The components of International Paper’s earnings from continuing operations before income taxes and equity earnings by taxing jurisdiction were as follows:



In millions	2014		2013		2012
Earnings (loss)
U.S.	$	565	$	775	$	419
Non-U.S.	307		453		548
Earnings (loss) from continuing operations before income taxes and equity earnings	$	872	$	1,228	$	967

The provision (benefit) for income taxes (excluding noncontrolling interests) by taxing jurisdiction was as follows:



In millions	2014			2013			2012
Current tax provision (benefit)
U.S. federal	$	175		$	(663	)	$	(3	)
U.S. state and local	9			(98		)	12
Non-U.S.	74			95			100
	$	258		$	(666	)	$	109
Deferred tax provision (benefit)
U.S. federal	$	(67	)	$	206		$	220
U.S. state and local	5			(18		)	5
Non-U.S.	(73		)	(20		)	(28		)
	$	(135	)	$	168		$	197
Income tax provision (benefit)	$	123		$	(498	)	$	306

The Company’s deferred income tax provision (benefit) includes a $13 million benefit, a $7 million provision and a $25 million provision for 2014, 2013 and 2012, respectively, for the effect of changes in non-U.S. and U.S. state tax rates.

International Paper made income tax payments, net of refunds, of $172 million, $291 million and $95 million in 2014, 2013 and 2012, respectively.

A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision follows:



In millions	2014			2013			2012
Earnings (loss) from continuing operations before income taxes and equity earnings	$	872		$	1,228		$	967
Statutory U.S. income tax rate	35		%	35		%	35		%
Tax expense (benefit) using statutory U.S. income tax rate	305			430			338
State and local income taxes	10			(2		)	9
Tax rate and permanent differences on non-U.S. earnings	(72		)	(90		)	(116		)
Net U.S. tax on non-U.S. dividends	16			(15		)	48
Tax benefit on manufacturing activities	(46		)	(27		)	(15		)
Non-deductible business expenses	7			4			7
Non-deductible goodwill	35			37			34
Tax audits	—			(770		)	—
Subsidiary liquidation	(85		)	—			—
Retirement plan dividends	(5		)	(5		)	(5		)
Tax basis adjustments	—			(33		)	—
Tax credits	(34		)	(23		)	—
Medicare subsidy	—			—			5
Other, net	(8		)	(4		)	1
Income tax provision (benefit)	$	123		$	(498	)	$	306
Effective income tax rate	14		%	(41		)%	32		%

The tax effects of significant temporary differences, representing deferred income tax assets and liabilities at December 31, 2014 and 2013, were as follows:



In millions	2014			2013
Deferred income tax assets:
Postretirement benefit accruals	$	189		$	193
Pension obligations	1,517			725
Alternative minimum and other tax credits	342			515
Net operating and capital loss carryforwards	672			610
Compensation reserves	280			281
Other	266			284
Gross deferred income tax assets	3,266			2,608
Less: valuation allowance	(415		)	(413		)
Net deferred income tax asset	$	2,851		$	2,195
Deferred income tax liabilities:
Intangibles	$	(316	)	$	(304	)
Plants, properties and equipment	(2,707		)	(2,919		)
Forestlands and related installment sales	(2,290		)	(2,307		)
Gross deferred income tax liabilities	$	(5,313	)	$	(5,530	)
Net deferred income tax liability	$	(2,462	)	$	(3,335	)

Deferred income tax assets and liabilities are recorded in the accompanying consolidated balance sheet under the captions Deferred income tax assets, Deferred charges and other assets, Other accrued liabilities, and Deferred income taxes. There is an increase in deferred income tax assets principally relating to the tax impact of changes in qualified pension liabilities partially offset by the utilization of tax credits. Deferred tax liabilities decreased primarily due to book depreciation in excess of tax depreciation. Of the $2.3 billion forestlands and related installment sales deferred tax liability, $1.4 billion relates to a 2006 International Paper installment sale of forestlands and $840 million relates to a 2007 Temple-Inland installment sale of forestlands (see Note 12). Certain tax attributes reflected on our tax returns as filed differ from those reflected in the deferred income tax accounts due to uncertain tax benefits.

The valuation allowance for deferred income tax assets as of December 31, 2014 was $415 million. The net change in the total valuation allowance for the year ended December 31, 2014 was an increase of $2 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 is as follows:



In millions	2014			2013			2012
Balance at January 1	$	(161	)	$	(972	)	$	(857	)
(Additions) reductions based on tax positions related to current year	(15		)	(22		)	12
Additions for tax positions of prior years	(1		)	(29		)	(140		)
Reductions for tax positions of prior years	9			824			6
Settlements	—			26			2
Expiration of statutes of limitations	2			11			7
Currency translation adjustment	8			1			(2		)
Balance at December 31	$	(158	)	$	(161	)	$	(972	)

Included in the balance at December 31, 2014, 2013 and 2012 are $1 million, $1 million and $14 million, respectively, for tax positions for which the ultimate benefits are highly certain, but for which there is uncertainty about the timing of such benefits. However, except for the possible effect of any penalties, any disallowance that would change the timing of these benefits would not affect the annual effective tax rate, but would accelerate the payment of cash to the taxing authority to an earlier period.

The Company accrues interest on unrecognized tax benefits as a component of interest expense. Penalties, if incurred, are recognized as a component of income tax expense. The Company had approximately $41 million and $54 million accrued for the payment of estimated interest and penalties associated with unrecognized tax benefits at December 31, 2014 and 2013, respectively.

The major jurisdictions where the Company files income tax returns are the United States, Brazil, France, Poland and Russia. Generally, tax years 2003 through 2013 remain open and subject to examination by the relevant tax authorities. The Company is typically engaged in various tax examinations at any given time, both in the United States and overseas. In 2013, the Company concluded its examination with the U.S. Internal Revenue Service for the tax years 2006 through 2009 for both International Paper Company and Temple-Inland. As a result of the completion of the examinations, the Company reduced its unrecognized tax benefits by approximately $844 million. Other pending audit settlements and the expiration of statute of limitations could further reduce the uncertain tax positions by $5 million during the next twelve months. While the Company believes that it is adequately accrued for possible audit adjustments, the final resolution of these examinations cannot be determined at this time and could result in final settlements that differ from current estimates.

Included in the Company’s 2014, 2013 and 2012 income tax provision (benefit) are $(453) million, $(869) million and $(63) million, respectively, related to special items. The components of the net provisions related to special items were as follows:



In millions	2014			2013			2012
Special items	$	(372	)	$	(95	)	$	(82	)
Tax-related adjustments:
Internal restructurings	(90		)	(4		)	14
Settlement of tax audits and legislative changes	10			(770		)	—
Medicare D deferred income tax write-off	—			—			5
Other tax adjustments	(1		)	—			—
Income tax provision (benefit) related to special items	$	(453	)	$	(869	)	$	(63	)

Excluding the impact of special items and nonoperating pension expense, the 2014, 2013 and 2012 income tax provisions were $659 million, $497 million and $415 million, respectively, or 31%, 26% and 28%, respectively, of pre-tax earnings before equity earnings.

The following details the scheduled expiration dates of the Company’s net operating loss and income tax credit carryforwards:



In millions	2015 Through 2024		2025 Through 2034		Indefinite		Total
U.S. federal and non-U.S. NOLs	$	28	$	3	$	462	$	493
State taxing jurisdiction NOLs	140		76		—		216
U.S. federal, non- U.S. and state tax credit carryforwards	146		23		275		444
U.S. federal and state capital loss carryforwards	58		—		—		58
Total	$	372	$	102	$	737	$	1,211

Deferred income taxes are not provided for temporary differences of approximately $5.2 billion, $5.1 billion and $4.7 billion as of December 31, 2014, 2013 and 2012, respectively, representing earnings of non-U.S. subsidiaries intended to be permanently reinvested. Computation of the potential deferred tax liability associated with these undistributed earnings and other basis differences is not practicable.

The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013. The Act retroactively restored several expired business tax provisions, including the research and experimentation credit and the Subpart F controlled foreign corporation look-through exception. Because a change in tax law is accounted for in the period of enactment, the retroactive effect of the Act on the Company's U.S. federal taxes for 2012 of a benefit of approximately $32 million was recognized in the first quarter of 2013.