Income Taxes

The components of Income before Income Taxes follow:



(In millions)	2015		2014		2013
U.S.	$	284	$	400	$	396
Foreign	324		287		417
	$	608	$	687	$	813

A reconciliation of income taxes at the U.S. statutory rate to United States and Foreign Tax (Benefit) Expense follows:



(In millions)	2015			2014			2013
U.S. Federal income tax expense (benefit) at the statutory rate of 35%	$	213		$	240		$	284
Deconsolidation of Venezuelan subsidiary	157			—			—
U.S. credits (R&D, foreign tax credits) and benefits offset to OCI	(72		)	—			—
Adjustment for foreign income taxed at different rates	(39		)	(37		)	(2		)
Net foreign losses (income) with no tax benefit due to valuation allowances	(19		)	49			42
Net (resolution) establishment of uncertain tax positions	(13		)	3			10
State income taxes, net of U.S. Federal benefit	10			12			—
Release of U.S. valuation allowance	(8		)	(2,318		)	—
Net establishment (release) of foreign valuation allowances	4			51			(8		)
Deferred tax impact of enacted tax rate and law changes	(2		)	33			(13		)
Provision for undistributed foreign earnings	—			131			—
U.S. (income) with no tax due to valuation allowance	—			—			(136		)
Poland special enterprise zone tax credit	—			—			(42		)
Other	1			2			3
United States and Foreign Tax (Benefit) Expense	$	232		$	(1,834	)	$	138

The components of United States and Foreign Tax (Benefit) Expense by taxing jurisdiction, follow:



(In millions)	2015			2014			2013
Current:
Federal	$	—		$	—		$	(6	)
Foreign	154			135			176
State	(1		)	1			2
	153			136			172
Deferred:
Federal	74			(2,103		)	2
Foreign	5			84			(36		)
State	—			49			—
	79			(1,970		)	(34		)
United States and Foreign Tax (Benefit) Expense	$	232		$	(1,834	)	$	138

In 2015, income tax expense included net discrete tax benefits of $18 million unrelated to current year income, due primarily to a $9 million benefit from the conclusion of non-U.S. tax claims and an $8 million benefit from the release of a valuation allowance related to certain state deferred tax assets. Our tax expense for 2015 also included a U.S. tax benefit of $69 million related to the pre-tax loss of $646 million on the deconsolidation of our Venezuelan subsidiary (Refer to Note 1), and a current year benefit of $10 million related to recently enacted U.S. legislation extending the research and development credit.

At December 31, 2014, our U.S. operations were in a position of cumulative profits for the most recent three-year period. We concluded that as a consequence of our three-year cumulative profits, achieving full year profitability in 2013 and 2014, our successful completion of labor negotiations with the United Steelworkers in 2013, our full funding of our U.S. pension plans during 2013 and 2014, and our business plan for 2015 and beyond showing continued profitability, that it was more likely than not that a significant portion of our U.S. deferred tax assets would be realized. In 2014, income tax benefit of $1,834 million was favorably impacted by net discrete tax adjustments of $1,980 million, due primarily to a net tax benefit of $2,179 million from the December 31, 2014 release of substantially all of the valuation allowance on our net U.S. deferred tax assets and a charge of $131 million to establish a provision for potential U.S. Federal taxation of certain undistributed earnings of certain foreign subsidiaries. The 2014 income tax benefit also included charges of $37 million to establish valuation allowances on the net deferred tax assets of our Venezuelan and Brazilian subsidiaries, due to continuing operating losses and currency devaluations in Venezuela, a charge of $9 million to establish a valuation allowance on the net deferred tax assets of a Luxembourg subsidiary and a charge of $11 million due to an enacted law change in Chile.

In 2013, income tax expense included net discrete tax benefits of $43 million unrelated to current year income, due primarily to a $33 million benefit from a Poland special enterprise zone tax credit and a $13 million benefit related to enacted law changes.

Temporary differences and carryforwards giving rise to deferred tax assets and liabilities at December 31 follow:



(In millions)	2015			2014
Tax loss carryforwards and credits	$	1,415		$	1,550
Capitalized research and development expenditures	655			622
Accrued expenses deductible as paid	501			583
Postretirement benefits and pensions	288			388
Investment and receivables related to Venezuelan deconsolidation	157			—
Alternative minimum tax credit carryforwards⁽¹⁾	78			85
Rationalizations and other provisions	22			49
Vacation and sick pay	37			36
Other	121			100
	3,274			3,413
Valuation allowance	(621		)	(632		)
Total deferred tax assets	2,653			2,781
Property basis differences	(459		)	(448		)
Tax on undistributed earnings of subsidiaries	(144		)	(170		)
Total net deferred tax assets	$	2,050		$	2,163


(1)	Unlimited carryforward period.

At December 31, 2015, we had $519 million of tax assets for net operating loss, capital loss and tax credit carryforwards related to certain foreign subsidiaries. These carryforwards are primarily from countries with unlimited carryforward periods, but include $15 million of special enterprise zone tax credits subject to expiration in 2017. A valuation allowance totaling $523 million has been recorded against these and other deferred tax assets where recovery of the asset or carryforward is uncertain. In addition, we had $795 million of Federal and $101 million of state tax assets for net operating loss and tax credit carryforwards. The Federal carryforwards consist of $38 million of Federal tax assets for net operating losses that expire from 2029 to 2034, $686 million of foreign tax credits that are subject to expiration from 2016 to 2025 and $71 million of tax assets related to research and development credits that are subject to expiration from 2027 to 2034. The amount of deferred tax assets reflected in the table above has been reduced by $57 million related to unrealized stock option deductions. The state carryforwards are subject to expiration from 2016 to 2034. A valuation allowance of $98 million has been recorded against Federal and state deferred tax assets where recovery is uncertain.

Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net foreign deferred tax assets. However, it is reasonably possible that sufficient positive evidence required to release all, or a portion, of certain valuation allowances will exist during 2016. This may result in a reduction of the valuation allowance by up to $275 million.

At December 31, 2015, we had unrecognized tax benefits of $54 million that if recognized, would have a favorable impact on our tax expense of $40 million. We had accrued interest of $5 million as of December 31, 2015. If not favorably settled, $9 million of the unrecognized tax benefits and all of the accrued interest would require the use of our cash. We do not expect changes during 2016 to our unrecognized tax benefits to have a significant impact on our financial position or results of operations.



Reconciliation of Unrecognized Tax Benefits
(In millions)	2015			2014			2013
Balance at January 1	$	81		$	88		$	82
Increases related to prior year tax positions	10			15			27
Decreases related to prior year tax positions	(10		)	(12		)	(6		)
Settlements	(14		)	(6		)	(9		)
Foreign currency impact	(15		)	(4		)	(6		)
Increases related to current year tax positions	2			—			1
Lapse of statute of limitations	—			—			(1		)
Balance at December 31	$	54		$	81		$	88

Generally, years from 2010 onward are still open to examination by foreign taxing authorities. We are open to examination in Germany from 2011 onward and in the United States for 2015.

We have undistributed earnings of foreign subsidiaries of approximately $1.4 billion for which deferred taxes have not been provided, including a portion of which has already been subject to U.S. Federal income taxation. No provision for Federal income or foreign withholding tax on any of these undistributed earnings is required because such earnings have been or will be reinvested in property, plant and equipment and working capital. Quantification of the deferred tax liability net of applicable foreign tax credits, if any, associated with these undistributed earnings is not practicable. We have not recorded deferred tax assets for the excess of tax basis over book basis in our foreign subsidiaries as it is not expected to reverse in the foreseeable future.

Net cash payments for income taxes were $113 million, $127 million and $186 million in 2015, 2014 and 2013, respectively.