7.	Income Taxes

The following table presents Devon’s total income tax expense (benefit) and a reconciliation of its effective income tax rate to the U.S. statutory income tax rate.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(Millions)
Current income tax expense (benefit)	$	85		$	(6	)	$	72		$	(87	)
Deferred income tax expense (benefit)		86			(1,708	)		(300	)		(5,348	)
Total income tax expense (benefit)	$	171		$	(1,714	)	$	(228	)	$	(5,435	)

U.S. statutory income tax rate		35	%		35	%		35	%		35	%
Deferred tax asset valuation allowance		(35	%)		0	%		(20	%)		0	%
Non-deductible goodwill and intangible impairment		6	%		(5	%)		(9	%)		(2	%)
Change in unrecognized tax benefits		7	%		0	%		(2	%)		0	%
Taxation on Canadian operations		0	%		0	%		(3	%)		(1	%)
State income taxes		2	%		1	%		1	%		2	%
Other		0	%		(1	%)		3	%		1	%
Effective income tax rate		15	%		30	%		5	%		35	%

Devon estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which it operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur.

At December 31, 2015, Devon recorded a 100%, or $967 million, valuation allowance against the U.S. deferred tax assets that largely resulted from the full cost impairments recognized during 2015. In the first and second quarters of 2016, Devon provided an additional $808 and $467 million, respectively, deferred tax valuation allowance to reflect its continued financial losses incurred largely by the additional full cost impairments. In the third quarter of 2016, Devon’s U.S. segment reduced its deferred tax valuation allowance by $479 million primarily due to the gain from the sale of assets recorded during the quarter. Also during the third quarter of 2016, Devon’s Canadian segment recorded a $71 million partial valuation allowance due to its continued financial losses.

In the first quarter of 2016 and the third quarter of 2015, EnLink recorded goodwill and intangibles impairments totaling $873 million and $799 million, respectively. These impairments are not deductible for purposes of calculating income tax and therefore have an impact on the effective tax rate.

Devon is under audit in the U.S. and various foreign jurisdictions as part of its normal course of business. The timing of resolution of income tax examinations is uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. Devon believes that within the next 12 months, it is reasonably possible that certain tax examinations will be resolved by settlement with the taxing authorities. During the third quarter of 2016, Devon recognized $85 million of unrecognized tax benefits, including $34 million of interest, associated with such tax examinations.