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 3: Discontinued Operations.

EARNINGS BEFORE INCOME TAXES

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



DOLLAR AMOUNTS IN MILLIONS
	2014		2013		2012
Domestic earnings	$	970	$	198	$	333
Foreign earnings (loss)	43		122		(11		)
Total	$	1,013	$	320	$	322

PROVISION FOR INCOME TAXES

Provision (Benefit) for Income Taxes From Continuing Operations



DOLLAR AMOUNTS IN MILLIONS
	2014			2013			2012
Current:
Federal	$	(26	)	$	(80	)	$	(78	)
State	12			(18		)	(11		)
Foreign	3			(21		)	26
	(11		)	(119		)	(63		)
Deferred:
Federal	178			(79		)	6
State	6			6			1
Foreign	12			21			66
	196			(52		)	73
Total income tax provision (benefit)	$	185		$	(171	)	$	10

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
	2014			2013			2012
U.S. federal statutory income tax	$	354		$	112		$	113
State income taxes, net of federal tax benefit	14			7			3
REIT income not subject to federal income tax	(161		)	(101		)	(94		)
Foreign taxes	(2		)	(8		)	8
Provision for unrecognized tax benefits	(4		)	(193		)	(6		)
Repatriation of Canadian earnings	—			21			—
State income tax settlement	—			—			(10		)
Domestic production activities deduction	—			(13		)	—
Other, net	(16		)	4			(4		)
Total income tax provision (benefit)	$	185		$	(171	)	$	10
Effective income tax rate	18.3		%	(53.4		)%	3.1		%

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.

Balance Sheet Classification of Deferred Income Tax Assets (Liabilities) Related to Continuing Operations



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2014			DECEMBER 31, 2013
Net current deferred tax asset	$	228		$	130
Net noncurrent deferred tax asset	8			5
Net noncurrent deferred tax liability	(206		)	(285		)
Net deferred tax asset (liability)	$	30		$	(150	)

Items Included in Our Deferred Income Tax Assets (Liabilities)



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2014			DECEMBER 31, 2013
Postretirement benefits	$	101		$	102
Pension	369			57
Real estate impairments	—			121
State tax credits	56			59
Net operating loss carryforwards	86			110
Cellulosic biofuel producers credit	100			80
Other	223			260
Gross deferred tax assets	935			789
Valuation allowance	(72		)	(89		)
Net deferred tax assets	863			700
Property, plant and equipment	(523		)	(540		)
Timber installment notes	(180		)	(180		)
Other	(130		)	(130		)
Deferred tax liabilities	(833		)	(850		)
Net deferred tax asset (liability)	$	30		$	(150	)

OTHER INFORMATION ABOUT OUR DEFERRED INCOME TAX ASSETS (LIABILITIES)

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


•	net operating loss and credit carryforwards,


•	valuation allowances and


•	reinvestment of undistributed earnings.

Net Operating Loss and Credit Carryforwards

Our state and foreign net operating loss carryforwards as of the end of 2014 are as follows:


•	$586 million, which expire from 2015 through 2034; and


•	$1 million, which do not expire.

Our federal, state and foreign credit carryforwards as of the end of 2014 are as follows:


•	$148 million, which expire from 2015 through 2034; and


•	$31 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 $72 million as of the end of 2014. 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 $17 million. This net decrease resulted primarily from the disposition of foreign entities with net operating losses and the expiration of foreign and state net operating losses and credits.

Reinvestment of Undistributed Earnings

The balance of our foreign undistributed earnings was approximately $27 million at the end of 2014 and is 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 related to investments in our foreign subsidiaries.

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, 2014 and 2013, are $11 million and $26 million, respectively, which does not include related interest of $3 million and $4 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, 2014			DECEMBER 31, 2013
Balance at beginning of year	$	26		$	177
Reductions for tax positions of prior years	—			(148		)
Lapse of statute	(15		)	(3		)
Balance at end of year	$	11		$	26

The net liability recorded in our Consolidated Balance Sheet related to unrecognized tax benefits was $4 million as of December 31, 2014, which includes interest of $3 million and is net of $6 million in payments made in advance of settlements and $4 million in credits and loss carryovers available to offset the liability. The net liability as of December 31, 2013, was $24 million, which includes interest of $4 million and is net of $6 million in 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 $12 million as of December 31, 2014, and $16 million as of December 31, 2013, which includes interest of $3 million and $4 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.

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, 2014, no U.S. federal income tax returns are under examination, with years 2011 forward subject to examination. No state jurisdictions are under examination, with years 2009 forward subject to examination. We are undergoing and are subject to examinations in various foreign jurisdictions for tax years 2005 forward. 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 $6 million in unrecognized tax benefits due to resolution of examinations.