Provision for Income Taxes The components of income from continuing operations before income taxes and the related provision for income taxes for 2019, 2018, and 2017 are as follows:



(In millions)	2019			2018			2017
Income from continuing operations before income taxes:
Domestic	$	79.2		$	82.2		$	28.3
Foreign	104.3			162.7			182.6
Total	$	183.5		$	244.9		$	210.9
Benefit from (provision for) income taxes:
Federal—current	$	(6.3	)	$	(4.9	)	$	—
Federal—deferred	(19.8		)	(29.3		)	(144.6		)
State and local—current	(0.5		)	1.6			0.2
State and local—deferred	(5.8		)	(3.5		)	(1.7		)
Foreign—current	(42.4		)	(49.9		)	(50.8		)
Foreign—deferred	18.0			7.9			(3.6		)
Total	$	(56.8	)	$	(78.1	)	$	(200.5	)

The difference between the benefit from (provision for) income taxes on continuing operations at the U.S. federal income tax rate of 21% and Grace’s overall income tax provision is summarized as follows:



(In millions)	2019			2018			2017
Tax provision at U.S. federal income tax rate	$	(38.5	)	$	(51.4	)	$	(73.8	)
Change in benefit (provision) resulting from:
U.S. taxes on foreign earnings	(16.7		)	(30.9		)	(1.2		)
Decrease (increase) in valuation allowance	(4.2		)	(6.3		)	(0.3		)
Research and development credit	3.4			9.4			5.1
State and local income taxes, net	(3.4		)	(1.9		)	(1.8		)
Provision to return adjustments	3.0			(0.7		)	6.4
Effect of tax rate differential in foreign jurisdictions	(2.9		)	(11.3		)	13.3
Nontaxable income/non-deductible expenses	(2.5		)	(1.6		)	(2.6		)
Unrecognized tax benefit (accruals) releases	2.3			5.7			—
Compensation-related adjustments	(1.7		)	(3.4		)	2.7
Benefits (charges) related to U.S. tax reform	—			17.1			(143.0		)
Other	4.4			(2.8		)	(5.3		)
Benefit from (provision for) income taxes	$	(56.8	)	$	(78.1	)	$	(200.5	)

The TCJA was signed into law on December 22, 2017. In 2017 Grace estimated its provision for income taxes in accordance with the TCJA and guidance available at the time and as a result recorded a provisional income tax expense of $143.0 million in the 2017 fourth quarter. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was $120.1 million.

The provisional amounts related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings and the state and foreign taxes on the unremitted earnings were $37.4 million and $4.9 million, respectively. Effective December 31, 2017, Grace is no longer indefinitely reinvested with respect to its historical unremitted earnings of its foreign subsidiaries. In the fourth quarter of 2018 Grace finalized the provisional amounts recorded in the fourth quarter of 2017, which resulted in reductions of $9.5 million and $2.7 million in the one-time transition tax of foreign earnings and the state and foreign taxes on the unremitted earnings, respectively. The net reduction of the transition tax was due primarily to additional review of historical tax attributes of Grace’s foreign subsidiaries and changes in estimate based on guidance issued during the year.

The provision for income taxes in 2019 was lower than in 2018 primarily due to a decrease in taxable income in foreign jurisdictions where the statutory tax rates are higher than the statutory rates of the U.S., and a deduction against the GILTI inclusion under Internal Revenue Code (“IRC”) Section 250 that was not available in 2018 due to U.S. federal net operating loss (“NOL”) carryforwards.



	December 31,
(In millions)	2019			2018
Deferred tax assets:
Tax credit carryforwards	$	294.7		$	291.0
Pension liabilities	107.7			82.7
Net operating loss carryforwards	60.3			102.9
Environmental remediation liabilities	47.0			29.3
Research and development	26.6			24.6
Reserves and allowances	14.8			22.8
Unrealized currency gains and losses	12.1			12.8
Operating lease liabilities	8.1			—
Prepaid royalties	6.3			3.0
Compensation-related	5.4			6.5
Other	6.9			6.5
Total deferred tax assets	$	589.9		$	582.1
Deferred tax liabilities:
Intangible assets	$	(27.7	)	$	(24.9	)
Properties and equipment	(18.6		)	(13.2		)
Operating lease assets	(8.0		)	—
Other	(1.4		)	(5.6		)
Total deferred tax liabilities	$	(55.7	)	$	(43.7	)
Valuation allowances	(24.1		)	(19.9		)
Net deferred tax assets	$	510.1		$	518.5

Grace reduces the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized (see Note 1). The valuation allowance increased by $4.2 million from December 31, 2018, to December 31, 2019, mostly due to a $3.5 million increase to the valuation allowance for state deferred taxes, and a $5.8 million increase related to foreign net deferred taxes, offset by $4.9 million related to the write-off of expired U.S. federal foreign tax credits and the corresponding valuation allowance.

Tax Attributes—Tax Credit and Net Operating Loss Carryforwards Grace has $302.5 million in federal tax credit carryforwards before unrecognized tax benefits. In order to fully utilize the credits before they expire (from 2021 to 2039), Grace would need to generate income of approximately $1.4 billion.

Grace has state net operating loss carryforwards of $51.2 million and state tax credits of $1.9 million before valuation allowances and unrecognized tax benefits. In order to fully utilize the state tax attributes before they expire (from 2020 to 2036), Grace would need to generate approximately $2.5 billion in state taxable income.



	December 31,
(In millions)	2019			2018
Net operating loss carryforwards
U.S. state net operating losses	$	49.5		$	52.9
U.S. federal net operating losses	1.2			44.3
Foreign net operating losses	9.6			5.7
Net operating loss carryforwards	$	60.3		$	102.9

Net operating loss—valuation allowances
U.S. state—NOL valuation allowances	$	(10.1	)	$	(6.6	)
Foreign—NOL valuation allowances	(8.0		)	(4.2		)
Net operating loss—valuation allowances	$	(18.1	)	$	(10.8	)

Unrecognized Tax Benefits The balance of unrecognized tax benefits at December 31, 2019, was $15.4 million compared with $14.1 million at December 31, 2018. A rollforward of the unrecognized tax benefits for the three years ended December 31, 2019, follows.



	December 31,
(In millions)	2019			2018			2017
Balance at beginning of year	$	14.1		$	17.7		$	18.7
Increase (decrease) in positions taken in prior periods	2.6			1.2			(1.8		)
Positions taken in the current period	2.9			0.9			0.8
Decrease due to settlements with tax authorities	(4.2		)	(5.7		)	—
Balance at end of year	$	15.4		$	14.1		$	17.7

If the balance of unrecognized tax benefits as of December 31, 2019, of $15.4 million is ultimately recognized, it would reduce the effective tax rate. A portion of this balance relates to tax positions that impact Grace’s deferred tax assets as of December 31, 2019. Grace accrues potential interest and any associated penalties related to unrecognized tax benefits in “benefit from (provision for) income taxes” in the Consolidated Statements of Operations. Grace accrued $0.1 million of interest and penalties associated with these unrecognized tax benefits in 2019. Grace believes that the amount of the liability for unrecognized tax benefits will not change materially in the next 12 months.

Grace is subject to taxation in the U.S. and various states and foreign jurisdictions and is under continual audit by various tax authorities. As of December 31, 2019, tax years 2017 and 2018 are subject to examination by the U.S. tax authorities. In the significant non-U.S. jurisdiction, tax years 2014 and forward are subject to examination by the German tax authorities. Grace has tax attributes generated in prior years that are otherwise closed by statute and were carried forward into years that are open to examination. Those attributes may still be subject to adjustment to the extent utilized in open years.