11. Income Taxes

Upon enactment of the Tax Reform Legislation on December 22, 2017, the Company remeasured its U.S. deferred tax assets and liabilities based on the reduction of the U.S. corporate tax rate from 35% to 21%. During the third quarter of 2018, the Company recognized an additional net tax benefit of $5 million related to the adoption of the Tax Reform Legislation under Staff Accounting Bulletin 118. The Company expects to complete the accounting for the income tax effects related to the adoption of the Tax Reform Legislation, including its accounting policy related to Global Intangible Low Taxed Income, and record any remaining adjustments to provisional tax amounts, which could be material to income tax expense, before the end of the measurement period on December 21, 2018. See Note 13—Income Taxes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
millions except percentages	2018			2017			2018			2017
Current income tax expense (benefit)	$	146		$	430		$	383		$	670
Deferred income tax expense (benefit)	110			(855		)	124			(1,036		)
Total income tax expense (benefit)	$	256		$	(425	)	$	507		$	(366	)
Income (loss) before income taxes	683			(1,066		)	1,125			(1,616		)
Effective tax rate	37		%	40		%	45		%	23		%

The Company’s tax provision for interim periods is determined using an estimate of its annual current and deferred effective tax rates, adjusted for discrete items. Each quarter, the Company updates these rates and records a cumulative adjustment to current and deferred tax expense by applying the rates to the year-to-date pre-tax income excluding discrete items. The Company’s quarterly estimate of its annual current and deferred effective tax rates can vary significantly based on various forecasted items, including future commodity prices, capital expenditures, expenses for which tax benefits are not recognized, and the geographic mix of pre-tax income and losses.

The variance from the U.S. federal statutory rate of 21% for the three and nine months ended September 30, 2018, was primarily attributable to the following items:


•	tax impact from foreign operations


•	non-deductible Algerian exceptional profits tax for Algerian income tax purposes

The Company reported a loss before income taxes for the three and nine months ended September 30, 2017. As a result, items that ordinarily increase or decrease the Company’s tax rate will have the opposite effect. The variance from the U.S. federal statutory rate of 35% for the three and nine months ended September 30, 2017 was primarily attributable to the following items:


•	tax impact from foreign operations


•	non-deductible Algerian exceptional profits tax for Algerian income tax purposes


•	net changes in uncertain tax positions


•	income attributable to noncontrolling interests

11. Income Taxes (Continued)

The Company recognized a net tax benefit of $346 million as of September 30, 2018 and December 31, 2017, 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 September 30, 2018 and December 31, 2017, due to uncertainty related to the deductibility of the settlement payment. 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, in April 2018, issued a final notice of proposed adjustment denying the deductibility of the settlement payment. In September 2018, the Company received a statutory notice of deficiency from the IRS disallowing the net operating loss carryback and rejecting the Company’s refund claim. As a result, the Company intends to file a petition with the U.S. Tax Court to dispute the disallowances, and pursuant to standard U.S. Tax Court procedures, the Company is not required to repay the $881 million refund to dispute the IRS’s position. Accordingly, the Company has not revised its estimate of the benefit that will ultimately be realized. After the case is tried and briefed in the Tax Court, the court will issue an opinion and then enter a decision. If the Company does not prevail on the issue, the earliest potential date the Company might be required to repay the refund received, plus interest, would be 91 days after entry of the decision. At such time, the Company would reverse the portion of the $346 million net benefit previously recognized in its consolidated financial statements to the extent necessary to reflect the result of the Tax Court decision. It is reasonably possible the amount of uncertain tax position and/or tax benefit could materially change as the Company asserts its position in the Tax Court proceedings. Although management cannot predict the timing of a final resolution of the Tax Court proceedings, the Company does not anticipate a decision to be entered within the next three years.