INCOME TAXES

Our effective income tax rates were (7.9)% and 4.9% during the nine months ended 2017 and 2016, respectively. The rate for 2017 benefited from the tax difference on global activities, the tax rate on the disposition of the Water business and U.S. business credits and for 2016 from a deductible stock loss and U.S. business credits. In the nine months ended 2017, these decreases were partially offset by the non-deductible impairment of goodwill associated with the Power Conversion business and by an adjustment to bring the nine-month tax rate in line with the higher expected full-year rate. In the nine months ended 2016, there was a further decrease to bring the nine-month tax rate in line with the lower expected full-year rate.

In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date.



UNRECOGNIZED TAX BENEFITS
(In millions)	September 30, 2017		December 31, 2016

Unrecognized tax benefits	$	5,281	$	4,692
Portion that, if recognized, would reduce tax expense and effective tax rate(a)	3,224		2,886
Accrued interest on unrecognized tax benefits	789		615
Accrued penalties on unrecognized tax benefits	157		118
Reasonably possible reduction to the balance of unrecognized tax benefits
in succeeding 12 months	0-800		0-600
Portion that, if recognized, would reduce tax expense and effective tax rate(a)	0-700		0-500


(a)	Some portion of such reduction may be reported as discontinued operations.

The increases for the period ended September 30, 2017 primarily relate to preliminary estimates of uncertain taxes for entities consolidated as part of the Baker Hughes transaction.

The Internal Revenue Service (IRS) is currently auditing our consolidated U.S. income tax returns for 2012-2013 and 2014-2015. In addition, certain other U.S. tax deficiency issues and refund claims for previous years are still unresolved. It is reasonably possible that a portion of the unresolved items could be resolved during the next 12 months, which could result in a decrease in our balance of "unrecognized tax benefits" - that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.