Income Taxes:

The income tax rate of 32.2% for the six months ended June 30, 2017 decreased 2.8 percentage points from the six months ended June 30, 2016. The income tax rate of 31.6% for the three months ended June 30, 2017 decreased 3.1 percentage points from the three months ended June 30, 2016. These decreases were due primarily to the following:


▪	tax benefits of $152 million related primarily to the effective settlement in June 2017 of the Internal Revenue Service audit of Altria Group, Inc. and its consolidated subsidiaries’ 2010-2013 tax years, of which $110 million was recorded in the second quarter of 2017; and


▪	excess tax benefits of $19 million for share-based awards that vested during the first half of 2017.

Altria Group, Inc. is subject to income taxation in many jurisdictions. Uncertain tax positions reflect the difference between tax positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. Resolution of the related tax positions with the relevant tax authorities may take many years to complete, and such timing is not entirely within the control of Altria Group, Inc. At June 30, 2017, Altria Group, Inc.’s total unrecognized tax benefits were $48 million. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at June 30, 2017 was $40 million, along with $8 million affecting deferred taxes. It is reasonably possible that within the next 12 months certain examinations will be resolved, which could result in an increase in unrecognized tax benefits of approximately $21 million. At December 31, 2016, Altria Group, Inc.’s total unrecognized tax benefits were $169 million. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2016 was $67 million, along with $102 million affecting deferred taxes.

At June 30, 2017 and December 31, 2016, a valuation allowance of $240 million was included in Altria Group, Inc.’s net deferred income tax liabilities for tax credit carryforwards that more-likely-than-not will not be realized. Altria Group, Inc. may be required to change the valuation allowance with respect to foreign tax credit carryforwards, based upon additional information to be received from AB InBev in 2017.