Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law. The Act reduces the U.S. corporate income tax rate from a maximum of 35% to 21% for all corporations, effective January 1, 2018, and makes certain changes to U.S. taxation of income earned by foreign subsidiaries, capital expenditures, interest expense and various other items.

As a result of the reduction in the U.S. corporate income tax rate from 35% to 21%, we re-measured our net deferred tax liabilities at December 31, 2017 and recognized a provisional tax benefit of $555 million in our consolidated statement of operations for the year ended December 31, 2017. Upon completion of our re-measurement during 2018 there was no material change to the provisional amount recorded in 2017.

With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2010. The Internal Revenue Service and state and local taxing authorities reserve the right to audit any period where net operating loss carryforwards are available.

A reconciliation of the change in our gross unrecognized tax benefits (excluding both interest and any related federal benefit) from January 1 to December 31 for 2018 and 2017 are as follows:



	2018		2017
	(Dollars in millions)
Unrecognized tax benefits at December 31, 2017	$	—	—
Increase due to tax positions taken in a prior year	433		—
Unrecognized tax benefits at December 31, 2018	$	433	—

The total amount of unrecognized tax benefits (including interest and net of federal benefit) that, if recognized, would impact the effective income tax rate was $435 million at December 31, 2018. As of December 31, 2017, there was no impact on the effective income tax rate.

Our policy is to reflect interest expense associated with unrecognized tax benefits in income tax expense. We had accrued interest (presented before related tax benefits) of approximately $21 million at December 31, 2018. We made no accrual as of December 31, 2017 for interest.

Based on our current assessment of various factors, including (i) the potential outcomes of these ongoing examinations, (ii) the expiration of statute of limitations for specific jurisdictions, (iii) the negotiated settlement of certain disputed issues, and (iv) the administrative practices of applicable taxing jurisdictions, it is reasonably possible that the related unrecognized tax benefits for uncertain tax positions previously taken may not change in the next 12 months. The actual amount of changes, if any, will depend on future developments and events, many of which are outside our control.

Income Tax Expense

The components of the income tax expense (benefit) from continuing operations are as follows:



	Years Ended December 31,
	2018			2017		2016
	(Dollars in millions)
Income tax expense (benefit):
Current:
Federal and foreign	$	(39	)	777		686
State and local	31			130		115
Total current	(8		)	907		801
Deferred:
Federal and foreign	408			(736	)	(103	)
State and local	94			(37	)	(20	)
Total deferred	502			(773	)	(123	)
Income tax expense (benefit)	$	494		134		678

The effective income tax rate for continuing operations differs from the statutory tax rate as follows:



	Years Ended December 31,
	2018		2017		2016
	(in percent)
Effective income tax rate:
Federal statutory income tax rate	21.0	%	35.0	%	35.0	%
State income taxes-net of federal effect	6.1	%	3.4	%	3.5	%
Tax reform	—	%	(31.0	)%	—	%
Accounting method changes	(3.9	)%	—	%	—	%
Other	(0.3	)%	0.1	%	—	%
Effective income tax rate	22.9	%	7.5	%	38.5	%

The effective tax rate for the year ended December 31, 2017 reflects the benefit of $555 million from the re-measurement of deferred taxes as noted above.

Deferred Tax Assets and Liabilities

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:



	As of December 31,
	2018			2017
	(Dollars in millions)
Deferred tax assets and liabilities:
Deferred tax liabilities:
Property, plant and equipment	$	(1,026	)	(933	)
Intangibles assets	(419		)	(553	)
Total deferred tax liabilities	(1,445		)	(1,486	)
Deferred tax assets:
Payable to affiliate due to post-retirement benefit plan participation	297			366
Other	58			127
Gross deferred tax assets	355			493
Less valuation allowance on deferred tax assets	(8		)	(8	)
Net deferred tax assets	347			485
Net deferred tax liabilities	$	(1,098	)	(1,001	)

At December 31, 2018, we have established a valuation allowance of $8 million as it is not more likely than not that this amount of deferred tax assets will be realized.

Other Income Tax Information

We received $8 million from QSC and paid $907 million and $801 million to QSC related to income taxes in the years ended December 31, 2018, 2017 and 2016, respectively.