Income Taxes

12 Months Ended

Dec. 31, 2019

5.Income Taxes

Income before income taxes follows (in millions):



	Years ended December 31,
	2019		2018		2017

U.S. companies	$	504	$	472	$	653
Non-U.S. companies		712		1,031		1,004
Income before income taxes	$	1,216	$	1,503	$	1,657

The current and deferred amounts of the provision for income taxes are as follows (in millions):



	Years ended December 31,
	2019		2018		2017
Current:
Federal	$	(82)	$	(256)	$	(20)
State and municipal		(12)		(22)		(21)
Foreign		(354)		(196)		(317)
Deferred:
Federal		64		(34)		(1,617)
State and municipal		13		4		(109)
Foreign		115		67		(70)
Provision for income taxes	$	(256)	$	(437)	$	(2,154)

Amounts are reflected in the preceding tables based on the location of the taxing authorities.

5.Income Taxes (continued)

Reconciliation of the U.S. statutory income tax rate to our effective tax rate for operations is as follows:



	Years ended December 31,
	2019		2018		2017
Statutory U.S. income tax rate	21.0	%	21.0	%	35.0	%
State income tax, net of federal effect	0.6		0.9		0.8
Global intangible low-taxed income (1)	1.2		3.6
Foreign derived intangible income (1)	(8.5)		(0.6)
Repatriation tax on accumulated previously untaxed ‎ foreign earnings			(1.2)		67.4
Remeasurement of deferred tax assets and liabilities	(0.6)		(0.1)		21.0
Impact of foreign earnings	5.4		(2.3)		(3.9)
IRS settlements & change in reserve	8.5		11.5
Valuation allowance	(3.7)		(3.8)		6.8
Tax credit (1)	(2.8)		(0.7)		(0.4)
Non-deductible expenses	2.1
Other items, net	(2.1)		0.8		3.3
Effective income tax rate	21.1	%	29.1	%	130.0	%

(1)Including a change in estimate from prior year.

Generally, Corning will indefinitely reinvest the foreign earnings of: (1) any of its subsidiaries located in jurisdictions where Corning lacks the ability to repatriate its earnings, (2) any of its subsidiaries where Corning’s intention is to reinvest those earnings in operations, (3) legal entities for which Corning holds a non-controlling interest, (4) any subsidiaries with an accumulated deficit in earnings and profits, (5) any subsidiaries which have a positive earnings and profits balance but for which the entity lacks sufficient local statutory earnings or stock basis from which to make a distribution, and (6) future distribution would trigger a significant federal income inclusion to the U.S. shareholder.

During 2019, the Company distributed approximately $424 million from foreign subsidiaries to their respective U.S. parent companies. As of December 31, 2019, Corning has approximately $2.5 billion of indefinitely reinvested foreign earnings. It remains impracticable to calculate the tax cost of repatriating our unremitted earnings which are considered indefinitely reinvested.

5.Income Taxes (continued)

The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities are as follows (in millions):



	December 31,
	2019		2018

Loss and tax credit carryforwards	$	388	$	479
Other assets		345		45
Asset impairments and restructuring reserves		30		33
Postretirement medical and life benefits		168		162
Other accrued liabilities		218		265
Other employee benefits		345		289
Gross deferred tax assets		1,494		1,273
Valuation allowances		(215)		(317)
Total deferred tax assets		1,279		956
Intangible and other assets		(110)		(96)
Fixed assets		(216)		(256)
Financing leases		(121)
Total deferred tax liabilities		(447)		(352)
Net deferred tax assets	$	832	$	604

The net deferred tax assets in our consolidated balance sheets are as follows (in millions):


	December 31,
	2019		2018

Deferred tax assets	$	1,157	$	951
Other liabilities		(325)		(347)
Net deferred tax assets	$	832	$	604

Details on deferred tax assets for loss and tax credit carryforwards at December 31, 2019 are as follows (in millions):



			Expiration
	Amount		2019-2023		2024-2028		2029-2038		Indefinite

Net operating losses	$	340	$	137	$	30	$	28	$	145
Tax credits		48				24		19		5
Totals as of December 31, 2019	$	388	$	137	$	54	$	47	$	150

The following is a tabular reconciliation of the total amount of unrecognized tax benefits (in millions):



	2019		2018		2017
Balance at January 1	$	435	$	252	$	243
Additions based on tax positions related to the current year		3		204		1
Additions for tax positions of prior years		2				13
Reductions for tax positions of prior years				(10)
Settlements and lapse of statute of limitations		(378)		(11)		(5)
Balance at December 31	$	62	$	435	$	252

During the year, Corning finalized agreements with various tax authorities, including the Internal Revenue Service (“IRS”) to resolve its 2013-2014 audit (which was preliminarily agreed to in 2018). These agreements resulted in Corning reclassifying certain reserves from tax reserve liability to income tax payable and releasing certain tax reserves. The net impact of these was a $378 million reduction to the tabular roll-forward.

5.Income Taxes (continued)

Included in the balance at December 31, 2019, 2018 and 2017 are $35 million, $263 million and $97 million, respectively, of unrecognized tax benefits that would impact our effective tax rate if recognized.

We recognize accrued interest and penalties associated with uncertain tax positions as part of tax expense. For the years ended December 31, 2019, 2018 and 2017 the amount recognized in interest expense and accrued for the payment of interest and penalties were not material.

It is possible that the amount of unrecognized tax benefits will change due to one or more of the following events during the next twelve months: audit activity, tax payments, or final decisions in matters that are the subject of controversy in various jurisdictions within which we operate. We believe we have provided adequate contingent reserves for these matters. However, if upon conclusion of these matters, the ultimate determination of taxes owed is for an amount materially different than our current reserves, our overall tax expense and effective tax rate could be materially impacted in the period of adjustment. As of December 31, 2019, the company is not expecting any significant movements in the uncertain tax benefits in the next twelve months.

Corning Incorporated, as the common parent company, and all 80%-or-more-owned of its U.S. subsidiaries join in the filing of consolidated U.S. federal income tax returns. The statute of limitations is closed for all periods ending through December 31, 2012. All returns for periods ended through December 31, 2014, have been audited by and settled with the IRS.

Corning Incorporated and its U.S. subsidiaries file income tax returns on a combined, unitary or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 5 years. Various state income tax returns are currently in the process of examination or administrative appeal. We do not expect any material proposed adjustments from any of these audits.

Our foreign subsidiaries file income tax returns in the countries in which they have operations. Generally, these countries have statutes of limitations ranging from 3 to 10 years. The statute of limitations is closed through the following years in these major jurisdictions: China (2008), Japan (2012), Taiwan (2013) and South Korea (2013).

CPM is currently appealing certain tax assessments and tax refund claims for tax years 2010 through 2018. The Company is required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of any tax assessments. We believe that it is more likely than not that we will prevail in the appeal process, and as a result we have recorded a non-current receivable of $415 million as of December 31, 2019 for the amount on deposit with the South Korean government. In the fourth quarter of 2019, we received a refund of $38 million from the South Korean government related to tax years 2006 to 2009. As of December 31, 2019, we have also recorded a current receivable of $33 million for an amount refunded in January 2020 related to the same issue for tax year 2015.