Taxes on Income

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



(in millions)	Year Ended December 31,
	2016		2015		2014
Domestic operations	$	2,585	$	1,266	$	(423	)
Foreign operations	603		549		477
Total continuing income before taxes	$	3,188	$	1,815	$	54

The provision for taxes on income consists of the following:



(in millions)	Year Ended December 31,
	2016			2015			2014
Federal:
Current	$	641		$	90		$	285
Deferred	79			276			(213		)
Total federal	720			366			72
Foreign:
Current	133			111			135
Deferred	(4		)	(1		)	1
Total foreign	129			110			136
State and local:
Current	99			34			62
Deferred	12			37			(25		)
Total state and local	111			71			37
Total provision for taxes for continuing operations	960			547			245
Provision for discontinued operations	—			—			140
Total provision for taxes	$	960		$	547		$	385

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,
	2016		2015		2014
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
Legal and regulatory settlements	—		—		524.1
State and local income taxes	2.7		2.6		64.2
Divestitures	(4.3	)	—		—
Foreign operations	(2.0	)	(3.2	)	(79.6	)
S&P Dow Jones Indices LLC joint venture	(1.2	)	(2.0	)	(60.2	)
Tax credits and incentives	(1.6	)	(2.9	)	(91.5	)
Other, net	1.5		0.6		61.7
Effective income tax rate for continuing operations	30.1	%	30.1	%	453.7	%

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,
	2016			2015
Deferred tax assets:
Legal and regulatory settlements	$	23		$	45
Employee compensation	78			91
Accrued expenses	87			72
Postretirement benefits	105			126
Unearned revenue	33			39
Allowance for doubtful accounts	11			12
Loss carryforwards	112			114
Other	3			18
Total deferred tax assets	452			517
Deferred tax liabilities:
Goodwill and intangible assets	(320		)	(299		)
Fixed assets	(3		)	(9		)
Other	—			—
Total deferred tax liabilities	(323		)	(308		)
Net deferred income tax asset (liability) before valuation allowance	129			209
Valuation allowance	(116		)	(98		)
Net deferred income tax asset (liability)	$	13		$	111
Reported as:
Current deferred tax assets	$	—		$	109
Current deferred tax liabilities	—			(8		)
Non-current deferred tax assets	61			33
Non-current deferred tax liabilities	(48		)	(23		)
Net deferred income tax asset (liability)	$	13		$	111

In November of 2015, the FASB issued guidance to simplify the presentation of deferred income taxes. The guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance is effective for reporting periods beginning after December 15, 2016; however, early adoption is permitted. We early adopted this guidance in the fourth quarter of 2016, prospectively, and accordingly prior year amounts have not been reclassified.

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 $1.7 billion at December 31, 2016. 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 $683 million in 2016, $260 million in 2015, and $419 million in 2014. As of December 31, 2016, we had net operating loss carryforwards of $446 million, of which a major portion has an unlimited carryover period under current law.

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



(in millions)	Year ended December 31,
	2016			2015			2014
Balance at beginning of year	$	120		$	118		$	82
Additions based on tax positions related to the current year	35			22			30
Additions for tax positions of prior years	14			12			33
Reduction for tax positions of prior years	(3		)	(14		)	(11		)
Reduction for settlements	(5		)	(18		)	(16		)
Balance at end of year	$	161		$	120		$	118

The total amount of federal, state and local, and foreign unrecognized tax benefits as of December 31, 2016, 2015 and 2014 was $161 million, $120 million and $118 million, respectively, exclusive of interest and penalties. The increase of $46 million in 2016 (excluding settlements) is the amount of unrecognized tax benefits that unfavorably impacted tax expense. 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, 2016 and 2015, we had $44 million and $31 million, respectively, of accrued interest and penalties associated with uncertain tax positions.

During 2016, we completed the federal income tax audit for 2014. The U.S. federal income tax audits for 2016 and 2015 are in process. During 2016, 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 2008. The impact to tax expense in 2016, 2015 and 2014 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, 2017. 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.