Income Taxes

9 Months Ended

Sep. 30, 2019

Effective Tax Rate

The effective income tax rate is influenced by a variety of factors including the geographic and functional sources of income and the relative magnitude of these sources of income. The difference between the total provision and the sum of the amounts allocated to segments is reported in the “Not Allocated to Segments” column of the tables in Note 7.

For the three and nine months ended September 30, 2019 and 2018, our effective income tax rates were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Effective income tax expense (benefit) rate^(a)	6	%	29	%	(27	)%	31	%


^(a)	In all periods presented, we maintained our valuation allowance on our net federal deferred tax assets in the U.S.

The following items caused the effective income tax rates to be different from our U.S. statutory tax rate of 21% for 2019 and 2018:

•

Income taxes for the third quarter of 2019 were impacted by the income mix between domestic and international operations. Income taxes for the nine months ended September 30, 2019 were impacted by the settlement of the 2010-2011 U.S. Federal Tax Audit (“IRS Audit”) in the first quarter of 2019, resulting in a tax benefit of $126 million. Additionally, in the first quarter of 2019, we recorded a non-cash deferred tax benefit of $18 million in the U.K. related to an internal restructuring. These two items are discrete to the first nine months of 2019. Excluding these discrete adjustments, the effective income tax rate for the first nine months of 2019 was an expense of 10%.


•	Income taxes for the third quarter of 2018 were impacted by deferred tax expense in the U.K. During the nine months ended September 30, 2018, income taxes were impacted by the tax expense in Libya of $162 million.

As a result of the IRS Audit settlement in the first quarter of 2019, the uncertain tax positions previously established are now effectively settled. The release of the accrued uncertain tax positions resulted in a $126 million tax benefit, primarily related to the additional alternative minimum tax (“AMT”) credits, see Note 23 for further detail.

Pursuant to the Tax Sharing Agreement we entered into with Marathon Petroleum Corporation (“MPC”) in connection with the 2011 spin-off transaction, MPC agreed to indemnify us for certain liabilities. In addition to the benefit from the settlement of the IRS Audit in the first quarter of 2019, we recorded a current receivable and other income of $42 million for indemnity payments due from MPC for tax expense and interest we had previously recognized. The indemnity relates to tax and interest allocable to MPC as a result of the IRS Audit. During the second quarter of 2019, we paid the IRS and were subsequently reimbursed by MPC for settlement of their indemnity obligation.

During the first quarter of 2019, we withdrew our appeal related to the Brae area decommissioning costs in the U.K., thus the uncertain tax positions previously established are now considered effectively settled with no tax expense or benefit impact.