12. Income Taxes

The following summarizes income tax expense (benefit) and effective tax rates:



	Three Months Ended September 30,						Nine Months Ended September 30,
millions except percentages	2014			2013			2014			2013
Income tax expense (benefit)	$	627		$	240		$	1,719		$	1,263
Effective tax rate	35		%	52		%	340		%	43		%

For the three months ended September 30, 2014, the Company’s effective tax rate was the same as the 35% U.S. federal statutory rate. The effective tax rate increase related to the Algerian exceptional profits taxes was offset by the tax impact from foreign operations. The increase from the 35% U.S. federal statutory rate for the three and nine months ended September 30, 2013, was primarily attributable to the tax impact from foreign operations and Algerian exceptional profits taxes.

The increase from the 35% U.S. federal statutory rate for the nine months ended September 30, 2014, was primarily attributable to net changes in uncertain tax positions related to the settlement agreement associated with the Adversary Proceeding, the tax impact from foreign operations, Algerian exceptional profits taxes, and the non-deductible contingent CWA-penalty accrual.

The Company previously recognized a deferred tax benefit of $274 million related to the $850 million loss recognized in 2013 with respect to the Tronox-related contingent liability. In the first quarter of 2014, the Company recognized an additional tax benefit of $282 million related to the additional $4.3 billion loss with respect to the Tronox-related contingent liability. This benefit is net of a $1.1 billion uncertain tax position due to the uncertainty related to the deductibility of the final settlement payment. This uncertain tax position is presented in other long-term liabilities—other on the Company’s Consolidated Balance Sheet. The Company is a participant in the Internal Revenue Service’s (IRS) Compliance Assurance Process and has regular discussions with the IRS concerning the Company’s tax positions. Depending on the outcome of such discussions, it is reasonably possible that the amount of the uncertain tax position related to the settlement could change, perhaps materially. See Note 11—Contingencies—Tronox Litigation.

During the nine months ended September 30, 2014, the Company identified $155 million of uncertain tax positions. The Company estimates $100 million to $130 million of unrecognized tax positions that relate to adjustments to taxable income and credits recorded will reverse within the next 12 months due to expiration of statutes of limitation and settlements with tax authorities.

At September 30, 2014, accrued expenses on the Company’s Consolidated Balance Sheet included $793 million of accrued income taxes.