Income Taxes

12 Months Ended

Dec. 31, 2016

INCOME TAXES

Income Tax (Provision) Benefit

Our income tax (provision) benefit consisted of the following:



	Year Ended December 31,
(in millions)	2016			2015			2014
Current tax (provision) benefit:
Federal	$	—		$	(23	)	$	21
State and local	(28		)	(25		)	(9		)
International	(12		)	(2		)	(11		)
Deferred tax (provision) benefit:
Federal	(2,080		)	(2,409		)	(424		)
State and local	(143		)	(172		)	10
Income tax provision	$	(2,263	)	$	(2,631	)	$	(413	)

The following table presents the principal reasons for the difference between the effective tax rate and the U.S. federal statutory income tax rate:



	Year Ended December 31,
	2016		2015		2014
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	1.8		1.8		2.0
Decrease in valuation allowance	—		(0.2	)	(2.4	)
Foreign tax rate differential	(2.0	)	—		—
Other	(0.7	)	0.2		3.9
Effective income tax rate	34.1	%	36.8	%	38.5	%

As of December 31, 2016, undistributed earnings of our foreign subsidiaries amounted to $379 million. We have not recognized income taxes on undistributed foreign earnings, which will be used in our international operations and will not be repatriated. It is not practicable to estimate the unrealized U.S. deferred tax liability due to uncertainty related to the timing or availability of foreign tax credits.

Deferred Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The following table shows significant components of our deferred tax assets and liabilities:



	December 31,
(in millions)	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	2,485		$	3,838
Pension, postretirement and other benefits	5,259			5,444
Fuel derivatives MTM adjustments	112			282
Alternative minimum tax credit carryforward	379			379
Deferred revenue	1,544			1,522
Other	963			1,047
Valuation allowance	(40		)	(56		)
Total deferred tax assets	$	10,702		$	12,456
Deferred tax liabilities:
Depreciation	$	5,701		$	5,490
Intangible assets	1,691			1,681
Other	246			329
Total deferred tax liabilities	$	7,638		$	7,500

Net deferred tax assets	$	3,064		$	4,956

At December 31, 2016, we had $379 million of federal alternative minimum tax credit carryforwards, which do not expire, and $5.9 billion of federal pre-tax net operating loss carryforwards, which will not begin to expire until 2027.

Valuation Allowance

We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. We establish valuation allowances if it is not likely we will realize our deferred income tax assets. In making this determination, we consider all available positive and negative evidence and make certain assumptions. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies. Remaining valuation allowances primarily related to state net operating losses, state credits and unrealized losses on investments, which have limited expiration periods.

The following table shows the balance of our valuation allowance and the associated activity:



(in millions)	2016			2015			2014
Valuation allowance at beginning of period	$	56		$	46		$	177
Income tax provision	—			—			(9		)
Other comprehensive income tax (provision) benefit	(16		)	24			(3		)
Expirations	—			(4		)	(91		)
Release of valuation allowance	—			(10		)	(28		)
Valuation allowance at end of period	$	40		$	56		$	46

Uncertain Tax Positions

The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. The amount of unrecognized tax benefits at December 31, 2016, 2015 and 2014 was $32 million, $32 million and $40 million, respectively. We accrue interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively. Interest and penalties are not material in any period presented.

We are currently under audit by the IRS for the 2016 and 2015 tax years.