INCOME TAXES

This note provides details about our income taxes applicable to continuing operations:


•	earnings before income taxes,


•	provision for income taxes,


•	effective income tax rate,


•	deferred tax assets and liabilities and


•	unrecognized tax benefits.

Income taxes related to discontinued operations are discussed in Note 5: Discontinued Operations.

EARNINGS BEFORE INCOME TAXES

Domestic and Foreign Earnings (Loss) From Continuing Operations Before Income Taxes



DOLLAR AMOUNTS IN MILLIONS
	2013		2012			2011
Domestic earnings	$	312	$	450		$	341
Foreign earnings (loss)	122		(11		)	(84		)
Total	$	434	$	439		$	257

PROVISION FOR INCOME TAXES

Provision (Benefit) for Income Taxes From Continuing Operations



DOLLAR AMOUNTS IN MILLIONS
	2013			2012			2011
Current:
Federal	$	(63	)	$	(69	)	$	(73	)
State	(16		)	(11		)	16
Foreign	(21		)	26			8
	(100		)	(54		)	(49		)
Deferred:
Federal	(60		)	39			11
State	10			4			(11		)
Foreign	21			66			(13		)
	(29		)	109			(13		)
Total income tax provision (benefit)	$	(129	)	$	55		$	(62	)

Included in our income tax provision for 2012 are recomputations of prior year taxes, resulting in reclassifications between foreign and domestic for both current and deferred taxes as a result of final tax proceedings between countries.

EFFECTIVE INCOME TAX RATE

Effective Income Tax Rate Applicable to Continuing Operations



DOLLAR AMOUNTS IN MILLIONS
	2013			2012			2011
U.S. federal statutory income tax	$	152		$	154		$	90
State income taxes, net of federal tax benefit	13			6			4
REIT income not subject to federal income tax	(101		)	(94		)	(80		)
Foreign taxes	(8		)	8			20
Provision for unrecognized tax benefits	(193		)	(6		)	(7		)
Repatriation of Canadian earnings	21			—			(76		)
State income tax settlement	—			(10		)	—
Domestic production activities deduction	(13		)	—			—
Other, net	—			(3		)	(13		)
Total income tax provision (benefit)	$	(129	)	$	55		$	(62	)
Effective income tax rate	(29.9		)%	12.5		%	(23.3		)%

DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets and liabilities reflect temporary differences between pretax book income and taxable income. Deferred tax assets represent tax benefits that have already been recorded for book purposes but will be recorded for tax purposes in the future. Deferred tax liabilities represent income that has been recorded for book purposes but will be reported as taxable income in the future.

Deferred Income Tax Assets (Liabilities) Related to Continuing Operations by Category



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2013			DECEMBER 31, 2012
Assets:
Current	$	151		$	88
Noncurrent - domestic	37			285
Noncurrent - foreign	4			83
Noncurrent liabilities - domestic	(206		)	—
Net deferred tax asset (liability)	$	(14	)	$	456

Items Included in Our Deferred Income Tax Assets (Liabilities)



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2013			DECEMBER 31, 2012
Postretirement benefits	$	102		$	144
Pension	57			521
Real estate impairments	214			115
State tax credits	59			59
Net operating loss carryforwards	144			187
Cellulosic biofuel producers credit	80			240
Other	310			336
Gross deferred tax assets	966			1,602
Valuation allowance	(97		)	(144		)
Net deferred tax assets	869			1,458
Property, plant and equipment	(538		)	(577		)
Timber installment notes	(180		)	(240		)
Other	(165		)	(185		)
Deferred tax liabilities	(883		)	(1,002		)
Net deferred tax asset (liability)	$	(14	)	$	456

OTHER INFORMATION ABOUT OUR DEFERRED INCOME TAX ASSETS (LIABILITIES)

Other information about our deferred income tax assets (liabilities) include:


•	net operating loss carryforwards,


•	valuation allowances and


•	reinvestment of undistributed earnings.

Net Operating Loss Carryforwards

Our state and foreign net operating loss carryforwards as of the end of 2013 are as follows:


•	$616 million, which expire from 2014 through 2033; and


•	$36 million, which do not expire.

Valuation Allowances

With the exception of the valuation allowance discussed below, we believe it is more likely than not that we will have sufficient future taxable income to realize our deferred tax assets.

Our valuation allowance on our deferred tax assets was $97 million as of the end of 2013. This primarily related to foreign and state net operating losses and state and provincial credits.

The total changes in our valuation allowance over the last year was a net decrease of $47 million. This net decrease resulted primarily from expiration of foreign and state net operating losses and credits.

Reinvestment of Undistributed Earnings

The balance of our foreign undistributed earnings was approximately $23 million at the end of 2013 and has been permanently reinvested; therefore, it is not subject to U.S. income tax. Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability on the remaining undistributed earnings.

HOW WE ACCOUNT FOR INCOME TAXES

The Income Taxes section of Note 1: Summary of Significant Accounting Policies provides details about how we account for our income taxes.

UNRECOGNIZED TAX BENEFITS

Unrecognized tax benefits represent potential future obligations to taxing authorities if uncertain tax positions we have taken on previously filed tax returns are not sustained. The total amount of unrecognized tax benefits as of December 31, 2013 and 2012, are $26 million and $177 million, respectively, which does not include related interest of $4 million and $15 million, respectively. These amounts represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were not sustained, such as the federal deduction that could be realized if an unrecognized state deduction was not sustained.

Reconciliation of the Beginning and Ending Amount of Unrecognized Tax Benefits



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2013			DECEMBER 31, 2012
Balance at beginning of year	$	177		$	251
Additions for tax positions of prior years	—			2
Reductions for tax positions of prior years	(148		)	(21		)
Settlements	—			(53		)
Lapse of statute	(3		)	(2		)
Balance at end of year	$	26		$	177

The net liability recorded in our Consolidated Balance Sheet related to unrecognized tax benefits was $24 million as of December 31, 2013, and $185 million as of December 31, 2012, which includes interest of $4 million and $15 million respectively, net of payments made in advance of settlements.

The net liability recorded for tax positions across all jurisdictions that, if sustained, would affect our effective tax rate was $16 million as of December 31, 2013, and $159 million as of December 31, 2012, which includes interest of $4 million and $15 million, respectively.

During fourth quarter 2013, we received a final examination report from the IRS regarding our years under exam. As a result, we recognized a benefit for the reduction of our unrecognized tax benefits primarily relating to alternative fuel mixture credits. In addition, we recognized a benefit for a reduction of interest accrued primarily related to the U.S./Canada Competent Authority settlement. During third quarter 2012, as a result of reaching agreements with taxing authorities, we reduced our unrecognized tax benefits. This led to reclasses between our long-term tax receivables and payables and reduced our tax provision by $7 million.

In accordance with our accounting policy, we accrue interest and penalties related to unrecognized tax benefits as a component of income tax expense.

As of December 31, 2013, no U.S. federal income tax returns are under exam. Our U.S. federal statute is open for years 2008 forward. We are undergoing examinations in various state jurisdictions for tax years 2008-2011 and various foreign jurisdictions for tax years 2005-2012. We expect that the outcome of any examination will not have a material effect on our consolidated financial statements; however, audit outcomes and the timing of audit settlements are subject to significant uncertainty.

In the next 12 months, we estimate a decrease of up to $15 million in unrecognized tax benefits on several tax positions due to the lapse of applicable statutes of limitation.