Income Taxes (Unaudited)

9 Months Ended

Sep. 30, 2017



	Three Months Ended September 30						Nine Months Ended September 30
$ in millions	2017			2016			2017			2016
Federal and foreign income tax expense	$	140		$	167		$	528		$	500
Effective income tax rate	17.8		%	21.7		%	22.3		%	23.0		%

Current Quarter

The company’s effective tax rate of 17.8 percent for the three months ended September 30, 2017 was lower as compared with the same period in 2016 principally due to a $45 million increase in research credits related to the current period and the filing of our 2016 tax return, and a $35 million benefit recognized for additional manufacturing deductions related to prior years. The prior year period included a $42 million benefit recognized in connection with the resolution of the Internal Revenue Service (IRS) examination of the company’s 2007-2011 tax returns.

Year to Date

The company’s effective tax rate of 22.3 percent for the nine months ended September 30, 2017 was lower as compared with the same period in 2016 primarily due to a $55 million increase in research credits largely related to our prior year tax returns and a $32 million benefit recognized for additional manufacturing deductions related to prior years. The effective tax rate for the nine months ended September 30, 2017 and 2016 each include separate $42 million benefits recognized in connection with the resolution of IRS examinations of the company’s prior year tax returns.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. Our 2014-2015 federal tax returns are currently under IRS examination and our 2007-2011 federal tax returns are subject to examination due to the filing of refund claims for these years. The company believes it is reasonably possible that within the next twelve months we may resolve certain matters related to the years under examination, which may result in reductions of our unrecognized tax benefits up to $110 million and income tax expense up to $30 million.