M.	INCOME TAXES

The Company’s tax rate is based on income and statutory tax rates in the various jurisdictions in which the Company operates. Tax law requires certain items to be included in the Company’s tax returns at different times than the items reflected in the Company’s financial statements. As a result, the Company’s annual tax rate reflected in its financial statements is different than that reported in its tax returns. Some of these differences are permanent, such as expenses that are not deductible in the Company’s tax return, and some differences reverse over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. The Company establishes valuation allowances for its deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The components of the Company’s income before income taxes include the following:

Year Ended December 31,	2017		2016			2015
Domestic	$	1,347.8	$	1,190.7		$	1,581.6
Foreign		825.5		(60.3	)		755.5
	$	2,173.3	$	1,130.4		$	2,337.1

The components of the Company’s provision for income taxes include the following:

Year Ended December 31,	2017			2016			2015
Current provision:
Federal	$	397.7		$	322.9		$	521.8
State		63.8			41.7			61.1
Foreign		210.5			213.2			205.4
		672.0			577.8			788.3
Deferred provision (benefit):
Federal		(173.8	)		31.5			(57.8	)
State		2.3			4.8			5.3
Foreign		(2.4	)		(5.4	)		(2.7	)
		(173.9	)		30.9			(55.2	)
	$	498.1		$	608.7		$	733.1

Tax benefits recognized for net operating loss carryforwards were $4.3, $1.2 and $.6 for the years ended 2017, 2016 and 2015, respectively.

A reconciliation of the statutory U.S. federal tax rate to the effective income tax rate is as follows:

	2017			2016			2015
Statutory rate		35.0	%		35.0	%		35.0	%
Effect of:
Rate change on deferred taxes		(14.0	)
Transition tax		6.0
Non-deductible EC charge					25.8
State		1.8			2.9			2.1
Federal domestic production deduction		(1.1	)		(2.6	)		(1.8	)
Tax on foreign earnings		(4.0	)		(7.4	)		(2.7	)
Other, net		(.8	)		.1			(1.2	)
		22.9	%		53.8	%		31.4	%

On December 22, 2017, the U.S. enacted new federal income tax legislation, the Tax Cuts and Jobs Act (“the Tax Act”). The Act lowered the U.S. statutory income tax rate from 35% to 21%, imposed a one-time transition tax on the Company’s foreign earnings, which previously had been deferred from U.S. income tax and created a modified territorial system. As a result, the Company recorded a provisional amount of $304.0 of deferred tax benefits, due to the re-measurement of net deferred tax liabilities at the new lower statutory tax rate. In addition, the Company recorded a provisional amount of $130.6 of tax expense on the Company’s foreign earnings, which previously had been deferred from U.S. income tax. These provisional amounts may change in 2018, as new information becomes available, as the Tax Act continues to be interpreted and as new technical guidance is issued. The Company will finalize certain tax positions upon filing its 2017 U.S. income tax returns. The Company will then conclude whether the associated provisional amounts require further adjustment. Based on the Company’s current operations, the Company does not expect its future foreign earnings will be subject to significant U.S. federal income tax as a result of the new modified territorial system.

As noted above, as of December 31, 2017, the Company has provided a U.S. transition tax of $130.6 on all of the Company’s foreign earnings. Included in domestic taxable income for 2016 and 2015 are $180.4 and $249.7 of foreign earnings, respectively, which are not indefinitely reinvested, for which domestic taxes of $7.1 and $12.2, respectively, were provided to account for the difference between the domestic and foreign tax rate on those earnings.

At December 31, 2017, the Company had net operating loss carryforwards of $399.4, of which $271.3 related to foreign subsidiaries and $128.1 related to states in the U.S. The related deferred tax asset was $94.6, for which a $78.3 valuation allowance has been provided. The carryforward periods range from three years to indefinite, subject to certain limitations under applicable laws. The future tax benefits of net operating loss carryforwards are evaluated on a regular basis, including a review of historical and projected operating results.

The tax effects of temporary differences representing deferred tax assets and liabilities are as follows:

At December 31,	2017			2016
Assets:
Accrued expenses	$	183.9		$	239.2
Net operating loss and tax credit carryforwards		102.1			84.4
Postretirement benefit plans					11.7
Allowance for losses on receivables		35.6			41.2
Goodwill and intangibles		34.4			1.3
Other		89.2			105.1
		445.2			482.9
Valuation allowance		(118.6	)		(64.5	)
		326.6			418.4
Liabilities:
Financial Services leasing depreciation		(608.2	)		(808.7	)
Depreciation and amortization		(165.1	)		(246.1	)
Postretirement benefit plans		(39.5	)
Other		(28.8	)		(35.3	)
		(841.6	)		(1,090.1	)
Net deferred tax liability	$	(515.0	)	$	(671.7	)

The balance sheets classification of the Company’s deferred tax assets and liabilities are as follows:

At December 31,	2017			2016
Truck, Parts and Other:
Other noncurrent assets, net	$	71.0		$	119.5
Other liabilities		(1.9	)		(6.3	)
Financial Services:
Other assets		45.2			74.6
Deferred taxes and other liabilities		(629.3	)		(859.5	)
Net deferred tax liability	$	(515.0	)	$	(671.7	)

Cash paid for income taxes was $661.4, $499.4 and $879.7 in 2017, 2016 and 2015, respectively.

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

	2017		2016			2015
Balance at January 1	$	17.3	$	19.1		$	12.0
Additions for tax positions related to the current year		5.6		3.9			10.3
Additions for tax positions related to prior years
Reductions for tax positions related to prior years				(.3	)		(2.0	)
Reductions related to settlements				(5.4	)
Lapse of statute of limitations							(1.2	)
Balance at December 31	$	22.9	$	17.3		$	19.1

The Company had $22.9, $17.3 and $19.1 of unrecognized tax benefits, of which $16.8, $13.9 and $9.9 would impact the effective tax rate, if recognized, as of December 31, 2017, 2016 and 2015, respectively.

The Company recognized $.2, $1.9 and $1.9 of income related to interest in 2017, 2016 and 2015, respectively. Accrued interest expense and penalties were $1.1, $.9 and $2.8 as of December 31, 2017, 2016 and 2015, respectively. Interest and penalties are classified as income taxes in the Consolidated Statements of Income.

The Company believes it is reasonably possible that approximately $1.8 of unrecognized tax benefits, resulting primarily from intercompany transactions, will be resolved within the next twelve months from Competent Authority negotiations between tax authorities of two jurisdictions. The Company does not expect the net impact of these negotiations to be material to its effective tax rate. As of December 31, 2017, the United States Internal Revenue Service has completed examinations of the Company’s tax returns for all years through 2012, with the exception of 2009 which remains subject to examination. The Company’s tax returns for other major jurisdictions remain subject to examination for the years ranging from 2008 through 2017.