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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The domestic and foreign components of income (loss) before income taxes were as follows (in millions):
| Year Ended December 31,
| 2021 | 2022 | 2023
Domestic | $ | (390) |  | $ | 1,820 |  | $ | 1,913 |
Foreign | 90 |  | 169 |  | 189 |
Income (loss) before income taxes | $ | (300) |  | $ | 1,989 |  | $ | 2,102 |
The components of the provision for (benefit from) income taxes were as follows (in millions):
| Year Ended December 31,
| 2021 | 2022 | 2023
Current |  |  |
Federal | $ | 5 |  | $ | 19 |  | $ | 19 |
State | 2 |  | 10 |  | 8 |
Foreign | 34 |  | 68 |  | 158 |
Total current provision for income taxes | 41 |  | 97 |  | 185 |
Deferred |  |  |
Federal | — |  | — |  | (2,410) |
State | — |  | — |  | (461) |
Foreign | 11 |  | (1) |  | (4) |
Total deferred provision for (benefit from) income taxes | 11 |  | (1) |  | (2,875) |
Total provision for (benefit from) income taxes | $ | 52 |  | $ | 96 |  | $ | (2,690) |
The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:
| Year Ended December 31,
| 2021 | 2022 | 2023
Expected income tax expense at federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | %
State taxes, net of federal benefits | (0.7) |  | 0.4 |  | 0.3 |
Foreign tax rate differential | (5.1) |  | 1.0 |  | 2.9 |
Stock-based compensation | 282.4 |  | (6.9) |  | (16.7) |
Deferred tax impacts of restructuring | (9.7) |  | — |  | — |
Other statutorily non-deductible expenses | (1.1) |  | 0.3 |  | 0.1 |
Non-deductible warrant revaluations | (20.4) |  | (0.1) |  | — |
Research and development credits | 51.0 |  | (4.7) |  | (5.5) |
Uncertain tax positions—prior year positions | (3.1) |  | 0.1 |  | 1.8 |
Uncertain tax positions—current year positions | (1.0) |  | 0.8 |  | 1.7 |
U.S. tax on foreign income, net of allowable credits and deductions | — |  | 0.7 |  | 3.9 |
Foreign-derived intangible income deduction | — |  | (1.9) |  | (1.0) |
Other | 1.3 |  | 0.1 |  | 0.1 |
Change in valuation allowance | (331.9) |  | (6.0) |  | (136.6) |
Effective tax rate | (17.3) | % | 4.8 | % | (128.0) | %
For the year ended December 31, 2021, the difference in the Company’s effective tax rate and the U.S. federal statutory tax rate was primarily due to the jurisdictional mix of earnings, excess tax benefits related to stock-based compensation, and the Company’s full valuation allowance on its U.S. deferred tax assets. For the year ended December 31, 2022, the difference in the Company’s effective tax rate and the U.S. federal statutory tax rate was primarily due to excess tax benefits related to stock-based compensation, research and development credits, and the Company’s full valuation allowance on its U.S. deferred tax assets. For the year ended December 31, 2023, the difference in the Company’s effective tax rate and the U.S. federal statutory tax rate was primarily due to the release of $2.9 billion of the Company’s valuation allowance related to its U.S. deferred tax assets, excess tax benefits related to stock-based compensation, and research and development tax credits. The components of deferred tax assets and liabilities consisted of the following (in millions):
| December 31,
| 2022 | 2023
Deferred tax assets: |  |
Net operating loss carryforwards | $ | 1,539 |  | $ | 1,232 |
Tax credit carryforwards | 664 |  | 844 |
Accruals and reserves | 123 |  | 113 |
Non-income tax accruals | 68 |  | 78 |
Stock-based compensation | 111 |  | 70 |
Operating lease liabilities | 73 |  | 62 |
Intangible assets | 188 |  | 158 |
Capitalized research and development costs | 413 |  | 671 |
Other | 37 |  | 55 |
Gross deferred tax assets | 3,216 |  | 3,283 |
Valuation allowance | (3,166) |  | (364) |
Total deferred tax assets | 50 |  | 2,919 |
Deferred tax liabilities: |  |
Property and equipment basis differences | (9) |  | (18) |
Operating lease assets | (23) |  | (18) |
Other | (2) |  | (2) |
Total deferred tax liabilities | (34) |  | (38) |
Total net deferred tax assets | $ | 16 |  | $ | 2,881 |
The Company regularly assesses the need for a valuation allowance against its deferred tax assets each quarter. In making that assessment, the Company considers both positive and negative evidence in the various jurisdictions in which it operates related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2023, based on all available positive and negative evidence, having demonstrated sustained profitability which is objective and verifiable, and taking into account anticipated future earnings, the Company has concluded that it is more likely than not that its U.S. federal and state deferred tax assets will be realizable, with the exception of California research and development credits, capital loss carryovers, and certain losses subject to the dual consolidated loss rules. The Company continues to maintain a valuation allowance against its California research and development credit deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met the “more likely than not” realization criteria, particularly as the Company expects research and development tax credit generation to exceed its ability to use the credits in future years. When a change in valuation allowance is recognized during an interim period, the change in valuation allowance resulting from current year income is included in the annual effective tax rate and the release of valuation allowance supported by projections of future taxable income is recorded as a discrete tax benefit in the interim period. The Company released $2.9 billion of its valuation allowance during 2023. The Company will continue to monitor the need for a valuation allowance against its deferred tax assets on a quarterly basis. There is no valuation allowance in certain foreign jurisdictions in which it is more likely than not that deferred tax assets will be realized. The Company’s policy with respect to its undistributed foreign subsidiaries’ earnings is to consider those earnings to be indefinitely reinvested. The Company has not provided for the tax effect, if any, of limited outside basis differences of its foreign subsidiaries. The determination of the future tax consequences of the remittance of these earnings is not practicable. As of December 31, 2022 and 2023, the Company had net operating loss carryforwards for federal income tax purposes of $6.8 billion and $5.3 billion, respectively. The Company’s federal net operating loss carryforwards do not have an expiration date. As of December 31, 2022 and 2023, the Company had federal research and development tax credit carryforwards of $578 million and $720 million, respectively. The research and development tax credits will expire beginning in 2038 if not utilized. As of December 31, 2022 and 2023, the Company had net operating loss carryforwards for state income tax purposes of $4.8 billion and $4.6 billion, respectively. Some of the Company’s state net operating loss carryforwards will expire, if not utilized, beginning in 2027. As of December 31, 2022 and 2023, the Company had state research and development tax credit carryforwards of $399 million and $464 million, respectively. The research and development tax credits do not have an expiration date. The Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of net operating losses and tax credit carryforwards in the event that there is a change in ownership as provided by Section 382 of the Internal Revenue Code and similar state provisions. Such a limitation could result in the expiration of the net operating loss carryforwards and tax credits before utilization, which could result in increased future tax liabilities. A reconciliation of the beginning and ending amount of the Company’s total gross unrecognized tax benefits was as follows (in millions):
| Year Ended December 31,
| 2021 | 2022 | 2023
Balance at beginning of year | $ | 508 |  | $ | 597 |  | $ | 650 |
Gross increases related to prior year tax positions | 14 |  | 7 |  | 52 |
Gross decreases related to prior year tax positions | (2) |  | (2) |  | (8) |
Gross increases related to current year tax positions | 85 |  | 60 |  | 103 |
Reductions due to settlements with taxing authorities | (1) |  | (7) |  | (12) |
Reduction due to lapse in statute of limitations | (7) |  | (5) |  | (5) |
Balance at end of year | $ | 597 |  | $ | 650 |  | $ | 780 |
The Company is in various stages of examination in connection with its ongoing tax audits globally, and it is difficult to determine when these examinations will be settled. The Company believes that an adequate provision has been recorded for any adjustments that may result from tax audits. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company may be required to record an adjustment to the provision for (benefit from) income taxes in the period such resolution occurs. Changes in tax laws, regulations, administrative practices, principles, and interpretations may impact the Company’s tax contingencies. The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next twelve months the Company may experience an increase or decrease in its unrecognized tax benefits as a result of additional assessments by various tax authorities, possibly reach resolution of income tax examinations in one or more jurisdictions, or lapses of the statute of limitations. However, an estimate of the range of the reasonably possible change in the next twelve months cannot be made. As of December 31, 2023, $780 million of unrecognized tax benefits represents the amount that would, if recognized, impact the Company’s effective income tax rate. The Company’s accrual for interest and penalties was $66 million and $90 million as of December 31, 2022 and 2023, respectively. The Company’s significant tax jurisdictions include the United States, California, and Ireland. The Company is currently under examination for income taxes by the Internal Revenue Service (“IRS”) for the 2013, 2016, 2017, and 2018 tax years. The primary issue under examination in the 2013 audit is the valuation of the Company’s international intellectual property which was sold to a subsidiary in 2013. In the year ended December 31, 2019, new information became available which required the Company to remeasure its reserve for unrecognized tax benefits. The Company recorded additional tax expense of $196 million during the year ended December 31, 2019. In December 2020, the Company received a Notice of Proposed Adjustment (“NOPA”) from the IRS which proposed an increase to the Company’s U.S. taxable income that could result in additional income tax expense and cash liability of $1.3 billion plus penalties and interest, which exceeds its current reserve recorded in its consolidated financial statements by more than $1.0 billion. The Company disagrees with the proposed adjustment and continues to vigorously contest it. In February 2021, the Company submitted a protest to the IRS describing its disagreement with the proposed adjustment and requesting the case be transferred to the IRS Independent Office of Appeals (“IRS Appeals”). In December 2021, the Company received a rebuttal from the IRS with the same proposed adjustments that were in the NOPA. In January 2022, the Company entered into an administrative dispute process with IRS Appeals. The Company will continue to pursue all available remedies to resolve this dispute, including petitioning the U.S. Tax Court (“Tax Court”) for redetermination if an acceptable outcome cannot be reached with IRS Appeals, and if necessary, appealing the Tax Court’s decision to the appropriate appellate court. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations. If the IRS prevails in the assessment of additional tax due based on its position and such tax and related interest and penalties, if any, exceeds the Company’s current reserves, such outcome could have a material adverse impact on the Company’s financial position and results of operations, and any assessment of additional tax could require a significant cash payment and have a material adverse impact on the Company’s consolidated statements of cash flow. The Company’s 2008 to 2023 tax years remain subject to examination in the United States and California due to tax attributes and statutes of limitations, and its 2019 to 2023 tax years remain subject to examination in Ireland. There are other ongoing audits in various other jurisdictions that are not material to the Company’s consolidated financial statements. The Company remains subject to possible examination in various other jurisdictions that are not expected to result in material tax adjustments. On August 16, 2022, the Inflation Reduction Act was signed into law, with tax provisions primarily focused on implementing a 15% minimum tax (CAMT) on global adjusted financial statement income and a 1% excise tax on net share repurchases. The Inflation Reduction Act became effective beginning in fiscal year 2023 and did not have a material impact on the year ended December 31, 2023. We may be subject to a material amount of CAMT in the next several years but expect to fully utilize the corresponding tax credits generated from the CAMT in the subsequent following years.

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