Taxes on Income

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



(in millions)	Year Ended December 31,
	2018		2017		2016
Domestic operations	$	1,857	$	1,723	$	2,585
Foreign operations	824		738		603
Total income before taxes	$	2,681	$	2,461	$	3,188

The provision for taxes on income consists of the following:



(in millions)	Year Ended December 31,
	2018			2017			2016
Federal:
Current	$	183		$	489		$	641
Deferred	68			63			79
Total federal	251			552			720
Foreign:
Current	214			194			133
Deferred	(2		)	(3		)	(4		)
Total foreign	212			191			129
State and local:
Current	81			73			99
Deferred	16			7			12
Total state and local	97			80			111
Total provision for taxes	$	560		$	823		$	960

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,
	2018		2017		2016
U.S. federal statutory income tax rate	21.0	%	35.0	%	35.0	%
State and local income taxes	2.8		2.5		2.7
Divestitures	—		—		(4.3	)
Foreign operations	0.2		(3.9	)	(2.0	)
TCJA Transition Tax	(0.3	)	6.0		—
Stock-based compensation	(1.2	)	(2.7	)	—
S&P Dow Jones Indices LLC joint venture	(1.2	)	(1.8	)	(1.2	)
Tax credits and incentives	(1.7	)	(2.1	)	(1.6	)
Other, net	1.3		0.4		1.5
Effective income tax rate	20.9	%	33.4	%	30.1	%

The decrease in the effective income tax rate in 2018 was primarily due to the reduction of the U.S. federal corporate tax rate as a result of the enactment of the Tax Cuts and Jobs Act (“TCJA”). Additionally, a one-time transition tax charge of $149 million due to the TCJA was recorded in 2017, which included tax expense of approximately $173 million on the deemed repatriation of foreign earnings and a tax benefit of approximately $24 million in respect of the re-valuation of the net U.S. deferred tax liabilities at the reduced corporate income tax rate.

We have elected to recognize the tax on Global Intangible Low Taxed Income (“GILTI”) as a period expense in the year the tax is incurred. GILTI expense is included in Other, net above.

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,
	2018			2017
Deferred tax assets:
Legal and regulatory settlements	$	2		$	27
Employee compensation	57			50
Accrued expenses	36			47
Postretirement benefits	48			34
Unearned revenue	11			26
Allowance for doubtful accounts	8			8
Loss carryforwards	155			135
Other	24			45
Total deferred tax assets	341			372
Deferred tax liabilities:
Goodwill and intangible assets	(295		)	(249		)
Fixed assets	—			(4		)
Total deferred tax liabilities	(295		)	(253		)
Net deferred income tax asset before valuation allowance	46			119
Valuation allowance	(156		)	(127		)
Net deferred income tax (liability) asset	$	(110	)	$	(8	)
Reported as:
Non-current deferred tax assets	$	52		$	59
Non-current deferred tax liabilities	(162		)	(67		)
Net deferred income tax (liability) asset	$	(110	)	$	(8	)

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

As of December 31, 2018, we have approximately $2.3 billion of undistributed earnings of our foreign subsidiaries, of which $784 million is reinvested indefinitely in our foreign operations. We have not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings is not practicable.

We made net income tax payments totaling $558 million in 2018, $709 million in 2017, and $683 million in 2016. As of December 31, 2018, we had net operating loss carryforwards of $691 million, of which a significant 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,
	2018			2017			2016
Balance at beginning of year	$	212		$	221		$	162
Additions based on tax positions related to the current year	19			23			48
Additions for tax positions of prior years	2			17			20
Reduction for tax positions of prior years	(21		)	(32		)	(3		)
Reduction for settlements	(65		)	(5		)	(6		)
Expiration of applicable statutes of limitations	—			(12		)	—
Balance at end of year	$	147		$	212		$	221

The total amount of federal, state and local, and foreign unrecognized tax benefits as of December 31, 2018, 2017 and 2016 was $147 million, $212 million and $221 million, respectively, exclusive of interest and penalties. During the period ending December 31, 2018, there was no net tax impact to tax expense from the change in unrecognized tax benefits.

We recognize accrued interest and penalties related to unrecognized tax benefits in interest expense and operating-related expense, respectively. Based on the current status of income tax audits, we believe that the total amount of unrecognized tax benefits on the balance sheet may be reduced by up to approximately $40 million in the next twelve months as a result of the resolution of local tax examinations. In addition to the unrecognized tax benefits, as of December 31, 2018 and 2017, we had $35 million and $59 million, respectively, of accrued interest and penalties associated with unrecognized tax benefits.

The U.S. federal income tax audit for 2017 is in process. During 2018, we completed federal, state and foreign tax audits and, with few exceptions, we are no longer subject to federal, state, or foreign income tax examinations by tax authorities for the years before 2011. The impact to tax expense in 2018, 2017 and 2016 was not material.

We file income tax returns in the U.S. federal jurisdiction and various state 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, 2019. 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.