Income Tax

Total income tax expense (benefit) is allocated as follows:



	Year Ended December 31
	2015			2014			2013
	(in millions of dollars)
Net Income	$	371.2		$	139.9		$	373.0
Stockholders' Equity - Additional Paid-in Capital
Stock-Based Compensation	(3.6		)	(3.0		)	(0.8		)
Stockholders' Equity - Accumulated Other Comprehensive Income
Change in Net Unrealized Gain on Securities Before Adjustment	(892.5		)	725.8			(1,102.8		)
Change in Adjustment to Deferred Acquisition Costs and Reserves for Future Policy and Contract Benefits, Net of Reinsurance	856.6			(665.1		)	743.3
Change in Net Gain on Cash Flow Hedges	(4.3		)	(2.0		)	(1.3		)
Change in Foreign Currency Translation Adjustment	(0.1		)	—			—
Change in Unrecognized Pension and Postretirement Benefit Costs	3.2			(92.4		)	185.2
Total	$	330.5		$	103.2		$	196.6

A reconciliation of the income tax provision at the U.S. federal statutory rate to the income tax rate as reported in our consolidated statements of income is as follows. Certain prior year amounts have been reclassified to conform to current year reporting.



	Year Ended December 31
	2015		2014		2013
Statutory Income Tax	35.0	%	35.0	%	35.0	%
Foreign Rate Differential, Inclusive of Foreign Rate Changes	(2.5	)	(4.0	)	(1.8	)
Tax Credits	(1.4	)	(4.5	)	(1.9	)
Other Items, Net	(1.1	)	(0.7	)	(0.7	)
Effective Tax	30.0	%	25.8	%	30.6	%

In 2014, our U.S. earnings included a long-term care reserve charge that resulted in a larger proportion of our 2014 earnings derived from our foreign operations and taxed at the lower rate, therefore reducing our overall effective tax rate.

Our net deferred tax liability consists of the following. Certain prior year amounts have been reclassified to conform to current year reporting.



	December 31
	2015		2014
	(in millions of dollars)
Deferred Tax Liability
Deferred Acquisition Costs	$	140.4	$	97.4
Fixed Assets	87.1		95.6
Invested Assets	1,128.4		1,982.8
Other	55.4		64.6
Gross Deferred Tax Liability	1,411.3		2,240.4

Deferred Tax Asset
Reserves	1,060.5		1,919.2
Employee Benefits	246.0		254.0
Other	14.3		5.2
Gross Deferred Tax Asset	1,320.8		2,178.4
Less: Valuation Allowance	1.3		—
Net Deferred Tax Asset	1,319.5		2,178.4
Net Deferred Tax Liability	$	91.8	$	62.0

Our consolidated statements of income include amounts subject to both domestic and foreign taxation. The income and related tax expense (benefit) are as follows:



	Year Ended December 31
	2015			2014			2013
	(in millions of dollars)
Income Before Tax
United States - Federal	$	1,057.8		$	391.7		$	1,086.8
Foreign	180.5			150.3			133.2
Total	$	1,238.3		$	542.0		$	1,220.0

Current Tax Expense (Benefit)
United States - Federal	$	280.5		$	160.6		$	309.8
Foreign	61.6			(25.1		)	18.7
Total	342.1			135.5			328.5

Deferred Tax Expense (Benefit)
United States - Federal	56.9			(50.5		)	41.3
Foreign	(27.8		)	54.9			3.2
Total	29.1			4.4			44.5

Total	$	371.2		$	139.9		$	373.0

The U.K. government enacted income tax rate reductions during 2015 and 2013. During 2015, the rate was reduced from 20 percent to 19 percent effective April 2017, and to 18 percent effective April 2020. During 2013, the rate was reduced from 23 percent to 21 percent effective April 2014, and to 20 percent effective April 2015. Although the rate reductions in each instance became or will become effective during a subsequent year, we are required to adjust deferred tax assets and liabilities through income on the date of enactment of a rate change. As a result, we recorded income tax benefits of $6.5 million and $6.3 million for the tax rate reductions enacted during 2015 and 2013, respectively.

We have not provided U.S. deferred taxes on the cumulative earnings of our non-U.S. subsidiaries. We consider these unremitted earnings to be permanently invested as they relate to ongoing operations of our non-U.S. subsidiaries. We do not intend to repatriate these earnings to fund our U.S. operations as we expect that future domestic cash flow generation will be sufficient to meet future domestic cash needs. As of December 31, 2015, we had not recorded a deferred tax liability on approximately $1 billion of the excess of the carrying amount for financial reporting over the tax basis of investments in non-U.S. subsidiaries that is considered permanent in duration. This amount becomes taxable upon repatriation of assets from a foreign subsidiary or a sale or liquidation of foreign subsidiaries. Should we sell the stock in our non-U.S. subsidiaries for an amount equal to the carrying amount for financial reporting, we would recognize tax expense of approximately $200 million, assuming our ability to fully utilize foreign tax credits.

Our consolidated statements of income include the following changes in unrecognized tax benefits:



	December 31
	2015			2014			2013
	(in millions of dollars)
Balance at Beginning of Year	$	19.8		$	18.4		$	17.5
Additions to Tax Positions Taken During Prior Years	—			1.7			5.7
Settlements with Tax Authorities	(19.0		)	(0.6		)	(4.8		)
Tax Positions Taken During Current Year	—			0.3			—
Balance at End of Year	0.8			19.8			18.4
Less Tax Attributable to Temporary Items Included Above	—			(10.4		)	(10.2		)
Total Unrecognized Tax Benefits That if Recognized Would Affect the Effective Tax Rate	$	0.8		$	9.4		$	8.2

Included in the balances at December 31, 2014 and 2013 were $10.4 million and $10.2 million, respectively, of unrecognized tax benefits for tax positions for which the ultimate deductibility was highly certain but for which there was uncertainty about the timing of such deductibility. Other than potential interest and penalties, the disallowance of the shorter deductibility period would not have affected our results of operations but would have accelerated the payment of cash to the taxing authority.

We recognize interest expense and penalties, if applicable, related to unrecognized tax benefits in tax expense net of federal income tax. We recognized an increase (reduction) in interest expense related to unrecognized tax benefits of $(1.0) million, $0.2 million, and $(1.1) million during 2015, 2014, and 2013, respectively. We held a de minimis liability in our consolidated balance sheets for accrued interest and penalties related to unrecognized tax benefits at December 31, 2015. At December 31, 2014, we held a liability of $1.0 million. There are no positions for which it is reasonably possible that unrecognized tax benefits could materially increase or decrease within the next 12 months.

We file federal and state income tax returns in the United States and in foreign jurisdictions. We have been under continuous examination by the Internal Revenue Service (IRS) with regard to our U.S. federal income tax returns. During 2015, we settled our IRS audit for 2009 and 2010 and resolved a claim for refund we filed related to tax credits for years 2003 through 2012. As a result, we recognized a tax benefit of $6.8 million in our consolidated statements of income and paid an immaterial amount of additional tax.

Tax years subsequent to 2010 remain subject to examination by tax authorities in the U.S., and tax years subsequent to 2013 remain subject to examination in major foreign jurisdictions. We believe sufficient provision has been made for all potential adjustments for years that are not closed by the statute of limitations in all major tax jurisdictions and that any such adjustments would not have a material adverse effect on our financial position, liquidity, or results of operations.

As of December 31, 2015 and 2014, we had no net operating loss carryforward for U.S. income taxes. We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. During 2015, we recorded a valuation allowance of $1.3 million related to unrealized tax losses on buildings which we own and occupy in the U.K. We had no valuation allowance at December 31, 2014.

Total income taxes paid net of refunds during 2015, 2014, and 2013 were $189.1 million, $155.7 million, and $398.1 million, respectively.