The effective tax rate is 26.6% as of September 30, 2017, compared with 35.6% for the year ended December 31, 2016. The 2017 tax rate includes discrete benefits of $2.9 million for share-based compensation deductions, $2.4 million for return to provision and deferred tax adjustments, $2.0 million for a tax law change in Illinois, and $1.6 million for an increase in research and development credits, partially offset by a charge of $1.1 million for a tax law change in Tennessee. The 2016 tax rate included $10.1 million in discrete charges caused by an increase in the valuation allowance on deferred tax assets, partially offset by a discrete benefit of $6.7 million for share-based compensation deductions.

In the third quarter, Grace recorded an out-of-period adjustment to recognize the accumulated deferred tax liability for its euro loan net investment hedge discussed in Note 4. The impact of this correction was a reduction in deferred tax assets on the consolidated balance sheet as of September 30, 2017, and a tax charge recorded in "other comprehensive income (loss)" of $14.2 million and $16.9 million for the three and nine months ended September 30, 2017, respectively. Grace has assessed the impact of this error and concluded that the amount was not material to any prior-period financial statements and the impact of correcting this error in the current period is not material.

Grace generated U.S. federal tax deductions relating to its emergence from bankruptcy in 2014. The deductions generated U.S. federal NOLs, which Grace has carried forward and expects to utilize in subsequent years. Under U.S. federal income tax law, a corporation is generally permitted to carry forward NOLs for a 20-year period for deduction against future taxable income. Grace also generated U.S. federal tax deductions of $30 million upon payment of the ZAI PD obligation in the 2017 first quarter. (See Note 8.)

The following table summarizes the balance of deferred tax assets, net of deferred tax liabilities, at September 30, 2017, of $691.0 million:



(In millions)	Deferred Tax Asset (Net of Liabilities)		Valuation Allowance			Net Deferred Tax Asset
United States—Federal	$	615.7	$	(17.7	)	$	598.0
United States—States	54.6		(11.2		)	43.4
Germany	44.1		—			44.1
Other foreign	8.0		(2.5		)	5.5
Total	$	722.4	$	(31.4	)	$	691.0

Grace will need to generate approximately $1,700 million of U.S. federal taxable income by 2035 (or approximately $95 million per year during the carryforward period) to fully realize the U.S. federal net deferred tax assets.

The following table summarizes expiration dates in jurisdictions where Grace has, or will have, material tax loss and credit carryforwards:



	Expiration Dates
United States—Federal (NOLs)	2034 - 2035
United States—Federal (Credits)	2019 - 2027
United States—States (NOLs)	2017 - 2035

In evaluating its ability to realize its deferred tax assets, Grace considers all reasonably available positive and negative evidence, including recent earnings experience, expectations of future taxable income and the tax character of that income, the period of time over which the temporary differences become deductible and the carryforward and/or carryback periods available to Grace for tax reporting purposes in the related jurisdiction. In estimating future taxable income, Grace relies upon assumptions and estimates about future activities, including the amount of future federal, state and international pretax operating income that Grace will generate; the reversal of temporary differences; and the implementation of feasible and prudent tax planning strategies. Grace records a valuation allowance to reduce deferred tax assets to the amount that it believes is more likely than not to be realized.