INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of Income before Income Tax, Domestic and Foreign



Geographic Allocation of Income and Provision for Income Taxes
In millions	2018			2017			2016
Income (Loss) before income taxes
Domestic ^{1, 2}	$	1,668		$	(1,973	)	$	485
Foreign ¹	4,250			4,772			3,928
Income before income taxes	$	5,918		$	2,799		$	4,413
Current tax expense (benefit)
Federal	$	290		$	(308	)	$	91
State and local	8			—			21
Foreign	1,517			1,579			1,156
Total current tax expense	$	1,815		$	1,271		$	1,268
Deferred tax expense (benefit)
Federal ³	$	(323	)	$	1,027		$	(1,255	)
State and local	(7		)	56			(10		)
Foreign	(200		)	(150		)	6
Total deferred tax expense (benefit)	$	(530	)	$	933		$	(1,259	)
Provision for income taxes	$	1,285		$	2,204		$	9
Net income	$	4,633		$	595		$	4,404


1.	In 2017, the domestic component of "Income before income taxes" included approximately $308 million ($2.1 billion in 2016) and the foreign component contained $562 million (zero in 2016) of income from portfolio actions. See Notes 5 and 6 for additional information.

In 2017, the domestic component of "Income before income taxes" included approximately $2.7 billion of expense related to a goodwill impairment, non-qualified pension plan change in control charges and litigation settlements. In 2016, the domestic component of "Income before income taxes" included approximately $2.6 billion of expenses related to the urethane matters class action lawsuit and opt-out cases settlements, asbestos-related charge and charges for environmental matters. See Notes 13, 16 and 19 for additional information.


3.	The 2018 and 2017 amounts reflect the tax impact of The Act which accelerated the utilization of tax credits and required remeasurement of all U.S. deferred tax assets and liabilities. The 2016 amount reflects the tax impact of accrued one-time items and reduced domestic income which limited the utilization of tax credits.

Schedule of Effective Income Tax Rate Reconciliation



Reconciliation to U.S. Statutory Rate	2018		2017		2016
Statutory U.S. federal income tax rate	21.0	%	35.0	%	35.0	%
Equity earnings effect	(2.1	)	(4.2	)	(1.2	)
Foreign income taxed at rates other than the statutory U.S. federal income tax rate¹	5.2		(15.9	)	(7.0	)
U.S. tax effect of foreign earnings and dividends	(0.5	)	(1.6	)	(4.6	)
Unrecognized tax benefits	0.1		1.1		(0.8	)
Acquisitions, divestitures and ownership restructuring activities ²	0.3		11.7		(21.2	)
Impact of U.S. tax reform	(2.1	)	32.7		—
State and local income taxes	0.4		3.2		0.2
Goodwill impairment	—		19.2		—
Excess tax benefits from stock-based compensation ³	(0.9	)	(3.5	)	—
Other - net	0.3		1.0		(0.2	)
Effective Tax Rate	21.7	%	78.7	%	0.2	%


1.	Includes the impact of valuation allowances in foreign jurisdictions.


2.	See Notes 5 and 6 for additional information.


3.	Reflects the impact of the adoption of ASU 2016-09, "Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting," which was adopted January 1, 2017, and resulted in the recognition of excess tax benefits related to stock-based compensation in "Provision for income taxes."

Schedule of Deferred Tax Assets and Liabilities



Deferred Tax Balances at Dec 31	2018					2017
In millions	Assets			Liabilities		Assets			Liabilities
Property	$	460		$	2,550	$	508		$	2,474
Tax loss and credit carryforwards	2,244			—		1,734			—
Postretirement benefit obligations	2,226			213		2,442			136
Other accruals and reserves	1,250			110		1,251			146
Intangibles	151			942		176			1,010
Inventory	68			163		35			171
Investments	181			60		272			158
Other – net	587			442		420			414
Subtotal	$	7,167		$	4,480	$	6,838		$	4,509
Valuation allowances	(1,320		)	—		(1,371		)	—
Total	$	5,847		$	4,480	$	5,467		$	4,509

Summary of Operating Loss Carryforwards



Operating Loss and Tax Credit Carryforwards at Dec 31	2018		2017
In millions	Assets		Assets
Operating loss carryforwards
Expire within 5 years	$	268	$	246
Expire after 5 years or indefinite expiration	1,319		1,305
Total operating loss carryforwards	$	1,587	$	1,551
Tax credit carryforwards
Expire within 5 years	$	32	$	39
Expire after 5 years or indefinite expiration	625		144
Total tax credit carryforwards	$	657	$	183
Total operating loss and tax credit carryforwards	$	2,244	$	1,734

Schedule of Total Gross Unrecognized Tax Benefits

The following table provides a reconciliation of the Company's unrecognized tax benefits:



Total Gross Unrecognized Tax Benefits
In millions	2018			2017			2016
Total unrecognized tax benefits at Jan 1	$	253		$	231		$	280
Decreases related to positions taken on items from prior years	(7		)	(4		)	(12		)
Increases related to positions taken on items from prior years ¹	68			37			153
Increases related to positions taken in the current year ²	2			10			135
Settlement of uncertain tax positions with tax authorities ¹	—			(12		)	(325		)
Decreases due to expiration of statutes of limitations	(1		)	(9		)	—
Foreign exchange gain	(2		)	—			—
Total unrecognized tax benefits at Dec 31	$	313		$	253		$	231
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	236		$	243		$	223
Total amount of interest and penalties (benefit) recognized in "Provision for income taxes"	$	(12	)	$	2		$	(55	)
Total accrual for interest and penalties recognized in the consolidated balance sheets	$	109		$	110		$	89


1.	The 2016 balance includes the impact of a settlement agreement related to a historical change in the legal ownership structure of a nonconsolidated affiliate discussed below.


2.	The 2016 balance includes $126 million assumed in the Dow Silicones ownership restructure.

Schedule of Tax Years Subject to Examination by Major Tax Jurisdiction

Tax years that remain subject to examination for the Company’s major tax jurisdictions are shown below:



Tax Years Subject to Examination by Major Tax Jurisdiction at Dec 31, 2018	Earliest Open Year
Jurisdiction	Earliest Open Year
Argentina	2011
Brazil	2006
Canada	2012
China	2008
Germany	2009
Italy	2013
The Netherlands	2016
Switzerland	2012
United States:
Federal income tax	2004
State and local income tax	2004