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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 components of income before provision for income taxes consisted of the following (dollars in millions):
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
Domestic | $ | 665 |  |  | $ | 1,275 |  |  | $ | 1,684 |
Foreign | 612 |  |  | 383 |  |  | 726 |
Total | $ | 1,277 |  |  | $ | 1,658 |  |  | $ | 2,410 |
Our tax provision (benefit) consisted of the following (dollars in millions):
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
Current provision: |  |  |  |  |
Federal | $ | 98 |  |  | $ | 338 |  |  | $ | 275 |
State | 31 |  |  | 99 |  |  | 115 |
Foreign | 242 |  |  | 208 |  |  | 239 |
Total current provision | 371 |  |  | 645 |  |  | 629 |
Deferred provision: |  |  |  |  |
Federal | (4) |  |  | (249) |  |  | 35 |
State | 4 |  |  | (56) |  |  | (5) |
Foreign | (121) |  |  | (106) |  |  | (91) |
Total deferred provision | (121) |  |  | (411) |  |  | (61) |
Total provision for income taxes | $ | 250 |  |  | $ | 234 |  |  | $ | 568 |
The following is a reconciliation stated as a percentage of pre-tax income of the U.S. statutory federal income tax rate to our effective tax rate:
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
Federal statutory tax rate | 21 | % |  | 21 | % |  | 21 | %
Foreign rate differential | (1) |  |  | — |  |  | — |
State taxes, net of federal benefit | 2 |  |  | 3 |  |  | 4 |
Nontaxable or nondeductible items | 3 |  |  | 2 |  |  | — |
Reserves for uncertain tax positions | — |  |  | 1 |  |  | 1 |
Tax credits | (5) |  |  | (2) |  |  | (1) |
Outside basis differences recognized as a result of a legal entity restructuring | — |  |  | (10) |  |  | — |
Other | (1) |  |  | (1) |  |  | (1) |
Effective tax rate | 19 | % |  | 14 | % |  | 24 | %
In 2022, we recognized a net tax benefit of approximately $165.8 million attributable to outside basis differences recognized as a result of a legal entity restructuring. The recognition of the outside tax basis differences generated a capital loss that offset capital gains generated during 2022. The remaining capital loss will be carried back and then forward to offset future capital gains. Based on our strong history of capital gains in the prior three years and the nature of our business, we expect to generate sufficient capital gains in the five year carry forward period and therefore concluded that it is more likely than not that we will realize the full tax benefit from the capital loss carried forward. Accordingly, we have not provided any valuation allowance against the deferred tax asset for the capital loss carried forward. Cumulative tax effects of temporary differences are shown below (dollars in millions):
| December 31,
| 2023 |  | 2022
Assets: |  |  |
Tax losses and tax credits | $ | 506 |  |  | $ | 369 |
Operating lease liabilities | 343 |  |  | 317 |
Bonus and deferred compensation | 334 |  |  | 372 |
Bad debt and other reserves | 117 |  |  | 103 |
Pension obligation | — |  |  | 1 |
All other | 188 |  |  | 64 |
Deferred tax assets, before valuation allowance | $ | 1,488 |  |  | $ | 1,226 |
Less: Valuation allowance | (357) |  |  | (255) |
Deferred tax assets | $ | 1,131 |  |  | $ | 971 |
Liabilities: |  |  |
Property and equipment | (55) |  |  | (21) |
Unconsolidated affiliates and partnerships | (115) |  |  | (93) |
Capitalized costs and intangibles | (531) |  |  | (562) |
Operating lease assets | (286) |  |  | (273) |
All other | (38) |  |  | (38) |
Deferred tax liabilities | $ | (1,025) |  |  | $ | (987) |
Net deferred tax assets/(liabilities) | $ | 106 |  |  | $ | (16) |
As of December 31, 2023, there were deferred tax assets before valuation allowances of approximately $471.9 million related to U.S. federal, state, and foreign net operating losses (NOLs). The majority of the NOLs are carried forward indefinitely and primarily related to the foreign jurisdictions. In certain foreign jurisdictions NOLs expire each year beginning in 2023. The utilization of NOLs may be subject to certain limitations under U.S. federal, state and foreign laws. As of December 31, 2023, we had a U.S. federal and state capital loss carryforward, net of reserves for uncertain tax position, of approximately $24.1 million which will expire after 2027, and $9.8 million foreign tax credits, which will expire after 2033. We have recorded a valuation allowance for deferred tax assets where we believe that it is more likely than not that the tax attributes will not be utilized. We determined as of December 31, 2023, $356.5 million of deferred tax assets do not satisfy the realization criteria set forth in Topic 740. Accordingly, a valuation allowance has been recorded for this amount. If released, the entire amount would result in a benefit to continuing operations. During the year ended December 31, 2023, our valuation allowance increased by approximately $101.8 million. The increase was attributed to a build in valuation allowance of $96.7 million due to current year activities, reversal of the beginning of year valuation allowance of $6.0 million as certain foreign subsidiaries expect to utilize deferred tax assets before expiration as a result of current and forecasted earnings within the applicable jurisdiction, and an increase of $11.1 million due to foreign currency translation and tax rate changes. We believe it is more likely than not that future operations will generate sufficient taxable income to realize the benefit of our deferred tax assets recorded as of December 31, 2023, net of valuation allowance. At December 31, 2023, we have undistributed earnings of certain foreign subsidiaries of approximately $3.8 billion for which we have indefinitely reinvested and not recognized deferred taxes. Estimating the amount of the unrecognized deferred tax is not practicable due to the complexity and variety of assumptions necessary to estimate the tax. As of December 31, 2023, we have recorded $18.6 million of deferred tax liability relating to book over tax basis in Turner & Townsend undistributed earnings. The total amount of gross unrecognized tax benefits was approximately $413.5 million and $391.4 million as of December 31, 2023 and 2022, respectively. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $283.9 million as of December 31, 2023. The increase of $22.1 million resulted from accrual of gross unrecognized tax benefits of $28.8 million and a release of $6.7 million of gross unrecognized tax benefits primarily related to the expiration of statute of limitations in various tax jurisdictions. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (dollars in millions):
| Year Ended December 31,
| 2023 |  | 2022
Beginning balance, unrecognized tax benefits | $ | (391) |  |  | $ | (192) |
Gross increases - tax positions in prior period | (12) |  |  | (42) |
Gross decreases - tax positions in prior period | 1 |  |  | 1 |
Gross increases - current-period tax positions | (18) |  |  | (167) |
Decreases relating to settlements | — |  |  | 1 |
Reductions as a result of lapse of statute of limitations | 7 |  |  | 2 |
Foreign exchange movement | — |  |  | 6 |
Ending balance, unrecognized tax benefits | $ | (413) |  |  | $ | (391) |
Our continuing practice is to recognize accrued interest and/or penalties related to income tax matters within income tax expense. During the years ended December 31, 2023 and 2022, we accrued/(reversed) an additional $3.5 million and $(0.5) million, respectively, in interest and penalties associated with uncertain tax positions. As of December 31, 2023, we have recognized a liability for interest and penalties of $6.8 million. We believe the amount of gross unrecognized tax benefits that will be settled during the next twelve months due to filing amended returns and settling ongoing exams will not be significant. We conduct business globally and file income tax returns in the U.S. federal jurisdiction and in multiple state, local and foreign tax jurisdictions. Our U.S. federal income tax returns for years 2016 through 2019 are currently under audit by the Internal Revenue Service. We are under audit by various states and localities including California, Massachusetts, New York, New York City, and Texas. We are also under audit by various foreign tax jurisdictions including Canada, France, Germany, and Spain. With limited exception, our significant U.S. state and foreign tax jurisdictions are no longer subject to audit by the various tax authorities for tax years prior to 2013 and 2017, respectively. On February 13, 2024, we were notified by the Internal Revenue Service that they have completed our audit for tax years 2016 through 2019. We expect the closure of this audit to have an immaterial impact to our financial statements.

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