Note 7 – Provision (Benefit) for Income Taxes

The Provision (benefit) for income taxes includes:



	Years Ended December 31,
	2015			2014			2013
	(Millions)
Current:
Federal	$	—		$	(9	)	$	(17	)
State	(7		)	2			7
Foreign	(55		)	10			(13		)
	(62		)	3			(23		)
Deferred:
Federal	(317		)	1,108			348
State	(25		)	119			40
Foreign	5			19			36
	(337		)	1,246			424
Provision (benefit) for income taxes	$	(399	)	$	1,249		$	401

Reconciliations from the Provision (benefit) at statutory rate to recorded Provision (benefit) for income taxes are as follows:



	Years Ended December 31,
	2015			2014			2013
	(Millions)
Provision (benefit) at statutory rate	$	(600	)	$	1,255		$	378
Increases (decreases) in taxes resulting from:
Impact of nontaxable noncontrolling interests	263			(75		)	(78		)
State income taxes (net of federal benefit)	(21		)	82			26
Foreign operations – net	8			(11		)	(32		)
Taxes on undistributed earnings of foreign subsidiaries – net	—			(37		)	99
Translation adjustment of certain unrecognized tax benefits	(71		)	—			—
Other – net	22			35			8
Provision (benefit) for income taxes	$	(399	)	$	1,249		$	401

Income (loss) from continuing operations before income taxes includes $20 million, $102 million, and $119 million of foreign income in 2015, 2014, and 2013, respectively.

The 2015 federal and state income tax provisions include the tax effect of a $2.7 billion impairment loss associated with certain goodwill, equity-method investments, and other assets. (See Note 17 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk). The Translation adjustment of certain unrecognized tax benefits in 2015 reflects the impact of changes in foreign currency exchange rates on the remeasurement of a foreign currency denominated unrecognized tax benefit, including associated penalties and interest.

The 2014 federal and state income tax provisions include the tax effect of a $2.5 billion gain associated with remeasuring our equity-method investment to fair value as a result of the ACMP Acquisition. (See Note 2 – Acquisitions).

On October 30, 2013, WPZ announced its intent to pursue an agreement to acquire certain of our Canadian operations. As a result, we no longer considered the undistributed earnings from these foreign operations to be permanently reinvested and thus recognized $99 million of deferred income tax expense in continuing operations and $24 million of deferred income tax benefit in AOCI during 2013. Taxes on undistributed earnings of foreign subsidiaries – net decreased in 2014 due to revisions of our estimate of the undistributed earnings, partially offset by an increase of tax expense, which decreased our share of the foreign tax credit due to the Canada Dropdown.

During the course of audits of our business by domestic and foreign tax authorities, we frequently face challenges regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the liability associated with our various filing positions, we apply the two-step process of recognition and measurement. In association with this liability, we record an estimate of related interest and tax exposure as a component of our tax provision. The impact of this accrual is included within Other – net in our reconciliation of the Provision (benefit) at statutory rate to recorded Provision (benefit) for income taxes.

Significant components of Deferred income tax liabilities and Deferred income tax assets are as follows:



	December 31,
	2015		2014
	(Millions)
Deferred income tax liabilities:
Property, plant, and equipment	$	4	$	4
Investments	5,272		5,472
Other	15		10
Total deferred income tax liabilities	5,291		5,486
Deferred income tax assets:
Accrued liabilities	150		178
Minimum tax credits	139		137
Foreign tax credit	193		251
Federal loss carryovers	485		134
State losses and credits	296		250
Other	42		97
Total deferred income tax assets	1,305		1,047
Less valuation allowance	190		206
Net deferred income tax assets	1,115		841
Overall net deferred income tax liabilities	$	4,176	$	4,645

The valuation allowance at December 31, 2015 and 2014 serves to reduce the available deferred income tax assets to an amount that will, more likely than not, be realized. We consider all available positive and negative evidence, including projected future taxable income, and have determined that a portion of our deferred income tax assets related to State losses and credits may not be realized. The change in Valuation allowance is due to this evaluation. The amounts presented in the table above are, with respect to state items, before any federal benefit. The change from prior year for the State losses and credits is primarily due to increases in losses and credits generated in the current and prior years less losses and/or credits utilized in the current year. We have loss and credit carryovers in multiple state taxing jurisdictions. These attributes generally expire between 2016 and 2035 with some carryovers having indefinite carryforward periods. The federal tax Minimum tax credits of $139 million currently has no expiration date. Foreign tax credit of $139 million is expected to be utilized prior to expiration in 2025. The remaining Foreign tax credit represents unrealized foreign tax credit that will be allocated to us in the future when deferred income tax liabilities associated with temporary differences on foreign assets and liabilities become current income tax liabilities in the foreign jurisdiction.

Federal net operating loss carryovers and charitable contribution carryovers of $1.5 billion at the end of 2015 are expected to be utilized by us prior to expiration between 2018 and 2035. Employee share-based compensation attributable to the exercise of stock options and vesting of restricted stock is deductible by us for tax purposes. To the extent these tax deductions exceed the previously accrued deferred income tax benefit for these items, the additional tax benefit is not recognized until the deduction reduces current income taxes payable. Since the additional tax benefit does not reduce our current income taxes payable for 2015 and 2014, these tax benefits are not included in our Federal loss carryovers deferred income tax assets. The additional tax benefits deductible for tax purposes but not included in our Federal loss carryovers deferred income tax assets were $23 million each for 2015 and 2014.

Cash refunds for income taxes (net of payments and discontinued operations) were $136 million and $50 million in 2015 and 2013, respectively. Cash payments for income taxes (net of refunds) in 2014 were $29 million.

As of December 31, 2015, we had approximately $55 million of unrecognized tax benefits. If recognized, income tax expense would be reduced by $51 million, including the effect of these changes on other tax attributes, with state income tax amounts included net of federal tax effect. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2015			2014
	(Millions)
Balance at beginning of period	$	89		$	66
Additions based on tax positions related to the current year	—			11
Additions for tax positions of prior years	2			12
Reductions for tax positions of prior years	—			—
Settlement with taxing authorities	—			—
Changes due to currency translation	(36		)	—
Balance at end of period	$	55		$	89

We recognize related interest and penalties as a component of Provision (benefit) for income taxes. Total interest and penalties recognized as part of income tax provision were benefits of $22 million for 2015, including a $35 million benefit due to currency fluctuation, and expense of $8 million and $9 million for 2014 and 2013, respectively. Approximately $2 million and $24 million of interest and penalties primarily relating to uncertain tax positions have been accrued as of December 31, 2015 and 2014, respectively. Changes due to currency translation in 2015 reflects the unrecognized tax benefit portion of the previously described impact of changes in foreign currency exchange rates on the remeasurement of a foreign currency denominated balance.

During the next 12 months, we do not expect ultimate resolution of any unrecognized tax benefit associated with domestic or international matters to have a material impact on our unrecognized tax benefit position.

Consolidated U.S Federal income tax returns are open to IRS examination for years after 2010. As of December 31, 2015, examinations of tax returns for 2011 through 2013 are currently in process. We do not expect material changes in our financial position resulting from these examinations. The statute of limitations for most states expires one year after expiration of the IRS statute. Generally, tax returns for our Canadian entities are open to audit for tax years after 2010.

On September 13, 2013, the IRS issued final regulations providing guidance on the treatment of amounts paid to acquire, produce, or improve tangible property. On August 18, 2014, the IRS issued final regulations providing guidance on the dispositions of such property. The implementation date for these regulations was January 1, 2014. The IRS is expected to issue additional procedural guidance regarding how the requirements may be implemented for the gas transmission and distribution industry. Pending the issuance of this additional procedural guidance from the IRS, we cannot at this time estimate the impact of implementing the regulations for our gas transmission business, although we anticipate that it will result in an immaterial balance sheet only impact.