19. Income Taxes

The following summarizes components of income tax expense (benefit) for the years ended December 31:



millions	2013			2012			2011
Current
Federal	$	113		$	45		$	(381	)
State	42			25			1
Foreign	873			891			977
	1,028			961			597
Deferred
Federal	94			(30		)	(1,470		)
State	(9		)	115			(68		)
Foreign	52			74			85
	137			159			(1,453		)
Income tax expense (benefit)	$	1,165		$	1,120		$	(856	)

Total income taxes differed from the amounts computed by applying the U.S. federal statutory income tax rate to income (loss) before income taxes. The following summarizes the sources of these differences for the years ended December 31:



millions except percentages	2013			2012			2011
Income (loss) before income taxes
Domestic	$	428		$	132		$	(5,416	)
Foreign	1,678			3,433			1,992
Total	$	2,106		$	3,565		$	(3,424	)
U.S. federal statutory tax rate	35		%	35		%	35		%
Tax computed at the U.S. federal statutory rate	$	737		$	1,248		$	(1,198	)
Adjustments resulting from
State income taxes (net of federal income tax benefit)	23			93			(44		)
Tax impact from foreign operations	167			226			93
Non-deductible Algerian exceptional profits tax	144			188			258
Non-taxable Algeria exceptional profits tax settlement	13			(679		)	—
Deferred tax adjustments	76			22			5
Non-deductible Tronox-related contingent loss	36			—			—
Income attributable to noncontrolling interests	(48		)	(24		)	(28		)
Items resulting from business acquisitions	—			—			19
Other—net	17			46			39
Income tax expense (benefit)	$	1,165		$	1,120		$	(856	)
Effective tax rate	55		%	31		%	25		%

19. Income Taxes (Continued)

The following summarizes components of total deferred taxes at December 31:



millions	2013			2012
Federal	$	(8,246	)	$	(7,890	)
State, net of federal	(332		)	(325		)
Foreign	(307		)	(216		)
Total deferred taxes	$	(8,885	)	$	(8,431	)

The following summarizes tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31:



millions	2013			2012
Current deferred tax assets	$	412		$	328
Valuation allowances on deferred tax assets not expected to be realized	(52		)	—
Net current deferred tax assets	360			328
Oil and gas exploration and development operations	(8,213		)	(8,683		)
Mineral operations	(410		)	(408		)
Midstream and other depreciable properties	(1,586		)	(1,295		)
Other	(499		)	(152		)
Gross long-term deferred tax liabilities	(10,708		)	(10,538		)
Oil and gas exploration and development costs	94			762
Net operating loss carryforward	599			477
Foreign tax credit carryforward and alternative minimum tax credit carryforward	325			450
Other	1,211			1,012
Gross long-term deferred tax assets	2,229			2,701
Valuation allowances on deferred tax assets not expected to be realized	(766		)	(922		)
Net long-term deferred tax assets	1,463			1,779
Net long-term deferred tax liabilities	(9,245		)	(8,759		)
Total deferred taxes	$	(8,885	)	$	(8,431	)

Changes to valuation allowances, due to changes in judgment regarding the future realizability of deferred tax assets, were an increase of $2 million in 2013, an increase of $23 million in 2012, and a decrease of $17 million in 2011. The following summarizes changes in the balance of valuation allowances on deferred tax assets:



millions	2013			2012			2011
Balance at January 1	$	(922	)	$	(555	)	$	(454	)
Additions	(38		)	(426		)	(138		)
Reductions	142			59			37
Balance at December 31	$	(818	)	$	(922	)	$	(555	)

19. Income Taxes (Continued)

The following summarizes taxes receivable (payable) related to income tax expense (benefit) at December 31:



Balance Sheet Classification	2013			2012
Income taxes receivable
Accounts receivable—other	$	66		$	179
Other assets	35			2
	101			181
Income taxes (payable)
Accrued expense	(82		)	(38		)
Net income taxes receivable (payable)	$	19		$	143

Tax carryforwards available for use on future income tax returns at December 31, 2013, were as follows:



millions	Domestic		Foreign		Expiration
Net operating loss—foreign	$	—	$	1,265	2014 - Indefinite
Net operating loss—state	$	4,527	$	—	2014-2032
Foreign tax credits	$	325	$	—	2015-2023
Texas margins tax credit	$	35	$	—	2026

Changes in the balance of unrecognized tax benefits excluding interest and penalties on uncertain tax positions were as follows:



	Assets (Liabilities)
millions	2013			2012			2011
Balance at January 1	$	(46	)	$	(31	)	$	(32	)
Increases related to prior-year tax positions	(54		)	(17		)	—
Decreases related to prior-year tax positions	3			3			3
Increases related to current-year tax positions	(72		)	(1		)	(10		)
Settlements	5			—			8
Lapse of statute of limitations	17			—			—
Balance at December 31	$	(147	)	$	(46	)	$	(31	)

Included in the 2013 ending balance of unrecognized tax benefits presented above are potential benefits of $(129) million that would affect the effective tax rate on income if recognized. Based on the Company’s existing activities, a $99 million increase in valuation allowance would be expected to offset a portion of the potential benefit of $(129) million. Also included in the 2013 ending balance are benefits of $(18) million related to tax positions for which the ultimate deductibility is highly certain, but the timing of such deductibility is uncertain. The Company estimates that $(4) million to $(10) million of unrecognized tax benefits related to adjustments to taxable income and credits previously recorded pursuant to the accounting standard for accounting for tax uncertainties will reverse within the next 12 months due to expiration of statutes of limitation and audit settlements.

The Company had accrued approximately $8 million of interest related to uncertain tax positions at December 31, 2013, and $28 million at December 31, 2012. The Company recognized interest and penalties in income tax expense (benefit) of $(20) million during 2013 and $9 million during 2012.

19. Income Taxes (Continued)

Anadarko is subject to audit by tax authorities in the U.S. federal, state, and local tax jurisdictions as well as in various foreign jurisdictions. The Company is currently under routine examination by the U.S. Internal Revenue Service for the tax years 2007 through 2013.

Income tax audits and the Company’s acquisition and divestiture activity have given rise to tax disputes in U.S. and foreign jurisdictions. See Note 17—Contingencies—Other Litigation. Management does not believe that the final resolution of outstanding tax audits and litigation will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

The following lists the tax years subject to examination by major tax jurisdiction:



	Tax Year
United States	2007-2013
China	2009-2013
Algeria	2010-2013
Ghana	2006-2013