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INCOME TAXES
 12 Months Ended
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 thousands):
Year Ended December 31,
202320222021
Domestic$(30,304)$(347,968)$417,356 
Foreign1,161 (217,349)(259,894)
Income (loss) before income taxes$(29,143)$(565,317)$157,462 

The components of the provision for income taxes were as follows (in thousands):
Year Ended December 31,
202320222021
Current:
Federal$12,003 $14,352 $201 
State14,351 17,504 3,186 
Foreign51,506 25,425 5,684 
Total current provision for income taxes77,860 57,281 9,071 
Deferred:
Federal(58,532)(59,909)(1,463)
State(25,072)(7,677)(524)
Foreign(2,275)(2,007)(8,448)
Total deferred benefit for income taxes(85,879)(69,593)(10,435)
Total benefit for income taxes$(8,019)$(12,312)$(1,364)

The following is a reconciliation of the statutory federal income tax rate to the Company's effective tax rate:
December 31,
202320222021
Tax at federal statutory rate21.0 %21.0 %21.0 %
State taxes, net of federal benefit45.9 (1.1)0.6 
Foreign rate differential(175.6)(2.0)10.4 
Other non-deductible expenses(21.7)(1.2)4.4 
Credits292.9 27.0 (83.9)
Other items(2.2)0.6 1.6 
Change in valuation allowance11.2 (46.7)290.4 
Share-based compensation (16.1)7.5 (275.0)
Change in uncertain tax positions(27.4)(1.5)5.0 
Income/loss inclusions of U.S. foreign subsidiaries(216.5)2.1 0.9 
Non-deductible executive compensation(9.2)(0.3)5.9 
Non-deductible acquisition related costs(15.0)(3.0)5.9 
Foreign exchange gain/loss174.1 (0.2)— 
Impairment loss(60.8)— 0.1 
Return to provision adjustments26.9 — — 
Intercompany transactions— — 3.8 
Cancellation of debt income— — 8.0 
Total27.5 %2.2 %(0.9)%
    
The tax effects of temporary differences and related deferred tax assets and liabilities were as follows (in thousands):
December 31,
20232022
Deferred tax assets:
Capitalized costs & research and development capitalization$552,731 $474,766 
Accrued expenses173,556 129,695 
Net operating loss carryforwards935,289 1,172,880 
Tax credit carryforwards529,314 501,185 
Share-based compensation45,153 72,128 
Other61,489 6,199 
Operating lease liability85,154 109,176 
Cryptocurrency investment— 30,273 
Deferred consideration6,943 11,665 
Convertible notes33,952 52,915 
Safeguarding liability related to bitcoin held for other parties257,503 110,150 
Total deferred tax assets2,681,084 2,671,032 
Valuation allowance(2,001,438)(2,100,383)
Total deferred tax assets, net of valuation allowance679,646 570,649 
Deferred tax liabilities:
Property, equipment and intangible assets(332,512)(452,658)
Unrealized gain on investments(25,618)(29,554)
Operating lease right-of-use asset(60,600)(96,894)
Safeguarding asset related to bitcoin held for other parties(257,503)(110,150)
Cryptocurrency investment(29,711)— 
Total deferred tax liabilities(705,944)(689,256)
Net deferred tax liabilities$(26,298)$(118,607)

On October 31, 2023, the Company completed certain internal restructuring steps resulting in certain U.S. domiciled Afterpay entities (collectively "Afterpay U.S.") integrating into the Block, Inc. U.S. federal consolidated filing group (the "Company's U.S. consolidated group"). The intention of the integration is to improve U.S. tax compliance efficiencies and optimize funding opportunities for Afterpay U.S. The Company recognized a one-time tax benefit of $29.1 million in the year related to the internal restructuring. The integration may result in a change to the taxes owed by the Company's U.S. consolidated group in future years. This will be dependent on the income or loss generated by Afterpay U.S. or if certain conditions are met that enables the utilization of the carried over tax attributes of Afterpay U.S., which have utilization restrictions within the U.S. consolidated group post-integration.

Realization of deferred tax assets is dependent upon the generation of future taxable income, the timing and amount of which are uncertain. The Company's deferred tax assets and liabilities are primarily related to U.S. operations. In 2023, the Company's U.S. consolidated group generated a current tax provision resulting from the requirement to capitalize research and development expenses under Internal Revenue Code ("IRC") Section 174 and a decline in stock-based compensation deductions. The Company's U.S. consolidated group has significant deferred tax assets in the form of net operating loss carryovers, tax credit carryovers, capitalized costs resulting from the IRC Section 174 capitalization requirement, and other tax deductible temporary differences. Due to the history of tax losses generated by the Company's U.S. consolidated group, the Company believes it is not more likely than not that the deferred tax assets as of December 31, 2023 will be realized. Accordingly, the Company retained a full valuation allowance on the deferred tax assets of the Company's U.S. consolidated group.
The Company also has a history of tax losses in certain foreign jurisdictions, which it believes are not more likely than not to be realized as of December 31, 2023. Accordingly, the Company retained a full valuation allowance on its deferred tax assets in these jurisdictions. The amount of deferred tax assets considered realizable in future periods may change as management continues to reassess the underlying factors it uses in estimating future taxable income. The valuation allowance decreased by approximately $98.9 million and increased by $213.3 million during the years ended December 31, 2023, and 2022, respectively.

As of December 31, 2023, the Company had $2.4 billion of federal, $4.6 billion of state, and $1.6 billion of foreign net operating loss carryforwards. The remaining carryforward amounts have no expiration date. The state operating losses will begin to expire in 2025 and the foreign net operating loss carryforwards will begin to expire in 2024. As of December 31, 2023, the Company had $377.6 million of federal, $264.7 million of state, and $57.5 million of foreign research credit carryforwards. The remaining federal research credit carryforwards will begin to expire in 2038. The state and foreign credit carryforwards have no expiration date.
Utilization of the net operating loss carryforwards and credits may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before they are able to be utilized. The Company does not expect any previous ownership changes, as defined under Section 382 and 383 of the Internal Revenue Code, to result in an ultimate limitation that will materially reduce the total amount of net operating loss carryforwards and credits that can be utilized.
As of December 31, 2023, the Company had unrecognized tax benefits of $465.1 million, of which $80.2 million would impact the annual effective tax rate if recognized and the remainder of which would result in a corresponding adjustment to the valuation allowance.
The change in the balance of unrecognized tax benefit was as follows (in thousands):
Year Ended December 31,
202320222021
Unrecognized tax benefit, beginning of the period$506,512 $448,392 $295,182 
Gross increases and decreases related to prior period tax positions(7,348)5,431 6,552 
Gross increases and decreases related to current period tax positions(30,063)30,988 124,238 
Reductions related to lapse of statute of limitations(3,998)(2,950)— 
Gross increases related to acquisitions— 24,651 22,420 
Unrecognized tax benefit, end of the period$465,103 $506,512 $448,392 

The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. The Company had total accrued interest and penalties of $22.1 million, $9.1 million, and $7.8 million related to uncertain tax positions for the years ended December 31, 2023, 2022, and 2021, respectively. It is reasonably possible that over the next 12-month period the Company may experience a decrease in its unrecognized tax benefits as a result of tax examinations or lapses of statute of limitations. The estimated decrease in unrecognized tax benefits may range up to $17.6 million.
The Company is subject to taxation in the United States and various state and foreign jurisdictions. The Company is currently under examination in California for tax years 2013, 2014, and 2016 and in Texas for tax years 2015 to 2019. The Company’s various tax years starting with 2009 to 2022 remain open in various taxing jurisdictions.
As of December 31, 2023, the Company has not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences resulting from earnings for certain non-U.S. subsidiaries, which are permanently reinvested outside the U.S. Cumulative undistributed earnings for these non-U.S. subsidiaries as of December 31, 2023 are $113.2 million.