Income Taxes

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



		Year Ended December 31,
		2016			2015			2014
Current
	Federal	$	(1	)	$	(32	)	$	(1	)
	State	3			3			4
	Foreign	63			40			79
	Current income tax provision	65			11			82

Deferred
	Federal	51			45			89
	State	5			(1		)	2
	Foreign	(5		)	14			(26		)
	Deferred income tax provision	51			58			65
Provision for income taxes		$	116		$	69		$	147

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



	Year Ended December 31,
	2016		2015		2014
United States ^(a)	$	127	$	258	$	248
Foreign	152		124		144
Pretax income	$	279	$	382	$	392

__________


^(a)	For the years ended December 31, 2016, 2015 and 2014, includes corporate debt extinguishment costs of $27 million, $23 million and $56 million, respectively.

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



		As of December 31,
		2016			2015
Deferred income tax assets:
	Net tax loss carryforwards	$	1,587		$	1,567
	Accrued liabilities and deferred revenue	281			276
	Tax credits	62			76
	Depreciation and amortization	2			13
	Acquisition and integration-related liabilities	5			13
	Provision for doubtful accounts	7			7
	Other	52			46
	Valuation allowance ^(a)	(357		)	(351		)
Deferred income tax assets		1,639			1,647

Deferred income tax liabilities:
	Depreciation and amortization	112			123
	Prepaid expenses	32			29
	Other	2			7
Deferred income tax liabilities		146			159
Deferred income tax assets, net		$	1,493		$	1,488

__________

^(a)

The valuation allowance of $357 million at December 31, 2016 relates to tax loss carryforwards, foreign tax credits and certain deferred tax assets of $289 million, $39 million and $29 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 $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.

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



	As of December 31,
	2016		2015
Deferred income tax assets:
Depreciation and amortization	$	52	$	53

Deferred income tax liabilities:
Depreciation and amortization	2,481		2,420
Deferred income tax liabilities under vehicle programs, net	$	2,429	$	2,367

At December 31, 2016, the Company had U.S. federal net operating loss carryforwards of approximately $3.5 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, 2016, the Company had foreign net operating loss carryforwards of approximately $690 million with an indefinite utilization period. No provision has been made for U.S. federal deferred income taxes on approximately $1.1 billion of accumulated and undistributed earnings of foreign subsidiaries at December 31, 2016, 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,
		2016		2015		2014
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	2.0		2.8		3.3
	Changes in valuation allowances	(0.2	)	(0.6	)	(3.0	)
	Taxes on foreign operations at rates different than statutory U.S. federal rates	3.1		3.7		1.4
	Resolution of a prior-year tax matter ^(a)	—		(25.6	)	—
	Non-deductible transaction-related costs	—		0.9		—
	Other non-deductible expenses	1.7		1.8		0.9
	Other	—		0.1		(0.1	)
		41.6	%	18.1	%	37.5	%

__________


^a)	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:



		2016			2015			2014
Balance at January 1		$	56		$	63		$	63
	Additions for tax positions related to current year	3			6			5
	Additions for tax positions for prior years	3			3			5
	Reductions for tax positions for prior years	(3		)	(14		)	(8		)
	Settlements	—			(1		)	(2		)
	Statute of limitations	—			(1		)	—
Balance at December 31		$	59		$	56		$	63

The Company does not anticipate that total unrecognized tax benefits will change significantly in 2017.

The Company is subject to taxation in the United States and various foreign jurisdictions. As of December 31, 2016, the 2013 through 2015 tax years generally remain subject to examination by the federal tax authorities. The 2011 through 2015 tax years generally remain subject to examination by various state tax authorities. In significant foreign jurisdictions, the 2010 through 2015 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, 2016, 2015 and 2014, if recognized, would affect the Company’s provision for, or benefit from, income taxes. As of December 31, 2016, 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,
	2016		2015
Unrecognized tax benefit in non-current income taxes payable ^(a)	$	40	$	37
Accrued interest payable on potential tax liabilities ^(b)	29		28

__________


^(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, 2016 and 2015, $15 million in each period 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, 2016, 2015 and 2014, were not significant and were recognized as a component of the provision for income taxes.