INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 21: INCOME TAXES

This note provides details about income taxes applicable to our operations, including the following:

• earnings before income taxes,

• provision for income taxes,

• effective income tax rate,

• deferred tax assets and liabilities,

• unrecognized tax benefits and

• resolution of IRS tax matter.

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

EARNINGS (LOSS) BEFORE INCOME TAXES

Domestic and Foreign Earnings (Loss) Before Income Taxes

DOLLAR AMOUNTS IN MILLIONS
	2019			2018		2017
Domestic earnings (loss)	$	(268	)	$	556	$	643
Foreign earnings		55			251		73
Total earnings (loss) before income taxes	$	(213	)	$	807	$	716

PROVISION (BENEFIT) FOR INCOME TAXES

Provision (Benefit) for Income Taxes

DOLLAR AMOUNTS IN MILLIONS
	2019			2018			2017
Current:
Federal	$	21		$	(69	)	$	10
State		1			(5	)		—
Foreign		10			61			82
Total current		32			(13	)		92
Deferred:
Federal		(137	)		45			61
State		(31	)		12			(18	)
Foreign		(1	)		15			(1	)
Total deferred		(169	)		72			42
Total income tax provision (benefit)	$	(137	)	$	59		$	134

EFFECTIVE INCOME TAX RATE

Effective Income Tax Rate

DOLLAR AMOUNTS IN MILLIONS
	2019			2018			2017
U.S. federal statutory income tax	$	(45	)	$	170		$	250
State income taxes, net of federal tax benefit		(31	)		8			(2	)
REIT income not subject to federal income tax		(68	)		(116	)		(198	)
SDT settlement(1)		—			21			—
Tax effect of U.S. corporate rate change(2)		—			—			74
Voluntary pension contribution(3)		—			(41	)		—
Return to provision adjustment		4			(1	)		2
Foreign taxes		(2	)		15			54
Repatriation of Canadian earnings		—			—			(22	)
Other, net		5			3			(24	)
Total income tax provision (benefit)	$	(137	)	$	59		$	134
Effective income tax rate	64.1%			7.3%			18.8%

(1) In fourth quarter 2018, we recorded tax expense of $21 million related to the settlement of a dispute with the IRS. Refer to “Resolution of IRS Matter” below for further information.

(2) In December 2017, H.R. 1 (the Tax Act) was enacted. The Tax Act contained significant changes to corporate taxation, including a reduction in the corporate tax rate from 35 percent to 21 percent. As a result of this change, we revalued our deferred tax assets and liabilities and recorded tax expense of $74 million during 2017, which reduced our net deferred tax asset.

(3) At the end of 2017, we revalued our deferred tax assets and liabilities to the 21 percent federal tax rate prescribed by the Tax Act. During 2018, we made a voluntary contribution of $300 million to our U.S. qualified pension plan. We deducted this contribution on our 2017 U.S. federal tax return at the 2017 federal tax rate of 35 percent. This resulted in an incremental $41 million tax benefit for the portion attributable to our TRSs. Refer to Note 9: Pension and Other Postretirement Benefit Plans for further information on the voluntary contribution.

DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets and liabilities reflect the future tax effect created by differences between the timing of when income or deductions are recognized for pretax financial book reporting purposes versus income tax purposes. Deferred tax assets represent a future tax benefit (or reduction to income taxes in a future period), while deferred tax liabilities represent a future tax obligation (or increase to income taxes in a future period).

Balance Sheet Classification of Deferred Income Tax Assets (Liabilities)

DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2019			DECEMBER 31, 2018
Net noncurrent deferred tax asset	$	72		$	15
Net noncurrent deferred tax liability		(6	)		(43	)
Net deferred tax asset (liability)	$	66		$	(28	)

Items Included in Our Deferred Income Tax Assets (Liabilities)

DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2019			DECEMBER 31, 2018
Deferred tax assets:
Pension and postretirement benefits	$	159		$	112
State tax credits		53			51
Depletion		34			41
Excess interest		55			30
Incentive compensation		17			20
Workers compensation		18			18
Net operating loss carryforwards		28			19
Other		101			96
Gross deferred tax assets		465			387
Valuation allowance		(64	)		(61	)
Net deferred tax assets		401			326
Deferred tax liabilities:
Property, plant and equipment		(224	)		(197	)
Timber installment notes		(74	)		(116	)
Other		(37	)		(41	)
Net deferred tax liabilities		(335	)		(354	)
Net deferred tax asset (liability)	$	66		$	(28	)

Net Operating Loss and Credit Carryforwards

Our gross federal, state and foreign net operating loss carryforwards as of December 31, 2019 totaled $850 million as follows:

• Federal - U.S. REIT - $302 million, which expire from 2034 through 2036;

• State - $548 million, which will begin to expire in 2022; and

• Foreign - none currently recorded.

Our gross state credit carryforwards as of December 31, 2019 totaled $67 million, which includes $16 million that expire from 2020 through 2033 and $51 million that do not expire. Our U.S. TRSs have $7 million in foreign tax credit carryforwards that expire from 2027 through 2028.

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 $64 million as of December 31, 2019, which related to state credits, state net operating losses and passive foreign tax credits.

Reinvestment of Undistributed Earnings

Starting in 2018, we revised our indefinite reinvestment assertion regarding the earnings of our Canadian subsidiary to permanently reinvest approximately 10 percent of its earnings. Our change in assertion was based on the company’s review of global cash management and planned capital deployment, taking into consideration the effects of the Tax Act. We have no other foreign subsidiaries with undistributed earnings. Accordingly, deferred taxes have been provided primarily related to Canadian withholding taxes associated with Canadian earnings no longer considered permanently reinvested.

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. In accordance with our accounting policy, we accrue interest and penalties related to unrecognized tax benefits as a component of income tax expense (see Note 1: Summary of Significant Accounting Policies). The total gross amount of unrecognized tax benefits as of December 31, 2019 and 2018, as well as the activity during those years, were immaterial.

As of December 31, 2019, our 2016 and 2017 U.S. federal income tax returns are under examination. No foreign jurisdiction income tax returns are under examination. Our U.S. federal income tax returns are open to examination for years 2016 forward and foreign jurisdiction income tax returns are open to examination for years 2012 forward. We are undergoing examinations in state jurisdictions for tax years 2009 through 2017, with tax years 2009 forward open to examination. We do not expect that the outcome of any examination will have a material effect on our consolidated financial statements; however, audit outcomes and the timing of audit settlements are subject to significant uncertainty.

RESOLUTION OF IRS MATTER

In connection with the merger with Plum Creek, we acquired equity interests in Southern Diversified Timber, LLC (SDT), a timberland joint venture (Timberland Venture) with an affiliate of Campbell Global LLC (TCG Member). On August 31, 2016, the Timberland Venture redeemed TCG Member's interest and became a fully consolidated, wholly-owned subsidiary of Weyerhaeuser.

We received a Notice of Final Partnership Administrative Adjustment (FPAA) dated July 20, 2016, from the Internal Revenue Service (IRS) in regard to Plum Creek's 2008 U.S. federal income tax treatment of the transaction forming the Timberland Venture. The IRS asserted that the transfer of the timberlands to the Timberland Venture was a taxable transaction to Plum Creek at the time of the transfer rather than a nontaxable capital contribution. We subsequently filed a petition in the U.S. Tax Court to contest this adjustment.

On February 8, 2019, we entered into a closing agreement with the IRS to settle this dispute. Under the terms of the agreement, the company paid approximately $21 million of corporate tax. This amount was recorded as tax expense in fourth quarter 2018. No interest or penalties were assessed. The parties filed a stipulated decision with the U.S. Tax Court, pursuant to which the Court officially closed the matter.