Income Taxes

12 Months Ended

Dec. 31, 2019

Earnings before income taxes of $4.3 billion, $4.3 billion and $3.1 billion for fiscal years 2019, 2018 and 2017, respectively, represent earnings from domestic operations. The breakdown of income tax expense between current and deferred is as follows:



	Fiscal Years
(Dollars in Millions)	2019		2018		2017
Current:
Federal	$	608	$	572	$	787
State	104		144		117
Subtotal Current	712		716		904

Deferred:
Federal	235		275		(3,277		)
State	38		4		44
Subtotal Deferred	273		279		(3,233		)
Total	$	985	$	995	$	(2,329	)

NOTE 12. Income Taxes, continued

The Company recorded a 2019 income tax benefit of $77 million primarily as a result of the additional tax benefit associated with vesting of share-based awards, the settlement of certain state tax matters, federal and state legislative change, and a change in the valuation of deferred taxes as a result of filing the 2018 tax returns.

The Company recorded a 2018 income tax benefit of $62 million primarily as a result of the additional tax benefit associated with vesting of share-based awards, state legislative changes, the settlement of certain state tax matters and a change in the valuation of deferred taxes as a result of filing the 2017 tax returns.

With the enactment of the Tax Cuts and Jobs Act (the "Act" or "tax reform") on December 22, 2017, the Company's 2017 financial results included a $3.5 billion, or $3.81 per share, non-cash reduction in income tax expense, primarily resulting from revaluing the Company's net deferred tax liabilities to reflect the enacted 21% federal corporate tax rate effective January 1, 2018. During third quarter 2018, the Company filed its 2017 Federal Income Tax return which resulted in an immaterial adjustment to the deferred tax liability and tax expense. Accordingly, the Company's accounting for the federal rate reduction under the the Act is now complete.

The Company's affiliates also revalued their deferred tax liabilities to reflect the lower federal corporate tax rate, which resulted in the Company recognizing a benefit in 2017 of $142 million, or $0.10 per share after-tax, in equity earnings of affiliates, which is included in operating income. (See additional discussion over equity earnings of affiliates in Note 15, Related Parties and Affiliates.)

In addition to the tax benefit related to tax reform, the Company recorded a 2017 income tax benefit of $21 million primarily as a result of the additional tax benefit associated with vesting of share-based awards, state legislative changes, a change in the apportionment of state taxable income and the related impact on the valuation of deferred taxes and the settlement of certain state tax matters.

Income tax expense reconciled to the tax computed at statutory rates is presented in the following table.



	Fiscal Years
(Dollars In Millions)	2019					2018					2017

Federal Income Taxes	$	906		21.0	%	$	904		21.0	%	$	1,100		35.0	%
State Income Taxes	108			2.5	%	112			2.6	%	102			3.2	%
Deferred Tax Rate Change	—			—	%	—			—	%	(3,506		)	(111.6	)%
Other	(29		)	(0.7	)%	(21		)	(0.5	)%	(25		)	(0.8	)%
Income Tax (Benefit) Expense/Rate	$	985		22.8	%	$	995		23.1	%	$	(2,329	)	(74.2	)%

NOTE 12. Income Taxes, continued

The primary factors in the change in year-end net deferred income tax liability balances include the annual provision for deferred income tax expense and accumulated other comprehensive income/loss. The significant components of deferred income tax assets and liabilities include:



	2019				2018
(Dollars in Millions)	Assets		Liabilities		Assets		Liabilities
Pension Plans	$	71	$	—	$	79	$	—
Other Employee Benefit Plans	127		—		146		—
Accelerated Depreciation	—		7,020		—		6,799
Other	426		565		529		645
Total	$	624	$	7,585	$	754	$	7,444
Net Deferred Income Tax Liabilities			$	6,961			$	6,690

The Company files a consolidated federal income tax return, which includes its principal domestic subsidiaries. CSX and its subsidiaries 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 years 2019 and 2018. Federal examinations of original federal income tax returns for all years through 2017 are resolved.

As of December 2019, 2018 and 2017, the Company had approximately $13 million, $12 million and $24 million, respectively, of total unrecognized tax benefits as a result of uncertain tax positions. Net tax benefits of $10 million, $9 million and $19 million in 2019, 2018 and 2017, respectively, could favorably impact the effective income tax rate in each year. The Company does not expect that unrecognized tax benefits as of December 2019 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. There were no material changes to the total gross unrecognized tax benefits and prior year audit resolutions of the Company during the fiscal year ended December 2019.

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 is expense of $1 million in 2019, a benefit of $3 million in 2018, and expense of $3 million in 2017 for changes to reserves for interest and penalties for all prior year tax positions. The Company had $2 million, $2 million and $6 million accrued for interest and penalties at 2019, 2018 and 2017, respectively, for all prior year tax positions.