Income Taxes

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



		Year Ended December 31,
		2015			2014			2013
Current
	Federal	$	(32	)	$	(1	)	$	(4	)
	State	3			4			12
	Foreign	40			79			36
	Current income tax provision	11			82			44

Deferred
	Federal	45			89			28
	State	(1		)	2			8
	Foreign	14			(26		)	1
	Deferred income tax provision	58			65			37
Provision for income taxes		$	69		$	147		$	81

Pretax income for domestic and foreign operations consists of the following:



	Year Ended December 31,
	2015		2014		2013
United States ^(a)	$	258	$	248	$	4
Foreign	124		144		93
Pretax income	$	382	$	392	$	97

__________


^(a)	For the years ended December 31, 2015, 2014 and 2013, includes corporate debt extinguishment costs of $23 million, $56 million and $147 million, respectively.

Deferred income tax assets and liabilities are comprised of the following:



		As of December 31,
		2015			2014
Deferred income tax assets:
	Net tax loss carryforwards	$	1,567		$	1,483
	Accrued liabilities and deferred revenue	276			297
	Tax credits	76			75
	Depreciation and amortization	13			23
	Acquisition and integration-related liabilities	13			8
	Provision for doubtful accounts	7			7
	Unrealized hedge loss	—			1
	Other	46			57
	Valuation allowance ^(a)	(351		)	(319		)
Deferred income tax assets		1,647			1,632

Deferred income tax liabilities:
	Depreciation and amortization	123			96
	Prepaid expenses	29			21
	Other	7			4
Deferred income tax liabilities		159			121
Deferred income tax assets, net		$	1,488		$	1,511

__________

^(a)

The valuation allowance of $351 million at December 31, 2015 relates to tax loss carryforwards, foreign tax credits and certain deferred tax assets of $267 million, $53 million and $31 million, respectively. The valuation allowance will be reduced when and if the Company determines it is more likely than not that the related deferred income tax assets will be realized. The valuation allowance of $319 million at December 31, 2014 relates to tax loss carryforwards, foreign tax credits and certain deferred tax assets of $249 million, $46 million and $24 million, respectively.

Deferred income tax assets and liabilities related to vehicle programs are comprised of the following:



	As of December 31,
	2015		2014
Deferred income tax assets:
Depreciation and amortization	$	53	$	54

Deferred income tax liabilities:
Depreciation and amortization	2,420		2,321
Deferred income tax liabilities under vehicle programs, net	$	2,367	$	2,267

At December 31, 2015, the Company had U.S. federal net operating loss carryforwards of approximately $3.6 billion, most of which expire in 2031. Such net operating loss carryforwards are primarily related to accelerated depreciation of the Company’s U.S. vehicles. Currently, the Company does not record valuation allowances on the majority of its U.S. federal tax loss carryforwards as there are adequate deferred tax liabilities that could be realized within the carryforward period. At December 31, 2015, the Company had foreign net operating loss carryforwards of approximately $583 million with an indefinite utilization period. No provision has been made for U.S. federal deferred income taxes on approximately $941 million of accumulated and undistributed earnings of foreign subsidiaries at December 31, 2015, since it is the present intention of management to reinvest the undistributed earnings indefinitely in those foreign operations. Due to the variability associated with the various methods in which such earnings could be repatriated, it is not practicable to estimate the actual amount of such deferred tax liabilities. If such earnings were repatriated and subject to taxation at the current U.S. federal tax rate, the Company would consider and pursue alternatives to reduce the tax liability.

The reconciliation between the U.S. federal income tax statutory rate and the Company’s effective income tax rate is as follows:



		Year Ended December 31,
		2015		2014		2013
U.S. federal statutory rate		35.0	%	35.0	%	35.0	%
Adjustments to reconcile to the effective rate:
	State and local income taxes, net of federal tax benefits	2.8		3.3		4.1
	Changes in valuation allowances ^(a)	(0.6	)	(3.0	)	15.5
	Taxes on foreign operations at rates different than statutory U.S. federal rates	3.7		1.4		5.9
	Resolution of a prior-year tax matter ^(b)	(25.6	)	—		—
	Non-deductible debt extinguishment costs	—		—		18.8
	Non-deductible transaction-related costs	0.9		—		3.2
	Other non-deductible expenses	1.8		0.9		2.3
	Other	0.1		(0.1	)	(1.3	)
		18.1	%	37.5	%	83.5	%

__________


^(a)	For the year ended December 31, 2013, includes 13.1% related to our impairment expense.


^(b)	For the year ended December 31, 2015, the Company recognized a $98 million income tax benefit from the resolution of a prior-year income tax matter.

The following is a tabular reconciliation of the gross amount of unrecognized tax benefits for the year:



		2015			2014			2013
Balance at January 1		$	63		$	63		$	54
	Additions for tax positions related to current year	6			5			4
	Additions for tax positions for prior years	3			5			9
	Reductions for tax positions for prior years	(14		)	(8		)	—
	Settlements	(1		)	(2		)	—
	Statute of limitations	(1		)	—			(4		)
Balance at December 31		$	56		$	63		$	63

The Company does not anticipate that total unrecognized tax benefits will change significantly in 2016.

The Company is subject to taxation in the United States and various foreign jurisdictions. As of December 31, 2015, the 2012 through 2014 tax years generally remain subject to examination by the federal tax authorities. The 2010 through 2014 tax years generally remain subject to examination by various state tax authorities. In significant foreign jurisdictions, the 2009 through 2014 tax years generally remain subject to examination by their respective tax authorities.

Substantially all of the gross amount of the unrecognized tax benefits at December 31, 2015, 2014 and 2013, if recognized, would affect the Company’s provision for, or benefit from, income taxes. As of December 31, 2015, the Company’s unrecognized tax benefits were offset by tax loss carryforwards in the amount of $20 million.

The following table presents unrecognized tax benefits:



	As of December 31,
	2015		2014
Unrecognized tax benefit in non-current income taxes payable ^(a)	$	37	$	45
Accrued interest payable on potential tax liabilities ^(b)	28		30

__________


^(a)	Pursuant to the agreements governing the disposition of certain subsidiaries in 2006, the Company is entitled to indemnification for certain pre-disposition tax contingencies. As of December 31, 2015 and 2014, $15 million and $16 million, respectively, of unrecognized tax benefits are related to tax contingencies for which the Company believes it is entitled to indemnification.


^(b)	The Company recognizes potential interest related to unrecognized tax benefits within interest expense related to corporate debt, net on the accompanying Consolidated Statements of Operations. Penalties incurred during the years ended December 31, 2015, 2014 and 2013, were not significant and were recognized as a component of the provision for income taxes.