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Income Taxes | 12 Months Ended
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Dec. 28, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes We conduct business globally and, as a result, file numerous consolidated and separate income tax returns within and outside the U.S. For all of our U.S. subsidiaries, we file a consolidated federal income tax return. Income from continuing operations before income taxes is as follows:
(In millions) | 2024 | 2023 | 2022
U.S. | $ | 739 |  | $ | 905 |  | $ | 810 |
Non-U.S. | 204 |  | 182 |  | 206 |
Income from continuing operations before income taxes | $ | 943 |  | $ | 1,087 |  | $ | 1,016 |
Income tax expense is summarized as follows:
(In millions) | 2024 | 2023 | 2022
Current expense: |  |  |
Federal | $ | 84 |  | $ | 267 |  | $ | 272 |
State | 21 |  | 18 |  | 33 |
Non-U.S. | 61 |  | 72 |  | 69 |
| 166 |  | 357 |  | 374 |
Deferred expense (benefit): |  |  |
Federal | (34) |  | (181) |  | (182) |
State | (24) |  | 1 |  | (29) |
Non-U.S. | 10 |  | (12) |  | (9) |
| (48) |  | (192) |  | (220) |
Income tax expense | $ | 118 |  | $ | 165 |  | $ | 154 |
The following table reconciles the U.S. Federal statutory income tax rate to our effective income tax rate:
| 2024 | 2023 | 2022
U.S. Federal statutory income tax rate | 21.0% | 21.0% | 21.0%
Increase (decrease) resulting from: |  |  |
State income taxes, net of federal tax benefit | (0.2) | 1.4 | 0.3
Non-U.S. tax rate differential and foreign tax credits | 2.1 | 1.5 | 1.8
Research and development tax credits | (5.4) | (4.7) | (5.0)
Uncertain tax positions release for 2012 to 2017 IRS audit | (2.9) | — | —
Foreign-derived intangible income deduction | (1.7) | (3.2) | (2.5)
Other, net | (0.4) | (0.8) | (0.4)
Effective income tax rate | 12.5% | 15.2% | 15.2%
Unrecognized Tax Benefits Our unrecognized tax benefits represent tax positions for which reserves have been established, with unrecognized state tax benefits reflected net of applicable federal tax benefits. If our unrecognized tax benefits were recognized in future periods, they would favorably impact our effective tax rate. A reconciliation of these unrecognized tax benefits is as follows:
(In millions) | 2024 | 2023 | 2022
Balance at beginning of year | $ | 222 |  | $ | 231 |  | $ | 207 |
Additions for tax positions related to current year | 17 |  | 16 |  | 24 |
Additions for tax positions of prior years | 4 |  | 3 |  | — |
Reductions for tax positions of prior years | — |  | (28) |  | — |
Reductions for settlements | (28) |  | — |  | — |
Balance at end of year | $ | 215 |  | $ | 222 |  | $ | 231 |
In November 2024, we received a Revenue Agent Report (RAR) from the Internal Revenue Service (IRS) for the tax years 2012 to 2017 that proposed adjustments related to research and development tax credits generated on amended returns filed in 2019 and 2021. We disagree with the proposed adjustments and are vigorously contesting them through the IRS’s Office of Appeals and, if necessary, will continue with legal proceedings. We believe it is more likely than not that we will prevail on our refund claim for these credits. As of December 28, 2024, we believe our allowance for uncertain tax positions related to this matter is adequate. We do not expect a final resolution to this matter in the next twelve months. In connection with the RAR for these years, other tax positions were effectively settled, resulting in a benefit upon the reversal of $27 million of uncertain tax positions in the fourth quarter of 2024. We are currently under examination by the IRS for the tax years 2018 to 2021. In the normal course of business, we are subject to examination by tax authorities throughout the world. We are generally no longer subject to state and local income tax examinations for years before 2019 and non-U.S. income tax examinations for years before 2012. Deferred Taxes The significant components of our net deferred tax assets/(liabilities) are provided below:
(In millions) | December 28, 2024 | December 30, 2023
Capitalized research and development expenditures | $ | 631 |  | $ | 520 |
Accrued liabilities (a) | 224 |  | 228 |
U.S. operating loss and tax credit carryforwards (b) | 212 |  | 216 |
Obligation for pension and postretirement benefits | 109 |  | 123 |
Deferred compensation | 94 |  | 103 |
Operating lease liabilities | 93 |  | 102 |
Non-U.S. operating loss and tax credit carryforwards (c) | 88 |  | 73 |
Prepaid pension benefits | (562) |  | (387) |
Property, plant and equipment, principally depreciation | (198) |  | (211) |
Amortization of goodwill and other intangibles | (184) |  | (185) |
Operating lease right-of-use assets | (90) |  | (99) |
Valuation allowance on deferred tax assets | (82) |  | (82) |
Other leasing transactions, principally leveraged leases | (42) |  | (47) |
Other, net | (32) |  | (5) |
Deferred taxes, net | $ | 261 |  | $ | 349 |
(a)Accrued liabilities include warranty reserves, self-insured liabilities and interest. (b)At December 28, 2024, U.S. operating loss and tax credit carryforward benefits of $166 million expire through 2044 if not utilized and $46 million may be carried forward indefinitely. (c)At December 28, 2024, non-U.S. operating loss and tax credit carryforward benefits of $80 million may be carried forward indefinitely. We believe earnings during the period when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not more than likely, a valuation allowance is provided. The following table presents the breakdown of our deferred taxes:
(In millions) | December 28, 2024 | December 30, 2023
Manufacturing group: |  |
Deferred tax assets, net of valuation allowance | $ | 394 |  | $ | 443 |
Deferred tax liabilities | (96) |  | (56) |
Finance group – Deferred tax liabilities | (37) |  | (38) |
Net deferred tax asset | $ | 261 |  | $ | 349 |
Non-U.S. and U.S. state income taxes have not been provided for on basis differences in certain investments, primarily as a result of unremitted earnings in foreign subsidiaries that are indefinitely reinvested, totaling $1.8 billion at December 28, 2024 and $1.6 billion at December 30, 2023. Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to withholding and local taxes to various non-U.S. jurisdictions and U.S. states. Determination of the deferred tax liability associated with indefinitely reinvested earnings is not practicable due to multiple factors, including the complexity of non-U.S. tax laws and tax treaty interpretations, exchange rate fluctuations, and the uncertainty of available credits or exemptions.

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