In December 2017, the U.S. government enacted comprehensive income tax legislation, referred to as the Tax Cuts and Jobs Act (the Tax Act). The material provisions of the Tax Act i) reduced the U.S. federal corporate income tax rate from 35% to 21% beginning January 1, 2018, ii) required companies to reflect on their 2017 corporate income tax return a liability for a one-time deemed repatriation tax on foreign-sourced earnings that were previously tax deferred, and iii) created a new tax regime for post-2017 foreign-sourced earnings.

To account for the reduction in the U.S. federal corporate income tax rate, we remeasured our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, generally 21%, which resulted in the recognition of a provisional deferred tax benefit of $2,870 million in the year ended December 31, 2017. To account for the one-time deemed repatriation income tax, we calculated our provisional liability in accordance with the Tax Act and considered previously accrued current and deferred tax liabilities on undistributed earnings of our foreign subsidiaries and foreign joint ventures. The effects of the one-time deemed repatriation tax resulted in the recognition of a provisional income tax expense of $149 million in the year ended December 31, 2017.

During the year ended December 31, 2018, we recorded adjustments to finalize our accounting for the income tax effects of the Tax Act, which increased our income tax expense by $36 million. The adjustments were primarily due to the revision of our estimated deferred income tax balances in conjunction with the filing of our 2017 income tax return and the issuance of additional guidance by the U.S. Internal Revenue Service related to the calculation of the one-time deemed repatriation tax.

During the year ended December 31, 2019, we recorded adjustments to the one-time deemed repatriation tax, which decreased our income tax expense by $42 million. The adjustments were due to the issuance of additional guidance by the U.S. Internal Revenue Service.



	Millions of Dollars
	2019			2018		2017
Income Tax Expense (Benefit)
Federal
Current	$	354		739		9
Deferred	177			257		(1,960	)
Foreign
Current	204			326		126
Deferred	(50		)	53		3
State and local
Current	61			255		61
Deferred	55			(58	)	68
	$	801		1,572		(1,693	)

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax liabilities and assets at December 31 were:



	Millions of Dollars
	2019		2018
Deferred Tax Liabilities
Properties, plants and equipment, and intangibles	$	3,297	3,074
Investment in joint ventures	2,137		2,041
Investment in subsidiaries	794		602
Inventory	—		66
Other	263		14
Total deferred tax liabilities	6,491		5,797

Deferred Tax Assets
Benefit plan accruals	460		395
Asset retirement obligations and accrued environmental costs	115		109
Loss and credit carryforwards	54		59
Other financial accruals and deferrals	70		16
Inventory	28		—
Other	281		—
Total deferred tax assets	1,008		579
Less: valuation allowance	22		8
Net deferred tax assets	986		571
Net deferred tax liabilities	$	5,505	5,226

At December 31, 2019, the loss and credit carryforward deferred tax assets were primarily related to a German interest deduction carryforward of $33 million, a foreign tax credit carryforward in the United States of $15 million, and capital loss and net operating loss carryforwards in the United Kingdom of $5 million. Foreign tax credit carryforwards, which have a full valuation allowance against them, expire in 2029. The other loss and credit carryforwards, all of which relate to foreign operations, have indefinite lives.

Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During the year ended December 31, 2019, our total valuation allowance balance increased by $14 million. Based on our historical taxable income, expectations for the future and available tax planning strategies, management expects the remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and the tax consequences of future taxable income.

At December 31, 2017, all undistributed earnings of our foreign subsidiaries and foreign joint ventures were included in our computation of the one-time deemed repatriation tax associated with the enactment of the Tax Act. Earnings of our foreign subsidiaries and foreign joint ventures after December 31, 2017, are generally not subject to incremental income taxes in the United States or withholding taxes in foreign countries upon repatriation. As such, we only assert that the earnings of one of our foreign subsidiaries are permanently reinvested. At December 31, 2019 and 2018, the unrecorded deferred tax liability related to the undistributed earnings of this foreign subsidiary was not material.

As a result of the Separation and pursuant to the Tax Sharing Agreement with ConocoPhillips, the unrecognized income tax benefits related to our operations for the periods for which ConocoPhillips was the taxpayer remain the responsibility of ConocoPhillips, and we have indemnified ConocoPhillips for such amounts. We file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Unrecognized tax benefits reflect the difference between positions taken on income tax returns and the amounts recognized in the financial statements. The following table is a reconciliation of the changes in our unrecognized income tax benefits balance:



	Millions of Dollars
	2019			2018		2017

Balance at January 1	$	23		34		70
Additions for tax positions of current year	2			—		—
Additions for tax positions of prior years	29			1		1
Reductions for tax positions of prior years	(14		)	(2	)	(5	)
Settlements	—			(10	)	(32	)
Balance at December 31	$	40		23		34

Included in the balance of unrecognized income tax benefits at December 31, 2019, 2018 and 2017 were $15 million, $1 million and $5 million, respectively, which, if recognized, would affect our effective income tax rate. With respect to various unrecognized income tax benefits and the related accrued liabilities, we do not expect any to be recognized or paid within the next twelve months.

At December 31, 2019, 2018 and 2017, accrued liabilities for interest and penalties, net of accrued income taxes, totaled $10 million, $5 million and $8 million, respectively. As a result of these accruals, net income decreased by $3 million for the year ended December 31, 2019, and increased by $1 million for the year ended December 31, 2017.

Audits in significant jurisdictions are generally complete as follows: United Kingdom (2017), Germany (2014) and United States (2013). Certain issues remain in dispute for audited years, and unrecognized income tax benefits for years still subject to or currently undergoing an audit are subject to change. As a consequence, the balance in unrecognized income tax benefits can be expected to fluctuate from period to period. Although it is reasonably possible such changes could be significant when compared with our total unrecognized income tax benefits, the amount of change is not estimable.

The amounts of U.S. and foreign income before income taxes, with a reconciliation of income tax at the federal statutory rate to the recorded income tax expense (benefit), were:



	Millions of Dollars							Percentage of Income Before Income Taxes
	2019			2018		2017		2019		2018		2017
Income before income taxes
United States	$	3,267		5,716		2,799		78.2	%	76.8		78.7
Foreign	911			1,729		756		21.8		23.2		21.3
	$	4,178		7,445		3,555		100.0	%	100.0		100.0

Federal statutory income tax	$	877		1,563		1,244		21.0	%	21.0		35.0
State income tax, net of federal benefit	92			155		79		2.2		2.1		2.2
Tax Cuts and Jobs Act	(42		)	36		(2,721	)	(1.0	)	0.5		(76.5	)
Foreign rate differential	(31		)	(3	)	(137	)	(0.7	)	—		(3.9	)
Noncontrolling interests	(61		)	(58	)	(46	)	(1.5	)	(0.8	)	(1.3	)
Change in valuation allowance	14			(20	)	(4	)	0.3		(0.3	)	(0.1	)
Other*	(48		)	(101	)	(108	)	(1.1	)	(1.4	)	(3.0	)
	$	801		1,572		(1,693	)	19.2	%	21.1		(47.6	)

Income tax expense of $123 million, $13 million and $81 million for the years ended December 31, 2019, 2018 and 2017, respectively, is reflected in the “Capital in Excess of Par” column on our consolidated statement of changes in equity.