INCOME TAXES

Tax Cuts and Jobs Act

On December 22, 2017 the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Act makes broad and complex changes to the U.S. tax code, including but not limited to, reducing the U.S. federal corporate rate from 35% to 21%, generally eliminating the taxation of dividends from foreign subsidiaries, imposing a one-time transition tax on unrepatriated earnings of foreign subsidiaries, creating new taxes on certain foreign earnings, allowing full expensing of qualified property acquired and placed in service after September 27, 2017, and imposing new limits on the deduction of net operating losses, executive compensation and net interest expense.

We have recognized the income tax effects of the Act in our financial statements for the year ended December 31, 2017 in accordance with Staff Accounting Bulletin No. 118, which provides SEC guidance for the application of ASC 740 - Income Taxes in the period in which the Act was signed into law. While we have not yet completed our analysis, based on reasonable assumptions and available information, we have recorded a provisional benefit of $18.4 million resulting from the reduction of our deferred tax liabilities to reflect the change in the corporate income tax rate from 35% to 21%. If additional tax deduction items which are temporary in nature are later identified, this will reduce our current federal taxes payable at 35% and increase our deferred federal tax liability at 21%, resulting in an additional benefit. We have also calculated a provisional amount of zero for the transition tax on unrepatriated foreign earnings.

We have not yet completed our analysis of the impact of the other provisions of the Act that could affect our financial statements for the year ended December 31, 2017, specifically the Global Intangible Low Taxed Income (GILTI) provisions. The GILTI rules require current inclusion of certain earnings of controlled foreign corporations in the income of the U.S. shareholder. Under U.S. GAAP we are allowed to make an accounting policy choice to either treat additional taxes due to GILTI on a current or deferred basis. If we were to choose the deferred method, our calculation of the deferred balance at December 31, 2017 would depend upon our analysis of foreign income and whether we expect to have GILTI inclusions in future years. Because of the complexity of these provisions and our continuing evaluation, we have not recorded any provisional amounts for this tax in our financial statements.

Income Tax Provision

Income (loss) from continuing operations before income taxes consists of the following:



	Year ended December 31,
Dollar amounts in millions	2017		2016		2015
Domestic	$	341.8	$	98.4	$	(8.7	)
Foreign	168.4		71.7		(80.0		)
Total	$	510.2	$	170.1	$	(88.7	)

The following presents the components of our income tax provision (benefit) from continuing operations.



	Year ended December 31,
Dollar amounts in millions	2017			2016			2015
Current tax provision (benefit):
U.S. federal	$	105.8		$	60.4		$	(2.4	)
State and local	4.4			4.4			(0.5		)
Foreign	7.9			10.4			2.6
Net current tax provision (benefit)	118.1			75.2			(0.3		)
Deferred tax provision (benefit):
U.S. federal	(19.3		)	(48.1		)	(1.1		)
State and local	8.0			1.2			(1.8		)
Foreign	38.2			11.7			(26.6		)
Net valuation allowance increase (decrease)	(25.9		)	(20.2		)	27.1
Net deferred tax benefit	1.0			(55.4		)	(2.4		)
Total income tax provision (benefit)	$	119.1		$	19.8		$	(2.7	)

We received income tax refunds during 2017, 2016 and 2015 of $0.3 million, $0.8 million and $0.1 million and paid cash taxes of $143.1 million, $8.7 million and $16 million. Included in the Consolidated Balance Sheets at December 31, 2017 and 2016 are income tax receivables of $2.2 million and $1.7 million and income taxes payable of $4.5 million and $31.3 million.

Deferred Taxes

The tax effects of significant temporary differences creating deferred tax (assets) and liabilities at December 31 were as follows:



	December 31,
Dollar amounts in millions	2017			2016
Accrued liabilities	53.4			83.9
Benefit of capital loss and NOL carryovers	38.9			83.4
Other	10.2			11.6
Inventories	6.6			6.9
Market value write down of ARS	4.9			8.8
Benefit of tax credit carryovers	3.5			3.7
Valuation allowance	(13.6		)	(37.9		)
Total deferred tax assets	103.9			160.4
Property, plant and equipment	(118.2		)	(164.2		)
Timber and timberlands	(11.4		)	(11.6		)
Installment sale gain deferral	(5.2		)	(8.0		)
Total deferred tax liabilities	(134.8		)	(183.8		)
Net deferred tax liabilities	$	(30.9	)	$	(23.4	)
Balance sheet classification
Long-term deferred tax asset	2.5			4.3
Long-term deferred tax liability	(33.4		)	(27.7		)
	$	(30.9	)	$	(23.4	)

The benefit relating to capital loss, net operating loss (NOL) and credit carryovers included in the above table at December 31, 2017 consists of:



Dollar amounts in millions	Expiration Beginning in	Benefit Amount		Valuation Allowance
State NOL carryovers	2018	14.1		(1.4		)
State credit carryovers	2018	0.7		(0.1		)
Canadian NOL carryovers	2034	16.7		—
Canadian capital loss carryovers	Indefinitely	6.2		(6.2		)
Canadian credit carryovers	2018	2.7		—
Chilean NOL carryovers	Indefinitely	2.0		(2.0		)
		$	42.4	$	(9.7	)

We periodically review the need for valuation allowances against deferred tax assets and recognizes these deferred tax assets to the extent that their realization is more likely than not. As part of our review, we consider all positive and negative evidence, including earnings history, the future reversal of deferred tax liabilities, and the relevant expirations of carryforwards. We believe that the valuation allowances provided are appropriate. If future years’ earnings differ from the estimates used to establish these valuation allowances or other objective positive or negative evidence arises, we may be required to record an adjustment resulting in an impact on tax expense (benefit) for that period.

As of January 1, 2016, we adopted ASU No. 2016-09, "Improvements to Employee Share-based Payment Accounting" An adjustment of $16.9 million was recorded to the beginning balance of retained earnings based upon the adoption of the new standard.

At December 31, 2017, certain of LP’s foreign subsidiaries had accumulated surplus earnings of approximately $90 million which have been, and are intended to be, indefinitely reinvested in LP’s foreign operations. This amount becomes taxable upon a sale of the subsidiaries and, in certain circumstances, may be taxable upon distribution. Other foreign subsidiaries have experienced accumulated deficits. Determination of the amount of any unrecognized US income tax liability on these temporary differences is not practical because of the complexities of the hypothetical calculations

Tax Rate Reconciliation

The following table summarizes the differences between the statutory U.S. federal and effective income tax rates on continuing operations:



	Year ended December 31,
	2017		2016		2015
U.S. federal tax rate	35	%	35	%	(35	)%
State and local income taxes	2		2		(2	)
Effect of foreign tax rates	(3	)	(5	)	13
Effect of foreign exchange on functional currencies	1		2		(8	)
Tax credits	(1	)	(12	)	—
Capital gain - timber	—		(15	)	—
Stock-based compensation	—		(2	)	—
Domestic manufacturing deduction	(2	)	(2	)	—
Valuation allowance	(6	)	(12	)	31
Uncertain tax positions	1		21		(4	)
Effect of U.S. federal rate change on deferred taxes	(3	)	—		—
Other, net	(1	)	—		2
Effective tax rate (%)	23	%	12	%	(3	)%

We are subject to U.S. federal income tax as well as income taxes of multiple state jurisdictions. Our foreign subsidiaries are subject to income tax in Canada, Chile, Peru and Brazil.

U.S. tax years are now closed through 2013, and no audits are currently in progress. We remain subject to U.S. federal examinations of tax years 2014 to 2016 as well as state and local tax examination for the tax years 2007-2016. In 2016, Canada completed its audits of tax years 2012 and 2013; tax years 2014 through 2016 are subject to examination. Quebec provincial audits have been effectively settled through 2015. Chilean returns for the 2010 - 2013 tax years have been audited and various issues are currently being appealed in the Chilean courts and years 2014 through 2016 are subject to examination. Brazilian returns for years 2009 to 2016 are subject to examination but no audits are currently in progress.

Uncertain Tax Positions

In accordance with the accounting for uncertain tax positions, the following is a tabular reconciliation of the total amount of unrecognized tax benefits at the beginning and end of the years presented:



	December 31,
Dollar amounts in millions	2017			2016			2015
Beginning balance	$	39.8		$	4.1		$	42.2
Increases:
Tax positions taken in current year	0.6			26.9			—
Tax positions taken in prior years	1.2			10.4			0.9
Decreases:
Tax positions taken in current year	—			—			—
Tax positions taken in prior years	(1.3		)	—			(0.5		)
Settlements during the year	—			—			(34.7		)
Lapse of statute in current year	—			(1.6		)	(3.8		)
Ending balance	$	40.3		$	39.8		$	4.1

Included in the above balances at December 31, 2017 and 2016 is $39.9 million and $39.8 million of tax benefits that, if recognized, would affect our effective tax rate. We accrued interest of $0.7 million and paid interest of $0.0 million during 2017 and accrued interest of $3.0 million and paid interest of $0.0 million during 2016. In total, we have recognized a liability of $3.7 million and $3.0 million for accrued interest related to its uncertain tax positions as of December 31, 2017 and 2016. The 2015 settlement amount in the above table is the result of our agreement with the Internal Revenue Service regarding their examination of tax years 2007-2009.