18. Income Taxes

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



millions	2014			2013			2012
Current
Federal	$	188		$	113		$	45
State	2			42			25
Foreign	1,574			873			891
	1,764			1,028			961
Deferred
Federal	(389		)	94			(30		)
State	27			(9		)	115
Foreign	215			52			74
	(147		)	137			159
Total income tax expense (benefit)	$	1,617		$	1,165		$	1,120

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	2014			2013			2012
Income (loss) before income taxes
Domestic	$	(3,564	)	$	428		$	132
Foreign	3,618			1,678			3,433
Total	$	54		$	2,106		$	3,565
U.S. federal statutory tax rate	35		%	35		%	35		%
Tax computed at the U.S. federal statutory rate	$	19		$	737		$	1,248
Adjustments resulting from
State income taxes (net of federal income tax benefit)	(11		)	23			93
Tax impact from foreign operations	62			204			215
Non-deductible Algerian exceptional profits tax	193			144			188
Non-taxable Algeria exceptional profits tax settlement	—			13			(679		)
Net changes in uncertain tax positions	1,427			(29		)	28
Deferred tax adjustments	15			76			22
Non-deductible Tronox-related contingent loss	(36		)	36			—
Income attributable to noncontrolling interests	(66		)	(48		)	(24		)
Non-deductible Deepwater Horizon settlement	32			—			—
Federal manufacturing deduction	(27		)	—			—
Non-deductible goodwill	21			—			15
Other—net	(12		)	9			14
Total income tax expense (benefit)	$	1,617		$	1,165		$	1,120
Effective tax rate	2,994		%	55		%	31		%

18. Income Taxes (Continued)

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



millions	2014			2013
Federal	$	(7,649	)	$	(8,246	)
State, net of federal	(341		)	(332		)
Foreign	(537		)	(307		)
Total deferred taxes	$	(8,527	)	$	(8,885	)

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



millions	2014			2013
Current deferred tax assets	$	210		$	412
Settlement agreement related to the Tronox Adversary Proceeding	590			—
Valuation allowances on deferred tax assets not expected to be realized	(78		)	(52		)
Net current deferred tax assets	722			360
Oil and gas exploration and development operations	(8,418		)	(8,213		)
Mineral operations	(412		)	(410		)
Midstream and other depreciable properties	(1,611		)	(1,586		)
Other	(351		)	(499		)
Gross long-term deferred tax liabilities	(10,792		)	(10,708		)
Oil and gas exploration and development costs	177			94
Net operating loss carryforward	558			599
Foreign tax credit carryforward and alternative minimum tax credit carryforward	166			325
Other	1,428			1,211
Gross long-term deferred tax assets	2,329			2,229
Valuation allowances on deferred tax assets not expected to be realized	(786		)	(766		)
Net long-term deferred tax assets	1,543			1,463
Net long-term deferred tax liabilities	(9,249		)	(9,245		)
Total deferred taxes	$	(8,527	)	$	(8,885	)

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 and $23 million in 2012. There were no changes to valuation allowances due to changes in judgment regarding the future realizability of deferred tax assets in 2014.

The following summarizes changes in the balance of valuation allowances on deferred tax assets:



millions	2014			2013			2012
Balance at January 1	$	(818	)	$	(922	)	$	(555	)
Additions	(59		)	(38		)	(426		)
Reductions	13			142			59
Balance at December 31	$	(864	)	$	(818	)	$	(922	)

18. Income Taxes (Continued)

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



Balance Sheet Classification	2014			2013
Income taxes receivable
Accounts receivable—other	$	93		$	66
Other assets	35			35
	128			101
Income taxes (payable)
Accrued expense	(152		)	(82		)
Total net income taxes receivable (payable)	$	(24	)	$	19

Tax carryforwards available for use on future income tax returns at December 31, 2014, were as follows:



millions	Domestic		Foreign		Expiration
Net operating loss—foreign	$	—	$	1,165	2015 - Indefinite
Net operating loss—state	$	4,477	$	—	2015-2034
Foreign tax credits	$	167	$	—	2022-2023
Texas margins tax credit	$	34	$	—	2026

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



	Assets (Liabilities)
millions	2014			2013			2012
Balance at January 1	$	(147	)	$	(46	)	$	(31	)
Increases related to prior-year tax positions	(11		)	(54		)	(17		)
Decreases related to prior-year tax positions	39			3			3
Increases related to current-year tax positions	(1,568		)	(72		)	(1		)
Settlements	—			5			—
Lapse of statute of limitations	—			17			—
Balance at December 31	$	(1,687	)	$	(147	)	$	(46	)

Included in the 2014 ending balance of unrecognized tax benefits presented above are potential benefits of $1.679 billion, of which, if recognized, $1.456 billion would affect the effective tax rate on income, and $188 million would be in the form of tax credits and net operating loss carryforwards that would attract a full valuation allowance. Also included in the 2014 ending balance are benefits of $8 million related to tax positions for which the ultimate deductibility is highly certain, but the timing of such deductibility is uncertain.

18. Income Taxes (Continued)

In 2013, the Company recognized a deferred tax benefit of $274 million related to the $850 million loss for the Tronox-related contingent liability. In 2014, the Company recognized a deferred tax benefit of $316 million related to the additional $4.360 billion loss for the Tronox-related contingent liability. The total deferred tax benefit of $590 million is net of a $1.326 billion uncertain tax position due to the uncertainty related to the deductibility of the settlement payment. This uncertain tax position is presented in deferred income taxes and as a reduction to the associated deferred tax asset. The Company is a participant in the U.S. 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 17—Contingencies—Tronox Litigation.

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. The Company estimates that $120 million to $130 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. 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 condition, results of operations, or cash flows.

The Company had accrued approximately $9 million of interest related to uncertain tax positions at December 31, 2014, and $8 million at December 31, 2013. The Company recognized interest and penalties in income tax expense (benefit) of $1 million during 2014 and $(20) million during 2013.

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 IRS for the tax years 2008 through 2014.

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



	Tax Years
United States	2008-2014
Algeria	2011-2014
Ghana	2006-2014