Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

Income Tax Provision

The components of income from continuing operations before income taxes, including equity in unconsolidated affiliates, were as follows:



	Year ended December 31,
Dollar amounts in millions	2019			2018		2017
Domestic	$	18		$	359	$	342
Foreign	(41		)	162		168
Total	$	(23	)	$	521	$	510

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



	Year ended December 31,
Dollar amounts in millions	2019			2018			2017
Current tax provision (benefit):
U.S. federal	$	(5	)	$	55		$	106
State and local	(1		)	8			4
Foreign	(17		)	32			8
Net current tax provision (benefit)	(23		)	95			118
Deferred tax provision (benefit):
U.S. federal	7			11			(19		)
State and local	(1		)	6			8
Foreign	5			11			38
Net valuation allowance increase (decrease)	(1		)	(1		)	(26		)
Net deferred tax provision	10			27			1
Total income tax provision (benefit)	$	(13	)	$	122		$	119

We paid income taxes, net of refunds, of $20 million, $90 million, and $143 million during 2019, 2018, and 2017, respectively. Included in our Consolidated Balance Sheets at December 31, 2019, are net income tax receivables of $35 million, and at December 31, 2018, we had a net income tax payable of $5 million.

Deferred Taxes

The tax effects of significant temporary differences creating deferred tax assets and liabilities were as follows:



	December 31,
Dollar amounts in millions	2019			2018
Accrued liabilities	$	18		$	22
Pension and post-retirement benefits	7			8
Share-based compensation	5			5
Benefit relating to capital loss, NOL carryforwards, and credit carryforwards	28			16
Inventories	7			8
Market value write-down of ARS	3			3
Operating lease liabilities	6			—
Valuation allowance	(11		)	(12		)
Other	8			13
Total deferred tax assets	71			63
Property, plant, and equipment	(121		)	(111		)
Timber and timberlands	(10		)	(10		)
Operating lease assets	(6		)	—
Investment in Entekra	(6		)	—
Total deferred tax liabilities	(143		)	(121		)
Net deferred tax liabilities	$	(72	)	$	(58	)
Balance sheet classification
Long-term deferred tax asset	1			4
Long-term deferred tax liability	(73		)	(62		)
	$	(72	)	$	(58	)

The benefit relating to capital loss, net operating loss (NOL) and credit carryforwards included in the above table at December 31, 2019 consists of:



Dollar amounts in millions	Net Operating Loss		Benefit Amount		Valuation Allowance			Expiration Beginning in
Federal NOL carryforwards	$	11	$	2	$	—		No expiration
State NOL carryforwards	266		10		—			2021
Brazil NOL carryforwards	3		1		—			No expiration
Canadian NOL carryforwards	20		5		—			2040
State credit carryforwards			1		—			2020
Canadian capital loss carryforwards			5		(5		)	No expiration
Canadian credit carryforwards			4		—			2020
			$	28	$	(5	)

We periodically review the need for valuation allowances against deferred tax assets and recognize 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 provision

(benefit) for that period.

As of December 31, 2019, certain of our foreign subsidiaries had accumulated undistributed earnings of approximately $113 million. These earnings have been, and are intended to be, indefinitely reinvested in our foreign operations, and we expect future U.S. cash generation to be sufficient to meet our future U.S. cash needs. As a result, no deferred taxes have been recorded with respect to the difference between the financial accounting value and the tax basis in these subsidiaries.

Since most of these earnings have previously been subject to the one-time U.S. transition tax on foreign earnings required by the 2017 Tax Act, they are eligible to be repatriated without additional US tax. Any additional taxes due with respect to such earnings, if repatriated to the U.S., would generally be limited to foreign withholding taxes, which we estimate could be up to $22 million.

Tax Rate Reconciliation

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



	Year ended December 31,
	2019			2018			2017
Income from continuing operations before income taxes, including equity in unconsolidated affiliates	$	(23	)	$	521		$	510

U.S. federal tax rate	21		%	21		%	35		%
State and local income taxes	11			3			2
Effect of foreign tax rates	9			2			(3		)
Effect of foreign exchange on functional currencies	(4		)	(1		)	1
Tax credits	8			(1		)	(1		)
Noncontrolling interest	(4		)	—			—
Stock-based compensation	5			(1		)	—
Domestic manufacturing deduction	—			—			(2		)
Capital gain tax rate differential	5			—			—
Inflationary adjustment	5			—			—
Valuation allowance	8			—			(6		)
Uncertain tax positions	(7		)	—			1
Effect of U.S. federal rate change on deferred taxes	—			(1		)	(3		)
Other, net	1			1			(1		)
Effective tax rate (%)	58		%	23		%	23		%

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, Brazil, Colombia, and Argentina.

We generally remain subject to U.S. federal and state examinations for tax years 2016 and subsequent. In addition to the U.S., we have tax years that remain open and subject to examination by tax authorities in the following major tax jurisdictions: Brazil and Chile for tax years 2014 and subsequent and Canada for tax years 2015 and subsequent. Our tax returns are currently under examination by tax authorities in Canada for years 2017 and 2018 and in Chile for years 2016 through 2018.

Under U.S. GAAP, we are allowed to make an accounting policy election relating to the inclusion of Global Intangible Low-Taxed Income ("GILTI") to treat taxes due on future U.S. income inclusions in taxable income related to GILTI as either (1) a current period expense (the "period cost method") or (2) factoring in such amounts into our measurement of deferred taxes (the "deferred method"). We have elected to treat taxes due on future U.S.

inclusions in taxable income related to GILTI as a current period expense when incurred using the period cost method.

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	2019			2018			2017
Beginning balance	$	41		$	40		$	40
Increases:
Tax positions taken in current year	1			1			—
Tax positions taken in prior years	—			1			1
Decreases:
Tax positions taken in current year	—			—			—
Tax positions taken in prior years	—			—			(1		)
Settlements during the year	(4		)	(1		)	—
Lapse of statute in current year	—			—			—
Ending balance	$	38		$	41		$	40

Included in the above balances at December 31, 2019, is $37 million of tax benefits that, if recognized, would affect our effective tax rate. We accrued $1 million of interest and paid $2 million of interest during 2019 and accrued no interest and paid no interest during 2018. In total, we have recognized a liability of $2 million and $3 million for accrued interest related to our uncertain tax positions as of December 31, 2019 and 2018, respectively.

Over the next twelve months, it is reasonably possible that total unrecognized tax benefits will be reduced by up to $33 million as a result of the closure of tax examinations and expiring statutes of limitations.