12.1 | % |  | 1.0 | % |  | 2.7 | %
Foreign-derived intangible income deduction |  | (19.3) | % |  | (2.1) | % |  | (3.8) | %
Tax examinations |  | (33.7) | % |  | (4.7) | % |  | (0.2) | %
Acquired IPR&D & related charges |  | 117.3 | % |  | 1.3 | % |  | 1.4 | %
Changes in valuation allowance |  | 15.6 | % |  | 0.9 | % |  | 1.2 | %
Non-taxable unrealized loss on investment |  | 6.8 | % |  | 0.2 | % |  | 0.7 | %
Legal entity restructuring |  | (52.6) | % |  | — | % |  | — | %
Other |  | 27.6 | % |  | 2.8 | % |  | 3.8 | %
Effective tax rate |  | 30.5 | % |  | 18.2 | % |  | 21.5 | %
_______________________________ (1) Recurring items in this rate reconciliation table for 2024 are significantly impacted by the lower Income before income taxes for that year. Significant components of our deferred tax4 assets and liabilities are as follows:
|  | December 31,
(in millions) |  | 2024 |  | 2023
Deferred tax assets: |  |  |  |
Net operating loss carryforwards |  | $ | 288 |  |  | $ | 417 |
Stock-based compensation |  | 84 |  |  | 94 |
Reserves and accruals not currently deductible |  | 685 |  |  | 644 |
Excess of tax basis over book basis of intangible assets |  | 910 |  |  | 1,041 |
Upfront and milestone payments |  | 1,312 |  |  | 1,271 |
Research and other credit carryforwards |  | 428 |  |  | 283 |
Equity investments |  | 237 |  |  | 221 |
Liability related to future royalties |  | 287 |  |  | 296 |
Capitalized R&D expenditures |  | 2,173 |  |  | 1,623 |
Capital losses |  | 590 |  |  | 17 |
Other, net |  | 213 |  |  | 303 |
Total deferred tax assets before valuation allowance |  | 7,207 |  |  | 6,210 |
Valuation allowance |  | (1,217) |  |  | (663) |
Total deferred tax assets |  | 5,990 |  |  | 5,547 |
Deferred tax liabilities: |  |  |  |
Property, plant and equipment |  | (276) |  |  | (274) |
Excess of book basis over tax basis of intangible assets |  | (3,836) |  |  | (5,481) |
Other |  | (224) |  |  | (184) |
Total deferred tax liabilities |  | (4,336) |  |  | (5,939) |
Net deferred tax assets (liabilities) |  | $ | 1,654 |  |  | $ | (392) |
The valuation allowance increased $554 million for the year ended December 31, 2024, primarily due to capital losses, state research credits, and unrealized losses on our equity investments, partially offset by utilization of foreign net operating losses. The valuation allowance increased $64 million for the year ended December 31, 2023, primarily due to unrealized losses on our equity investments. As of December 31, 2024, we had U.S. federal net operating loss and tax credit carryforwards of approximately $602 million and $45 million, respectively, which will start to expire in 2025 if not utilized. In addition, we had state net operating loss and tax credit carryforwards of approximately $3.0 billion and $1.1 billion, respectively, which will start to expire in 2025 and 2027, 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 2019 and onwards and 2016 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 for our 2019 to 2021 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, $1.4 billion and $929 million as of December 31, 2024 and 2023, 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 benefits of $46 million, $35 million and $3 million on our Consolidated Statements of Operations for the years ended December 31, 2024, 2023 and 2022, respectively. Accrued interest and penalties related to unrecognized tax benefits were $133 million and $180 million as of December 31, 2024 and 2023, respectively. As of December 31, 2024, 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) |  | 2024 |  | 2023 |  | 2022
Beginning balance |  | $ | 1,962 |  |  | $ | 1,959 |  |  | $ | 1,713 |
Tax positions related to current year: |  |  |  |  |  |
Additions |  | 743 |  |  | 265 |  |  | 129 |
Reductions |  | — |  |  | — |  |  | — |
Tax positions related to prior years: |  |  |  |  |  |
Additions |  | 190 |  |  | 109 |  |  | 225 |
Reductions |  | (298) |  |  | (315) |  |  | (31) |
Settlements |  | (270) |  |  | (42) |  |  | (10) |
Lapse of statute of limitations |  | (2) |  |  | (13) |  |  | (68) |
Ending balance |  | $ | 2,325 |  |  | $ | 1,962 |  |  | $ | 1,959 |
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 $1.3 billion and $2.4 billion as of December 31, 2024 and 2023, respectively. We anticipate making a payment for the remaining $1.3 billion in 2025.

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