13. Income Taxes

Following the adoption of the Tax Reform Legislation on December 22, 2017, the Company recognized a one-time deferred tax benefit of $1.2 billion, inclusive of a $236 million increase to the Company’s valuation allowance on its foreign tax credit carryforwards, due to the remeasurement of its U.S. deferred tax assets and liabilities based on the 21% corporate tax rate. The Company did not recognize U.S. income tax expense related to the deemed repatriation of its foreign income as required by the Tax Reform Legislation as any U.S. taxes will be offset with foreign tax credits.

The Company regards all of these items as provisional amounts since the amounts are based on reasonable estimates of material temporary difference changes in 2017 and its state tax apportionment ratios. The provisional federal tax benefit is included in the deferred tax liability balance as presented on the Company’s Consolidated Balance Sheet. The Company expects to adjust this provisional amount in subsequent periods when more information becomes available as the Company prepares its 2017 federal and state tax filings. The Company will complete its analysis of the income tax effects of the Tax Reform Legislation before the end of the measurement period on December 21, 2018.

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



millions	2017			2016			2015
Current
Federal	$	236		$	(140	)	$	(177	)
State	48			(1		)	(18		)
Foreign	414			378			495
	698			237			300
Deferred
Federal	(2,082		)	(1,020		)	(2,929		)
State	(17		)	(148		)	(145		)
Foreign	(76		)	(90		)	(103		)
	(2,175		)	(1,258		)	(3,177		)
Total income tax expense (benefit)	$	(1,477	)	$	(1,021	)	$	(2,877	)

13. Income Taxes (Continued)

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	2017			2016			2015
Income (loss) before income taxes
Domestic	$	(1,322	)	$	(3,728	)	$	(9,155	)
Foreign	(366		)	(101		)	(534		)
Total	$	(1,688	)	$	(3,829	)	$	(9,689	)
U.S. federal statutory tax rate	35		%	35		%	35		%
Tax computed at the U.S. federal statutory rate	$	(591	)	$	(1,340	)	$	(3,391	)
(Income) loss attributable to noncontrolling interests	(85		)	(92		)	42
Adjustments resulting from
State income taxes (net of federal income tax benefit)	25			(108		)	(81		)
U.S. federal tax reform	(1,168		)	—			—
Tax impact from foreign operations	166			80			299
Non-deductible Algerian exceptional profits tax	110			106			102
Net changes in uncertain tax positions	90			90			54
Dispositions of non-deductible goodwill	6			205			62
Other, net	(30		)	38			36
Total income tax expense (benefit)	$	(1,477	)	$	(1,021	)	$	(2,877	)
Effective tax rate	88		%	27		%	30		%

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



millions	2017			2016
Federal	$	(1,758	)	$	(3,805	)
State, net of federal	(200		)	(173		)
Foreign	(255		)	(332		)
Total deferred taxes	$	(2,213	)	$	(4,310	)

13. Income Taxes (Continued)

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



millions	2017			2016
Deferred tax liabilities
Oil and gas exploration and development operations	$	(2,599	)	$	(5,025	)
Midstream and other depreciable properties	(543		)	(870		)
Mineral operations	(312		)	(550		)
Other	(54		)	(147		)
Gross long-term deferred tax liabilities	(3,508		)	(6,592		)
Deferred tax assets
Oil and gas exploration and development costs	309			250
Foreign and state net operating loss carryforwards	562			648
U.S. foreign tax credit carryforwards	2,685			1,834
Compensation and benefit plans	365			672
Mark to market on derivatives	232			324
Other	166			309
Gross long-term deferred tax assets	4,319			4,037
Valuation allowances on deferred tax assets not expected to be realized	(3,024		)	(1,755		)
Net long-term deferred tax assets	1,295			2,282
Total deferred taxes	$	(2,213	)	$	(4,310	)

The valuation allowance primarily relates to U.S. foreign tax credit carryforwards and foreign and state net operating loss carryforwards, which reduces the Company’s net deferred tax asset to an amount that will more likely than not be realized within the carryforward period.

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



millions	2017			2016			2015
Balance at January 1	$	(1,755	)	$	(1,403	)	$	(864	)
Changes due to U.S. foreign tax credits	(1,287		)	(477		)	(384		)
Changes due to foreign and state net operating loss carryforwards	75			13			10
Changes due to foreign capitalized costs	(57		)	112			(165		)
Balance at December 31	$	(3,024	)	$	(1,755	)	$	(1,403	)

Tax carryforwards available for use on future income tax returns, prior to valuation allowance, at December 31, 2017, were as follows:



millions	Domestic		Foreign		Expiration
Net operating loss—foreign	$	—	$	1,184	2018 - Indefinite
Net operating loss—state	$	4,452	$	—	2018-2037
Foreign tax credits	$	2,685	$	—	2023-2028
Texas margins tax credit	$	30	$	—	2026

13. Income Taxes (Continued)

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



millions
Balance Sheet Classification	2017			2016
Income taxes receivable
Accounts receivable—other	$	53		$	180
Other assets	101			67
	154			247
Income taxes (payable)
Other current liabilities	(71		)	(6		)
Total net income taxes receivable (payable)	$	83		$	241

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



	Assets (Liabilities)
millions	2017			2016			2015
Balance at January 1	$	(1,456	)	$	(1,780	)	$	(1,687	)
Increases related to prior-year tax positions	(15		)	(86		)	(99		)
Decreases related to prior-year tax positions	214			436			89
Increases related to current-year tax positions	(72		)	(26		)	(263		)
Settlements	12			—			180
Balance at December 31	$	(1,317	)	$	(1,456	)	$	(1,780	)

The December 31, 2017 ending balance of unrecognized tax benefits includes potential benefits of $1.29 billion, of which, if recognized, $1.25 billion would affect the effective tax rate on income. Also included are benefits of $27 million related to tax positions for which the ultimate deductibility is highly certain, but the timing of such deductibility is uncertain.

The Company recognized a net tax benefit of $346 million as of December 31, 2017, and $576 million as of December 31, 2016, related to the deduction of its 2015 settlement payment for the Tronox Adversary Proceeding. This benefit is net of uncertain tax positions of $1.2 billion as of December 31, 2017, and $1.3 billion as of December 31, 2016, due to uncertainty related to the deductibility of the settlement payment. The tax benefit and related uncertain tax position decreased as a result of the Tax Reform Legislation. Due to the deduction of the settlement payment, the Company had a net operating loss carryback for 2015, which resulted in a tentative tax refund of $881 million in 2016. The IRS has audited this position and issued a draft notice of proposed adjustment denying the deductibility of the settlement payment. The Company disagrees and plans to defend its tax position. Accordingly, the Company has not revised its estimate of the benefit that will ultimately be realized. It is reasonably possible the amount of uncertain tax position and/or tax benefit could materially change as the Company defends its tax position through the appeals process and other available avenues. The Company could be required to repay all or a portion of the tentative refund received with interest prior to determining the final outcome of its position either upon IRS request or litigation of the matter in District or Federal Claims Court. If the payment is ultimately determined not to be deductible, the Company would be required to repay the tentative refund received plus interest and reverse the net benefit of $346 million previously recognized in its consolidated financial statements.

13. Income Taxes (Continued)

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—Litigation. Over the next 12 months, it is reasonably possible that the total amount of unrecognized tax benefits could decrease by $20 million to $50 million due to settlements with taxing authorities or lapse in statutes of limitation. Management does not believe that the final resolution of outstanding tax audits and litigation would have a material adverse effect on the Company’s consolidated financial condition, results of operations, or cash flows, except for the potential impact related to the outcome of the deductibility of the Tronox settlement payment.

The Company accrued approximately $86 million of interest related to uncertain tax positions at December 31, 2017, and $31 million at December 31, 2016. The Company recognized interest and penalties in income tax expense (benefit) of $55 million during 2017 and $21 million during 2016.

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



	Tax Years
United States	2012-2017
Algeria	2014-2017
Ghana	2014-2017