Income Taxes

The components of the benefit (provision) for income taxes on continuing operations were:



	Year Ended December 31
Millions of dollars	2016			2015			2014
Current income taxes:
Federal	$	737		$	635		$	(959	)
Foreign	(415		)	(636		)	(734		)
State	35			51			(36		)
Total current	357			50			(1,729		)
Deferred income taxes:
Federal	1,343			(18		)	83
Foreign	77			262			357
State	81			(20		)	14
Total deferred	1,501			224			454
Income tax benefit (provision)	$	1,858		$	274		$	(1,275	)

The United States and foreign components of income (loss) from continuing operations before income taxes were as follows:



	Year Ended December 31
Millions of dollars	2016			2015			2014
United States	$	(6,636	)	$	(1,560	)	$	3,020
Foreign	(989		)	624			1,692
Total	$	(7,625	)	$	(936	)	$	4,712

Reconciliations between the actual provision for income taxes on continuing operations and that computed by applying the United States statutory rate to income (loss) from continuing operations before income taxes were as follows:



	Year Ended December 31
	2016		2015		2014
United States statutory rate	35.0	%	35.0	%	35.0	%
Undistributed foreign earnings	(5.1	)	—		—
Impact of foreign income taxed at different rates (a)	(3.2	)	17.0		(5.7	)
Valuation allowance against tax assets	(2.1	)	(8.3	)	(3.6	)
Domestic manufacturing deduction	(1.3	)	—		(1.9	)
State income taxes	1.0		2.0		0.8
Non-deductible acquisition costs	0.6		(4.5	)	—
Adjustments of prior year taxes	0.2		1.3		0.3
Venezuela devaluation	—		(7.5	)	—
Other items, net	(0.7	)	(5.7	)	2.2
Total effective tax rate on continuing operations	24.4	%	29.3	%	27.1	%

(a) For the year ended December 31, 2015, we recognized taxable losses in our United States operations, partially offset by taxable income in our foreign operations in which the corresponding tax expenses are applied at lower statutory rates in certain jurisdictions, which had a significant effect on our effective tax rate during the year.

Our effective tax rate on continuing operations was 24.4% for 2016, 29.3% for 2015 and 27.1% for 2014. For the year ended December 31, 2016, we had the following significant items impacting our effective tax rate:


-	we recognized taxable losses in our United States operations in which we recorded tax benefits at the U.S. statutory rate and taxable losses in our foreign operations in which the corresponding tax benefits are applied at lower statutory rates in certain jurisdictions;


-	we recorded $393 million of deferred tax expenses during the year on approximately $3.4 billion of cumulative undistributed foreign earnings. See further discussion below;


-	we established valuation allowances on certain deferred tax assets aggregating $163 million as a result of market conditions and their corresponding impact on our business outlook;


-	we recorded $96 million of tax expenses associated with our inability to utilize certain domestic manufacturing deductions as a result of the carryback of net operating losses to prior tax periods; and


-	we recorded tax benefits on the $3.4 billion of impairments and other charges recorded during the year, some of which are taxed at lower income tax rates in certain foreign jurisdictions.

During 2016, as a result of the payment of the Baker Hughes termination fee and the general market conditions, we reviewed the financial requirements of our United States companies and our foreign subsidiaries, together with the overall capital structure of the global organization. As a result of this review, we concluded that we no longer intend to permanently reinvest a portion of our cumulative undistributed foreign earnings outside of the United States and recorded corresponding United States federal income tax expenses. We have not provided United States income taxes and foreign withholding taxes on the remaining undistributed earnings of foreign subsidiaries as of December 31, 2016 because we intend to permanently reinvest such earnings outside the United States. If these foreign earnings were to be repatriated in the future, the related United States tax liability may be reduced by any foreign income taxes previously paid on these earnings. As of December 31, 2016, the cumulative amount of earnings upon which United States income taxes have not been provided is approximately $4.0 billion. It is not practicable to estimate the additional amount of unrecognized deferred tax liability related to these earnings at this time.

The primary components of our deferred tax assets and liabilities were as follows:



	December 31
Millions of dollars	2016		2015
Gross deferred tax assets:
Net operating loss carryforwards	$	1,647	$	540
Foreign tax credit carryforwards	648		365
Employee compensation and benefits	352		403
Accrued liabilities	325		392
Other	536		359
Total gross deferred tax assets	3,508		2,059
Gross deferred tax liabilities:
Depreciation and amortization	585		1,334
Undistributed foreign earnings	406		5
Other	145		109
Total gross deferred tax liabilities	1,136		1,448
Valuation allowances	453		213
Net deferred income tax asset	$	1,919	$	398

At December 31, 2016, we had $1.6 billion of domestic and foreign tax-effected net operating loss carryforwards. The ultimate realization of these deferred tax assets depends on the ability to generate sufficient taxable income in the appropriate taxing jurisdiction. $174 million of the net operating loss carryforwards will expire after taxable years ended from 2017 through 2021, $142 million will expire after taxable years ended from 2022 through 2026, and $77 million will expire after taxable years ended from 2027 through 2036. In addition, $943 million of United States net operating loss carryforwards will expire after the 2036 taxable year. The remaining balance will not expire. Additionally, we had $758 million of foreign tax credit carryforwards that will expire from 2022 through 2026, which are offset by foreign branch deferred activity reflected in the above table, along with $84 million of research and development tax credit carryforwards that will expire from 2027 through 2036.

The following table presents a rollforward of our unrecognized tax benefits and associated interest and penalties.



Millions of dollars	Unrecognized Tax Benefits				Interest and Penalties
Balance at January 1, 2014	$	175			$	34
Change in prior year tax positions	83				24
Change in current year tax positions	84				—
Cash settlements with taxing authorities	(27		)		(1		)
Lapse of statute of limitations	(1		)		(1		)
Balance at December 31, 2014	$	314			$	56
Change in prior year tax positions	(33		)		7
Change in current year tax positions	62				1
Cash settlements with taxing authorities	(16		)		(15		)
Lapse of statute of limitations	(5		)		(2		)
Balance at December 31, 2015	$	322		(a)	$	47
Change in prior year tax positions	44				20
Change in current year tax positions	129				3
Cash settlements with taxing authorities	(62		)		(8		)
Lapse of statute of limitations	(6		)		(1		)
Balance at December 31, 2016	$	427		(a)(b)	$	61

(a)

Includes $84 million as of December 31, 2016 and $67 million as of December 31, 2015 in foreign unrecognized tax benefits that would give rise to a United States tax credit. Approximately $257 million, which excludes $5 million of unrecognized tax benefits covered by an indemnification asset, as of December 31, 2016 and $176 million, which excludes $10 million of unrecognized tax benefits covered by an indemnification asset, as of December 31, 2015, if resolved in our favor, would positively impact the effective tax rate and, therefore, be recognized as additional tax benefits in our statement of operations.


(b)	Includes $15 million that could be resolved within the next 12 months.

We file income tax returns in the United States federal jurisdiction and in various states and foreign jurisdictions. In most cases, we are no longer subject to state, local, or non-United States income tax examination by tax authorities for years before 2009. Tax filings of our subsidiaries, unconsolidated affiliates and related entities are routinely examined in the normal course of business by tax authorities. Currently, our United States federal tax filings for the tax years 2012 through 2015 are under review by the Internal Revenue Service, and we are awaiting final review by the Joint Committee on Taxation of the appeals resolution for the tax years 2010 through 2011.