Taxes on Income

Income before taxes on income resulted from domestic and foreign operations as follows:



(in millions)	Year Ended December 31,
	2013		2012		2011
Domestic operations	$	868	$	841	$	700
Foreign operations	478		289		300
Total continuing income before taxes	$	1,346	$	1,130	$	1,000

The provision/(benefit) for taxes on income consists of the following:



(in millions)	Year Ended December 31,
	2013			2012			2011
Federal:
Current	$	209		$	194		$	238
Deferred	51			74			(6		)
Total federal	260			268			232
Foreign:
Current	152			91			93
Deferred	(19		)	(9		)	13
Total foreign	133			82			106
State and local:
Current	40			40			36
Deferred	10			14			—
Total state and local	50			54			36
Total provision for taxes for continuing operations	443			404			374
Provision for discontinued operations	281			11			164
Total provision for taxes	$	724		$	415		$	538

A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate for financial reporting purposes is as follows:



	Year Ended December 31,
	2013		2012		2011
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes	2.8		3.6		2.4
Foreign operations	(3.7	)	(2.6	)	(3.0	)
S&P Dow Jones Indices LLC joint venture	(1.9	)	(1.1	)	—
Other, net	0.7		0.9		3.0
Effective income tax rate for continuing operations	32.9	%	35.8	%	37.4	%

The principal temporary differences between the accounting for income and expenses for financial reporting and income tax purposes are as follows:



(in millions)	December 31,
	2013			2012
Deferred tax assets:
Postretirement benefits	$	32		$	201
Employee compensation	72			123
Accrued expenses	142			105
Unearned revenue	55			60
Allowance for doubtful accounts	15			17
Loss carryforwards	28			25
Other	10			—
Total deferred tax assets	354			531
Deferred tax liabilities:
Goodwill and intangible assets ¹	(379		)	(379		)
Fixed assets	(55		)	(54		)
Other	—			(1		)
Total deferred tax liabilities	(434		)	(434		)
Net deferred income tax (liability) asset before valuation allowance	(80		)	97
Valuation allowance	(5		)	(7		)
Net deferred income tax (liability) asset	$	(85	)	$	90
Reported as:
Current deferred tax assets	$	108		$	117
Current deferred tax liabilities	(10		)	(7		)
Non-current deferred tax assets	22			36
Non-current deferred tax liabilities	(205		)	(56		)
Net deferred income tax (liability) asset	$	(85	)	$	90


¹	See Note 2 – Acquisitions and Divestitures for further discussion regarding the impact related to the S&P Dow Jones Indices LLC.

We record valuation allowances against deferred income tax assets when we determine that it is more likely than not based upon all the available evidence that such deferred income tax assets will not be realized. The valuation allowance is primarily related to operating losses.

We have not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. Undistributed earnings that are indefinitely reinvested in foreign operations amounted to $930 million at December 31, 2013. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings is not practicable.

We made net income tax payments for continuing and discontinued operations totaling $787 million in 2013, $243 million in 2012, and $452 million in 2011. As of December 31, 2013, we had net operating loss carryforwards of $165 million, some of which will expire over varying periods.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(in millions)	Years ended December 31,
	2013			2012			2011
Balance at beginning of year	$	74		$	58		$	53
Additions based on tax positions related to the current year	27			14			12
Additions for tax positions of prior years	10			3			3
Reduction for tax positions of prior years	(9		)	(1		)	(10		)
Reduction for settlements	(20		)	—			—
Balance at end of year	$	82		$	74		$	58

The total amount of federal, state and local, and foreign unrecognized tax benefits as of December 31, 2013 and 2012 was $82 million and $74 million, respectively, exclusive of interest and penalties. The increase of $28 million in 2013 (excluding settlements) is the amount of unrecognized tax benefits that unfavorably impacted tax expense for continuing and discontinued operations. The unfavorable impact to the tax provision was partially offset by the resolution of tax audits in multiple jurisdictions.

We recognize accrued interest and penalties related to unrecognized tax benefits in interest expense and operating-related expense, respectively. In addition to the unrecognized tax benefits, as of December 31, 2013 and 2012, we had $19 million and $14 million, respectively, of accrued interest and penalties associated with uncertain tax positions.

During 2013, we made a U.S. federal income tax payment in settlement of an issue related to tax years 2007 through 2010 and also effectively completed the audit for 2011. However, even though we have effectively completed the U.S. federal tax audit for 2011, it remained open pending an unresolved issue. Also during 2013, we completed various state and foreign tax audits and, with few exceptions, we are no longer subject to federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2005. During 2011 and 2012, we completed various state and foreign tax audits. The impact to tax expense in 2013, 2012 and 2011 was not material.

We file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions, and we are routinely under audit by many different tax authorities. We believe that our accrual for tax liabilities is adequate for all open audit years based on an assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. It is possible that tax examinations will be settled prior to December 31, 2014. If any of these tax audit settlements do occur within that period, we would make any necessary adjustments to the accrual for unrecognized tax benefits. Until formal resolutions are reached between us and the tax authorities, the determination of a possible audit settlement range with respect to the impact on unrecognized tax benefits is not practicable. On the basis of present information, it is our opinion that any assessments resulting from the current audits will not have a material effect on our consolidated financial statements.

Although the timing of income tax audit resolution and negotiations with taxing authorities are highly uncertain, we do not anticipate a significant change to the total amount of unrecognized income tax benefits within the next twelve months.