Alphabet, Inc.

Alphabet, Inc., the parent company of Google, reported the information below in note 14 of their 10-K reports for the years ending December 31, 2016 through 2020.

Income from continuing operations before income taxes consists of the follow:

$ millions	2016		2017		2018		2019		2020
Domestic operations	$12,000		$10,700		$15,779		$16,426		$37,576
Foreign operations	12,100		16,500		19,134		23,199		10,506
Total	$24,100		$27,200		$34,913		$39,625		$48,082

The provision for income taxes consists of the following:

$ millions	2016		2017		2018		2019		2020
Current:
Federal/state	$3,826		$12,608		$2,153		$2,424		$4,789
Foreign	966		1,746		1,251		2,713		1,687
Total	4,792		14,354		3,404		3,404		3,404
Deferred:
Federal/state	(70)		220		907		286		1,552
Foreign	(50)		(43)		(134)		(141)		(215)
Total	(120)		177		773		773		773
Provision for income taxes	$4,672		$14,531		$4,177		$4,177		$4,177

Refer to C10-63 on pages 10-63 in the text for additional information about Alphabets income taxes.

Required:

1. Calculate Alphabets effective tax rate for each of the five years presented. How does this tax rate compare to the statutory corporate tax rate in effect each year?

2. Prepare a journal entry to record income tax expenses for 2020.

3. Calculate the effective tax rate for domestic (U.S.) operations and foreign operations for each year. Comment on any changes or trends that you observe.

4. What is the amount of contingent tax benefits at the end of 2020? Of this total, what amount (net) was included in the 2020 provision for income taxes?

Interpreting Income Tax Disclosures Alphabet Inc. reported the following in Note 14 to its 2020 10-K report: Note 14. Income Taxes continued Tax Contingencies We are subject to income taxes in the United States (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The reconciliation of our tax contingencies is as follows (in millions): We are under examination, or may be subject to examination, by the Internal Revenue Service ("IRS") for the calendar year 2013 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods. During Q3 2020, we resolved the audits of tax years 2007 through 2012 with the IRS for amounts that were materially consistent with our accrual. In October 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on state aid. On October 4, 2017, the European Commission announced its decision that determinations by the tax authorities in Luxembourg did not comply with European Union rules on state aid. Based on that decision the European Commission announced an estimated recovery amount of approximately 250 million, plus interest, for the period May 2006 through June 2014, and ordered Luxembourg tax authorities to calculate the actual amount of additional taxes subject to recovery. Luxembourg computed an initial recovery amount, consistent with the European Commission's decision, that we deposited into escrow in March 2018, subject to adjustment pending conclusion of all appeals. In December 2017, Luxembourg appealed the European Commission's decision. In May 2018, we appealed. We believe the European Commission's decision to be without merit and will continue to defend ourselves vigorously in this matter. We are also subject to taxation in various states and other foreign jurisdictions including China, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities in respect of these particular jurisdictions primarily for 2009 and thereafter. REQUIRED a. Compute Alphabet's effective tax rate for each year presented. Also, compute Alphabet's domestic tax rate (federal plus state) and its foreign tax rate on income from foreign operations. b. What is Alphabet's amount of unrecognized tax benefit at the end of 2020? Briefly describe what this is and how it is shown in the company's income statement and balance sheet