DOMESTIC AND FOREIGN INCOME TAXES

12 Months Ended

Dec. 31, 2011

DOMESTIC AND FOREIGN INCOME TAXES

DOMESTIC AND FOREIGN INCOME TAXES

NOTE 10     DOMESTIC AND FOREIGN INCOME TAXES

The domestic and foreign components of income from continuing operations before domestic and foreign income taxes and net of noncontrolling interest amounts were as follows:

For the years ended December 31, (in millions)	Domestic		Foreign		Total
2011	$	4,806	$	6,035	$	10,841
2010	$	3,295	$	4,269	$	7,564
2009	$	2,091	$	3,123	$	5,214

The provisions for domestic and foreign income taxes on continuing operations consisted of the following:

For the years ended December 31, (in millions)	U.S. Federal		State and Local		Foreign		Total
2011
Current	$	320	$	88	$	2,357	$	2,765
Deferred	1,340		47		49		1,436
	$	1,660	$	135	$	2,406	$	4,201
2010
Current	$	614	$	79	$	1,896	$	2,589
Deferred	390		4		12		406
	$	1,004	$	83	$	1,908	$	2,995
2009
Current	$	16	$	27	$	1,361	$	1,404
Deferred	606		37		16		659
	$	622	$	64	$	1,377	$	2,063

The following reconciliation of the United States statutory federal income tax rate to Occidental’s effective tax rate on income from continuing operations is stated as a percentage of pre-tax income:

For the years ended December 31,	2011		2010		2009
United States federal statutory tax rate	35	%	35	%	35	%
Operations outside the United States	4		5		5
State income taxes, net of federal benefit	1		1		1
Other	(1	)	(1	)	(1	)
Tax rate provided by Occidental	39	%	40	%	40	%

The tax effects of temporary differences resulting in deferred income taxes at December 31, 2011 and 2010 were as follows:

	2011					2010
Tax effects of temporary differences (in millions)	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
Property, plant and equipment differences	$	—		$	6,039	$	—		$	4,558
Equity investments, partnerships and foreign subsidiaries	—			351		—			208
Environmental reserves	131			—		135			—
Postretirement benefit accruals	410			—		368			—
Deferred compensation and benefits	286			—		275			—
Asset retirement obligations	318			—		242			—
Foreign tax credit carryforwards	1,240			—		718			—
Federal benefit of state income taxes	104			—		88			—
All other	374			116		442			131
Subtotal	2,863			6,506		2,268			4,897
Valuation allowance	(1,003		)	—		(486		)	—
Total deferred taxes	$	1,860		$	6,506	$	1,782		$	4,897

Included in total deferred tax assets was a current portion aggregating $200 million and $330 million as of December 31, 2011 and 2010, respectively, that was reported in prepaid expenses and other.  Total deferred tax assets were $1.9 billion and $1.8 billion as of December 31, 2011 and 2010, respectively, the noncurrent portion of which is netted against deferred tax liabilities.  Occidental expects to realize the recorded deferred tax assets, net of any allowances, through future operating income and reversal of temporary differences.

Occidental has, as of December 31, 2011, foreign tax credit carryforwards of $1.2 billion, which expire in varying amounts through 2021, and various state operating loss carryforwards, which have varying carryforward periods through 2025.  Substantially all of Occidental’s valuation allowance is provided for foreign tax credit and state operating loss carryforwards.

A deferred tax liability has not been recognized for temporary differences related to unremitted earnings of certain consolidated foreign subsidiaries aggregating approximately $5.5 billion at December 31, 2011, as it is Occidental’s intention, generally, to reinvest such earnings permanently.  If the earnings of these foreign subsidiaries were not indefinitely reinvested, an additional deferred tax liability of approximately $88 million would be required, assuming utilization of available foreign tax credits.

Discontinued operations include income tax charges of $86 million in 2011, and income tax benefits of $26 million in 2010 and $147 million in 2009.

Additional paid-in capital was credited $14 million in 2011, $22 million in 2010 and $24 million in 2009 for an excess tax benefit from the exercise of certain stock-based compensation awards.

As of December 31, 2011, Occidental had liabilities for unrecognized tax benefits of approximately $67 million included in deferred credits and other liabilities — other, all of which, if subsequently recognized, would favorably affect Occidental’s effective tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

For the years ended December 31, (in millions)	2011			2010
Balance at January 1,	$	38		$	52
Additions based on tax positions related to the current year	44			24
Reductions based on tax positions related to prior years and settlements	(15		)	(38		)
Balance at December 31,	$	67		$	38

Occidental records estimated potential interest and penalties related to liabilities for unrecognized tax benefits in the provisions for domestic and foreign income taxes and these amounts were not material for the years ended December 31, 2011, 2010 and 2009.

Occidental is subject to audit by various tax authorities in varying periods.  See Note 9 for a discussion of these matters.

Management believes it is unlikely that Occidental’s liabilities for unrecognized tax benefits related to existing matters would increase or decrease within the next twelve months by a material amount.  Occidental cannot reasonably estimate a range of potential changes in such benefits due to the unresolved nature of the various audits.