Income Taxes

The following is an analysis of the components of the consolidated income tax provision (dollars in millions):



	2015			2014			2013
Current income tax provision (benefit) -
U.S. Federal	$	205.1		$	185.1		$	129.6
State and local	20.5			33.1			12.7
Foreign	0.4			0.9			0.3
Total current provision for taxes	226.0			219.1			142.6
Deferred -
U.S. Federal	(3.8		)	(5.0		)	(160.5		)
State and local	5.6			7.6			0.3
Foreign	(0.1		)	—			(0.1		)
Total deferred provision (benefit) for taxes	1.7			2.6			(160.3		)
Total provision (benefit) for taxes	$	227.7		$	221.7		$	(17.7	)

The effective tax rate varies from the U.S. Federal statutory tax rate principally due to the following (dollars in millions):



	2015			2014			2013
Provision computed at U.S. Federal statutory rate of 35%	$	232.6		$	215.0		$	148.3
Alternative fuel mixture and cellulosic biofuel producer credits	—			—			(166.0		)
State and local taxes, net of federal benefit	20.0			20.5			13.6
Domestic manufacturers deduction	(19.9		)	(16.5		)	(11.7		)
Other	(5.0		)	2.7			(1.9		)
Total	$	227.7		$	221.7		$	(17.7	)

Tax benefits in 2013 included $166.0 million for the release of ASC 740 uncertain tax positions related to the taxability of the alternative energy tax credits acquired in the acquisition of Boise and the completion of the IRS audit of PCA's 2008 and 2009 Federal income tax returns including the Filer City mill's cellulosic biofuel tax credits. For further discussion regarding these credits, see Note 7, Alternative Energy Tax Credits.

The following details the scheduled expiration dates of our tax effected net operating loss (NOL) and other tax carryforwards at December 31, 2015 (dollars in millions):



	2016 Through 2025		2026 Through 2035		Indefinite		Total
U.S. federal and non-U.S. NOLs	$	—	$	70.9	$	—	$	70.9
State taxing jurisdiction NOLs	1.6		0.7		—		2.3
U.S. federal, non-U.S., and state tax credit carryforwards	—		0.1		—		0.1
U.S. federal capital loss carryforwards	5.1		—		—		5.1
Total	$	6.7	$	71.7	$	—	$	78.4

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Deferred income tax assets and liabilities at December 31 are summarized as follows (dollars in millions):



	December 31
	2015			2014
Deferred tax assets:
Accrued liabilities	$	18.3		$	19.0
Employee benefits and compensation	32.5			44.2
Inventories	3.9			—
Net operating loss carryforwards	73.2			85.2
Stock options and restricted stock	10.7			8.9
Pension and postretirement benefits	148.2			139.1
Derivatives	13.7			16.0
Capital loss, general business, foreign, and AMT credit carryforwards	5.2			1.8
Gross deferred tax assets	$	305.7		$	314.2
Valuation allowance (a)	(5.1		)	(1.7		)
Net deferred tax assets	$	300.6		$	312.5

Deferred tax liabilities:
Property, plant, and equipment	$	(545.8	)	$	(531.6	)
Goodwill and intangible assets	(101.8		)	(107.7		)
Inventories	—			(7.4		)
Total deferred tax liabilities	$	(647.6	)	$	(646.7	)
Net deferred tax liabilities (b)	$	(347.0	)	$	(334.2	)

___________

(a)

Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. The 2015 valuation allowance relates to capital losses. In 2014, of the $1.7 million valuation allowance, $1.1 million relates to foreign net operating loss carryforwards and credits and $0.6 million relates to capital losses. We do not expect to generate capital gains before the capital losses expire. If or when recognized, the tax benefits relating to the reversal of any of or all of the valuation allowance would be recognized as a benefit to income tax expense.

(b)

As of December 31, 2015, we did not recognize U.S. deferred income taxes on our cumulative total of undistributed foreign earnings for our non-U.S. subsidiaries. We indefinitely reinvest our earnings in operations outside the United States. It is not practicable to determine the amount of unrecognized deferred tax liability on these undistributed earnings because the actual tax liability, if any, is dependent on circumstances existing when the repatriation occurs.

Cash payments for federal, state, and foreign income taxes were $238.3 million, $189.5 million, and $90.7 million for the years ended December 31, 2015, 2014, and 2013, respectively.

The following table summarizes the changes related to PCA’s gross unrecognized tax benefits excluding interest and penalties (dollars in millions):



	2015			2014			2013
Balance as of January 1	$	(4.4	)	$	(5.4	)	$	(111.3	)
Increase related to acquisition of Boise Inc. (a)	—			—			(65.2		)
Increases related to prior years’ tax positions	(2.8		)	(1.0		)	(0.1		)
Increases related to current year tax positions	(0.4		)	(0.3		)	(1.5		)
Decreases related to prior years' tax positions (b)	—			0.9			64.8
Settlements with taxing authorities (c)	0.7			0.5			106.2
Expiration of the statute of limitations	1.1			0.9			1.7
Balance at December 31	$	(5.8	)	$	(4.4	)	$	(5.4	)

___________


(a)	In 2013, PCA acquired $65.2 million of gross unrecognized tax benefits from Boise Inc. that related primarily to the taxability of the alternative energy tax credits.


(b)	The 2013 amount includes a $64.3 million gross decrease related to the taxability of the alternative energy tax credits claimed in 2009 excise tax returns by Boise Inc. For further discussion regarding these credits, see Note 7, Alternative Energy Tax Credits.


(c)	The 2013 amount includes a $104.7 million gross decrease related to the conclusion of the Internal Revenue Service audit of PCA’s alternative energy tax credits. For further discussion regarding these credits, see Note 7, Alternative Energy Tax Credits.

At December 31, 2015, PCA had recorded a $5.8 million gross reserve for unrecognized tax benefits, excluding interest and penalties. Of the total, $4.2 million (net of the federal benefit for state taxes) would impact the effective tax rate if recognized.

PCA recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. At December 31, 2015 and 2014, we had an insignificant amount of interest and penalties recorded for unrecognized tax benefits included in the table above. PCA does not expect the unrecognized tax benefits to change significantly over the next 12 months.

PCA is subject to taxation in the United States and various state and foreign jurisdictions. A federal examination of the tax years 2010 - 2012 was concluded in February 2015. A federal examination of the 2013 tax year began in October 2015. The tax years 2014 - 2015 remain open to federal examination. The tax years 2011 - 2015 remain open to state examinations. Some foreign tax jurisdictions are open to examination for the 2008 tax year forward. Through the Boise acquisition, PCA recorded net operating losses and credit carryforwards from 2008 through 2011 and 2013 that are subject to examinations and adjustments for at least three years following the year in which utilized.