We are subject to the provisions of ASC 740-10, “Income Taxes,” which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. We remeasured deferred tax assets and liabilities at December 31, 2017, based on the new U.S. tax rates at which they are expected to reverse in the future, which is generally 21 percent. We recognized a net reduction of total deferred tax liabilities of $271 million in the year ended December 31, 2017, and, upon completing our review of the applicable provisions of the Act in 2018, recognized additional expense of $3 million in the year ended December 31, 2018, primarily related to return to provision adjustments.

We did not record any amounts related to valuation allowances or revaluation of deferred tax assets affected by various aspects of the Act.

The Act also created a new requirement that Global Intangible Low Taxed Income (GILTI) earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs U.S. shareholder. At December 31, 2019, we previously elected to account for GILTI in the year the tax is incurred and have recorded GILTI tax expense of less than $1 million, which is included as a component of income tax expense from continuing operations.

As of December 31, 2019, 2018 and 2017, we have $14 million, $15 million and $14 million, respectively, of tax benefits primarily reflected in U.S. federal and state tax returns that have not been recognized for financial reporting purposes (“unrecognized tax benefits”). At December 31, 2019 and 2018, $13 million and $14 million, respectively, of unrecognized tax benefits would impact the effective tax rate if recognized. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:



	Year Ended December 31,
(In millions)	2019		2018		2017
Gross unrecognized tax benefits at beginning of period	$	15	$	14	$	13
Increases in tax positions for current year		1		3		3
Settlements		(1)		—		—
Lapse in statute of limitations		(1)		(1)		(1)
Gross unrecognized tax benefits at end of period	$	14	$	15	$	14

Based on information currently available, it is reasonably possible that over the next 12-month period unrecognized tax benefits may decrease by $2 million as the result of settlements of ongoing audits, statute of limitation expirations or final settlements of uncertain tax positions in multiple jurisdictions.

We file consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. In the ordinary course of business, we are subject to review by domestic and foreign taxing authorities. For U.S. federal income tax purposes, we participate in the IRS’s Compliance Assurance Process whereby our U.S. federal income tax returns are reviewed by the IRS both prior to and after their filing. The U.S. federal income tax returns filed through the year ended December 31, 2017 have been audited by the IRS. The IRS commenced pre-filing examinations of our U.S. federal income tax returns for 2019 in the second quarter of 2019. Four state tax authorities are in the process of auditing state income tax returns of various subsidiaries. We are no longer subject to state and local or foreign income tax examinations by tax authorities for years before 2013, except for a pending refund claim related to 2008.

Our policy is to recognize potential interest and penalties related to tax positions within the tax provision. Total interest and penalties included in the consolidated statements of income are immaterial. As of both December 31, 2019 and 2018, we had accrued for the payment of interest and penalties of approximately $2 million.

The components of income from continuing operations before income taxes are as follows:



	Year Ended December 31,
(In millions)	2019		2018		2017
U.S.	$	161	$	(130)	$	94
Foreign		(5)		4		5
Income from Continuing Operations before Income Taxes	$	156	$	(126)	$	99

The reconciliation of income tax computed at the U.S. federal statutory tax rate to our effective income tax rate for continuing operations is as follows:



	Year Ended December 31,
	2019		2018		2017
Tax at U.S. federal statutory rate	21.0	%	21.0	%	35.0	%
State and local income taxes, net of U.S. federal benefit	3.3		(7.1)		5.7
Tax credits	(1.5)		1.5		(1.3)
Investment in frontdoor, inc. mark-to-market adjustment	(5.5)		(41.5)		—
Other permanent items	1.0		(2.1)		1.8
U.S. Tax Reform rate change⁽¹⁾	—		(2.7)		(273.6)
Remeasurement of prior year tax positions	—		(0.9)		—
Excess tax benefits from stock-based compensation	(0.8)		1.1		(14.5)
Other, including foreign rate differences and reserves	(0.5)		1.7		1.4
Effective rate	17.1	%	(29.1)	%	(245.6)	%

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(1)Deferred income taxes in the Consolidated Statements of Financial Position at December 31, 2018 and 2017, were remeasured as a result of U.S. Tax Reform.

The effective tax rate for discontinued operations for the years ended December 31, 2019, 2018 and 2017 was a tax benefit of 11.5 percent and a provision of 26.0 percent and 37.9 percent, respectively. Income tax expense from continuing operations is as follows:



	Year Ended December 31,
(In millions )	2019		2018		2017
Current:
U.S. federal	$	11	$	23	$	(14)
Foreign		2		1		3
State and local		5		6		5
		17		29		(6)
Deferred:
U.S. federal		8		1		(242)
Foreign		—		1		2
State and local		2		6		4
		10		8		(235)
Provision (benefit) for income taxes	$	27	$	37	$	(242)

Deferred income tax expense results from timing differences in the recognition of income and expense for income tax and financial reporting purposes. Deferred income tax balances reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The deferred tax asset primarily reflects the impact of future tax deductions related to our accruals and certain net operating loss carryforwards. The deferred tax liability is primarily attributable to the basis differences related to intangible assets. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The valuation allowance for deferred tax assets as of December 31, 2019 and 2018 was $12 million and $11 million, respectively.



	As of December 31,
(In millions)	2019		2018
Deferred tax assets (liabilities):
Intangible assets⁽¹⁾	$	(499)	$	(471)
Property and equipment		(30)		(25)
Operating lease right-of-use assets		(30)		—
Prepaid expenses and deferred customer acquisition costs		(25)		(20)
Receivables allowances		6		5
Self-insured claims and related expenses		2		7
Accrued liabilities		35		22
Other long-term obligations		4		(6)
Current portion of lease liability and long-term lease liability		32		—
Net operating loss and tax credit carryforwards		16		15
Less valuation allowance		(12)		(11)
Net Deferred taxes	$	(501)	$	(484)

(1)The deferred tax liability relates primarily to the difference in the tax versus book basis of intangible assets. As of both December 31, 2019 and December 31, 2018, we had $505 million of deferred tax liability included in this net deferred tax liability, that will not actually be paid unless certain business units of the Company are sold.

As of December 31, 2019, we had deferred tax assets, net of valuation allowances, of $5 million for federal and state net operating loss and capital loss carryforwards, which expire at various dates up to 2039. We also had deferred tax assets, net of valuation allowances, of less than $1 million for federal and state credit carryforwards which expire at various dates up to 2026. The federal and state net operating loss carryforwards in the filed income tax returns included unrecognized tax benefits taken in prior years. The net operating losses for which a deferred tax asset is recognized for financial statement purposes in accordance with ASC 740 are presented net of these unrecognized tax benefits.

Included in the Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2019, is an adjustment to the Net assets distributed to frontdoor, inc. Our 2018 income tax provision included an estimate of the income taxes based on assumptions and available information at the time the 2018 financial statements were prepared. We adjusted our 2018 tax provision based on our income tax returns filed in the fourth quarter of 2019 to reflect the actual current and deferred taxes related to the Frontdoor distribution. The result was a decrease to our current taxes payable and a corresponding increase to Retained earnings.

We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. Prior to the Transition Tax included in the Act, we had an excess amount for financial reporting over the tax basis in our foreign subsidiaries, including cumulative undistributed earnings of our foreign subsidiaries of $74 million as of December 31, 2019. While the Transition Tax resulted in all remaining undistributed foreign earnings being subject to U.S. tax, an actual repatriation from our non-U.S. subsidiaries could still be subject to additional foreign withholding taxes and U.S. state taxes. The amount of cash associated with indefinitely reinvested foreign earnings was approximately $35 million and $30 million as of December 31, 2019 and 2018, respectively.