INCOME TAXES

Income Tax Expense

The following table is a summary of income tax expense for the years ended December 31:



(in millions)	2016			2015			2014
Current tax expense	$	72.7		$	15.1		$	33.6
Deferred income taxes, net	498.7			420.4			329.2
Investment tax credit, net	(4.9		)	(1.7		)	(1.1		)
Total income tax expense	$	566.5		$	433.8		$	361.7

Statutory Rate Reconciliation

The provision for income taxes for each of the years ended December 31 differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to income before income taxes as a result of the following:



	2016					2015					2014
				Effective					Effective					Effective
(in millions)	Amount			Tax Rate		Amount			Tax Rate		Amount			Tax Rate
Expected tax at statutory federal tax rates	$	526.4		35.0	%	$	375.5		35.0	%	$	332.5		35.0	%
State income taxes net of federal tax benefit	72.8			4.8	%	73.1			6.8	%	50.5			5.3	%
Production tax credits	(15.7		)	(1.1	)%	(17.4		)	(1.6	)%	(17.4		)	(1.8	)%
AFUDC – Equity	(8.8		)	(0.6	)%	(7.1		)	(0.7	)%	(1.9		)	(0.2	)%
Investment tax credit restored	(4.9		)	(0.3	)%	(1.7		)	(0.2	)%	(1.1		)	(0.2	)%
Other, net	(3.3		)	(0.2	)%	11.4			1.1	%	(0.9		)	(0.1	)%
Total income tax expense	$	566.5		37.6	%	$	433.8		40.4	%	$	361.7		38.0	%

Deferred Income Tax Assets and Liabilities

The components of deferred income taxes as of December 31 are as follows:



(in millions)	2016			2015
Deferred tax assets
Future tax benefits	$	430.4		$	382.8
Employee benefits and compensation	222.0			229.9
Deferred revenues	207.2			219.9
Property-related	54.5			59.5
Other	230.6			177.1
Total deferred tax assets	1,144.7			1,069.2
Valuation allowance	(15.0		)	(17.1		)
Net deferred tax assets	$	1,129.7		$	1,052.1

Deferred tax liabilities
Property-related	$	4,979.3		$	4,451.5
Investment in transmission affiliate	476.9			420.4
Employee benefits and compensation	401.6			428.9
Deferred transmission costs	93.1			76.7
Other	325.4			296.9
Total deferred tax liabilities	6,276.3			5,674.4
Deferred tax liability, net	$	5,146.6		$	4,622.3

Consistent with rate-making treatment, deferred taxes in the table above are offset for temporary differences that have related regulatory assets and liabilities.

The components of net deferred tax assets associated with federal and state tax benefit carryforwards as of December 31, 2016 and 2015 are summarized in the tables below:



2016 (in millions)	Gross Value		Deferred Tax Effect		Valuation Allowance			Earliest Year of Expiration
Future tax benefits as of December 31, 2016
Federal net operating loss	$	407.6	$	142.7	$	—		2031
Federal foreign tax credit	—		13.5		(13.5		)	2017
Other federal tax credit	—		241.1		—			2025
Charitable contribution	9.4		4.0		(1.5		)	2016
State net operating loss	482.6		24.3		—			2024
State tax credit	—		4.8		—			2016
Balance as of December 31, 2016	$	899.6	$	430.4	$	(15.0	)



2015 (in millions)	Gross Value		Deferred Tax Effect		Valuation Allowance			Earliest Year of Expiration
Future tax benefits as of December 31, 2015
Federal net operating loss	$	412.3	$	144.3	$	—		2031
Federal foreign tax credit	—		15.2		(15.2		)	2017
Other federal tax credit	—		207.8		—			2025
Charitable contribution	4.7		1.9		(1.9		)	2016
State net operating loss	185.9		9.3		—			2024
State tax credit	—		4.3		—			2016
Balance as of December 31, 2015	$	602.9	$	382.8	$	(17.1	)

Valuation allowances of $15.0 million have been established for certain tax benefit carryforwards obtained in the Integrys acquisition based on our projected ability to realize such benefits by offsetting future tax liabilities. This is primarily the result of the extension of bonus depreciation. Realization is dependent on generating sufficient tax liabilities prior to expiration of the tax benefit carryforwards.

Unrecognized Tax Benefits

We previously adopted accounting guidance related to uncertainty in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(in millions)	2016			2015
Balance as of January 1	$	9.5		$	7.2
Acquired legacy Integrys unrecognized tax benefits	—			3.6
Additions for tax positions of prior years	6.7			0.3
Additions based on tax positions related to the current year	1.1			0.2
Reductions for tax positions of prior years	(1.0		)	(1.1		)
Reductions due to statute of limitations	(1.8		)	—
Settlements during the period	—			(0.7		)
Balance as of December 31	$	14.5		$	9.5

The amount of unrecognized tax benefits as of December 31, 2016 and 2015, excludes deferred tax assets related to uncertainty in income taxes of $6.6 million and $6.2 million, respectively. As of December 31, 2016 and 2015, the net amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate for continuing operations was $7.9 million and $2.2 million, respectively.

We recognize interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2016, 2015, and 2014, we recognized $0.2 million, zero, and $0.3 million of accrued interest in our income statements, respectively. For the years ended December 31, 2016, 2015, and 2014, we recognized no penalties in our income statements. For the year ended December 31, 2016, we had $0.8 million of interest accrued and no penalties accrued on our balance sheets. For the year ended December 31, 2015, we had $0.7 million of interest accrued and $0.1 million of penalties accrued on our balance sheets.

We do not anticipate any significant increases or decreases in the total amounts of unrecognized tax benefits within the next 12 months.

We file income tax returns in the United States federal jurisdiction and state tax returns based on income in our major state operating jurisdictions of Wisconsin, Illinois, Michigan, and Minnesota. We also file tax returns in other state and local jurisdictions with varying statutes of limitations. As of December 31, 2016, we were subject to examination by state or local tax authorities for the 2011 through 2016 tax years in our major state operating jurisdictions as follows:



Jurisdiction		Years
Federal		2013–2016
Illinois		2013–2016
Michigan		2012–2016
Minnesota		2014–2016
Wisconsin		2011–2016