Income Taxes

Earnings before income taxes of $3.1 billion, $3.0 billion and $2.9 billion for fiscal years 2015, 2014 and 2013, respectively, represent earnings from domestic operations. The breakdown of income tax expense between current and deferred is as follows:



	Fiscal Years
(Dollars in Millions)	2015		2014		2013
Current:
Federal	$	619	$	729	$	671
State	95		90		87
Subtotal Current	714		819		758

Deferred:
Federal	414		291		285
State	42		7		15
Subtotal Deferred	456		298		300
Total	$	1,170	$	1,117	$	1,058

Income tax expense reconciled to the tax computed at statutory rates is presented in the table below. The Company recorded a tax benefit of $4 million, $31 million and $42 million in 2015, 2014 and 2013, respectively, primarily as a result of federal and state legislative changes as well as the resolution of other federal and state tax matters. Each year's benefit is included in the state income tax and other lines in the table below.



	Fiscal Years
(Dollars In Millions)	2015					2014					2013

Federal Income Taxes	$	1,098		35.0	%	$	1,066		35.0	%	$	1,023		35.0	%
State Income Taxes	86			2.7	%	61			2.0	%	65			2.2	%
Other	(14		)	(0.4	)%	(10		)	(0.3	)%	(30		)	(1.0	)%
Income Tax Expense/Rate	$	1,170		37.3	%	$	1,117		36.7	%	$	1,058		36.2	%

In September 2013, the IRS issued final regulations governing the income tax treatment of the acquisition, disposition and repair of tangible property. The regulations were effective beginning in 2014. These new regulations did not have a material impact on the financial statements.

The significant components of deferred income tax assets and liabilities include:



	2015				2014
(Dollars in Millions)	Assets		Liabilities		Assets		Liabilities
Pension Plans	$	207	$	—	$	188	$	—
Other Employee Benefit Plans	258		—		306		—
Accelerated Depreciation	—		9,614		—		9,133
Other	261		291		256		334
Total	$	726	$	9,905	$	750	$	9,467
Net Deferred Income Tax Liabilities			$	9,179			$	8,717

NOTE 11. Income Taxes, continued

The primary factors in the change in year-end net deferred income tax liability balances include:


•	annual provision for deferred income tax expense and


•	accumulated other comprehensive loss.

The Company files a consolidated federal income tax return, which includes its principal domestic subsidiaries. Income tax incurred on the operations of the Company are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. CSX participated in a contemporaneous IRS audit of tax year 2015. Federal examinations of original federal income tax returns for all years through 2014 are resolved.

As of December 2015, 2014 and 2013, the Company had approximately $23 million, $21 million and $23 million, respectively, of total unrecognized tax benefits. Net tax benefits of $15 million, $13 million and $15 million in 2015, 2014 and 2013, respectively, could favorably impact the effective income tax rate in each year. The Company does not expect that unrecognized tax benefits as of December 2015 for various state and federal income tax matters will significantly change over the next 12 months. The final outcome of these uncertain tax positions is not yet determinable. The change to the total gross unrecognized tax benefits and prior year audit resolutions of the Company during the fiscal year ended December 2015 is reconciled in the table below.



Uncertain Tax Positions:	Fiscal Year
(Dollars in Millions)	2015			2014			2013
Balance at beginning of the year	$	21		$	23		$	24
Additions based on tax positions related to current year	1			2			2
Additions based on tax positions related to prior years	4			3			5
Reductions based on tax positions related to prior years	—			—			(6		)
Settlements with taxing authorities	1			—			—
Lapse of statute of limitations	(4		)	(7		)	(2		)
Balance at end of the year	$	23		$	21		$	23

CSX’s continuing practice is to recognize net interest and penalties related to income tax matters in income tax expense. Included in the consolidated income statements are expense of $2 million in 2015, expense of $1 million in 2014 and benefits of $1 million in 2013, respectively, for changes to reserves for interest and penalties for all prior year tax positions. The Company had $4 million, $1 million and $2 million accrued for interest and penalties at 2015, 2014 and 2013, respectively, for all prior year tax positions.