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Income Taxes
 12 Months Ended
Dec. 31, 2024
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,
202420232022
Domestic$326 $665 $1,275 
Foreign892 612 383
Total$1,218 $1,277 $1,658 
Our tax provision (benefit) consisted of the following (dollars in millions):
Year Ended December 31,
202420232022
Current provision:
Federal$48 $98 $338 
State60 31 99 
Foreign268 242 208 
Total current provision376 371 645 
Deferred provision:
Federal(57)(4)(249)
State(33)4 (56)
Foreign(104)(121)(106)
Total deferred provision(194)(121)(411)
Total provision for income taxes$182 $250 $234 
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,
202420232022
Federal statutory tax rate21 %21 %21 %
Foreign rate differential(1)(1)— 
State taxes, net of federal benefit2 2 3 
Nontaxable or nondeductible items1 3 2 
Reserves for uncertain tax positions(4)— 1 
Tax credits(5)(5)(2)
Outside basis differences recognized as a result of a legal entity restructuring— — (10)
Other1 (1)(1)
Effective tax rate15 %19 %14 %
In 2022, we recognized a net tax benefit of approximately $166 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,
20242023
Assets:
Tax losses and tax credits$591 $506 
Operating lease liabilities407 343 
Bonus and deferred compensation372 334 
Bad debt and other reserves130 117 
All other295 188 
Deferred tax assets, before valuation allowance$1,795 $1,488 
Less: Valuation allowance(396)(357)
Deferred tax assets$1,399 $1,131 
Liabilities:
Property and equipment(34)(55)
Unconsolidated affiliates and partnerships(104)(115)
Capitalized costs and intangibles(555)(531)
Operating lease assets(351)(286)
All other(64)(38)
Deferred tax liabilities$(1,108)$(1,025)
Net deferred tax assets$291 $106 
As of December 31, 2024, there were deferred tax assets before valuation allowances of approximately $530 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 2024. The utilization of NOLs may be subject to certain limitations under U.S. federal, state and foreign laws. As of December 31, 2024, we had a U.S. federal and state capital loss carryforward, net of reserves for uncertain tax position, of approximately $42 million which will expire after 2027, and $24 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, 2024, $396 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, 2024, our valuation allowance increased by approximately $39 million. The increase was attributed to a build in valuation allowance of $68 million due to current year activities, reversal of the beginning of year valuation allowance of $4 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 as well as expected utilization of U.S. foreign tax credits, and a decrease of $25 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, 2024, net of valuation allowance.
At December 31, 2024, we have undistributed earnings of certain foreign subsidiaries of approximately $4.3 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, 2024, we have recorded $25 million of deferred tax liability relating to book over tax basis in Turner & Townsend undistributed earnings and for any subsidiaries not considered indefinitely reinvested.
The total amount of gross unrecognized tax benefits was approximately $347 million and $413 million as of December 31, 2024 and 2023, respectively. The decrease of $66 million resulted from a release of $80 million of gross unrecognized tax benefits due to audit closure, accrual of gross unrecognized tax benefits of $25 million, and a release of $11 million of gross unrecognized tax benefits related to the expiration of statute of limitations in various tax jurisdictions. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $216 million as of December 31, 2024.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (dollars in millions):
Year Ended December 31,
20242023
Beginning balance, unrecognized tax benefits$(413)$(391)
Gross increases - tax positions in prior period(9)(12)
Gross decreases - tax positions in prior period3 1 
Gross increases - current-period tax positions(21)(18)
Decreases relating to settlements80 — 
Reductions as a result of lapse of statute of limitations11 7 
Foreign exchange movement2 — 
Ending balance, unrecognized tax benefits$(347)$(413)
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, 2024 and 2023, we accrued an additional $4 million and $3 million, respectively, in interest and penalties associated with uncertain tax positions. As of December 31, 2024, we have recognized a liability for interest and penalties of $10 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. We are under audit by various states and cities including California, Massachusetts, New York, New York City, and Texas. We are also under audit by various foreign tax jurisdictions including 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.