NOTE 10

DOMESTIC AND FOREIGN INCOME TAXES

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

For the years ended December 31, (in millions)	Domestic			Foreign		Total
2014	$	(732	)	$	2,273	$	1,541
2013	$	3,399		$	4,747	$	8,146
2012	$	852		$	5,636	$	6,488

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

For the years ended December 31, (in millions)	United States Federal			State and Local			Foreign			Total
2014
Current	$	870		$	81		$	1,912		$	2,863
Deferred	(1,037		)	(71		)	(70		)	(1,178		)
	$	(167	)	$	10		$	1,842		$	1,685
2013
Current	$	113		$	17		$	2,170		$	2,300
Deferred	883			48			(17		)	914
	$	996		$	65		$	2,153		$	3,214
2012
Current	$	(308	)	$	4		$	2,383		$	2,079
Deferred	519			20			41			580
	$	211		$	24		$	2,424		$	2,659

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

For the years ended December 31,	2014		2013		2012
United States federal statutory tax rate	35	%	35	%	35	%
Other than temporary loss on available for sale investment in California Resources stock	12		—		—
Operations outside the United States	65		5		6
State income taxes, net of federal benefit	1		1		1
Other	(4	)	(1	)	(1	)
Worldwide effective tax rate	109	%	40	%	41	%

The tax effects of temporary differences resulting in deferred income taxes at December 31, 2014 and 2013 were as follows:

	2014					2013
Tax effects of temporary differences (in millions)	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
Property, plant and equipment differences	$	—		$	4,081	$	—		$	8,363
Equity investments, partnerships and foreign subsidiaries	—			—		—			225
Environmental reserves	123			—		121			—
Postretirement benefit accruals	379			—		376			—
Deferred compensation and benefits	208			—		222			—
Asset retirement obligations	307			—		407			—
Foreign tax credit carryforwards	1,765			—		1,091			—
Federal benefit of state income taxes	85			—		136			—
All other	274			221		344			82
Subtotal	3,141			4,302		2,697			8,670
Valuation allowance	(1,744		)	—		(1,074		)	—
Total deferred taxes	$	1,397		$	4,302	$	1,623		$	8,670

The current portion of total deferred tax assets was $110 million and $150 million as of December 31, 2014 and 2013, respectively, which was reported in other current assets. Total deferred tax assets were $1.4 billion and $1.6 billion as of December 31, 2014 and 2013, 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. The reduction in net deferred tax liabilities from 2013 to 2014 was primarily due to the spin-off of California Resources. See Note 17 Spin-off of California Resources.

Occidental had, as of December 31, 2014, foreign tax credit carryforwards of $1.8 billion, which expire in varying amounts through 2024, and various state operating loss carryforwards, which have varying carryforward periods through 2025. Occidental’s valuation allowance provides for substantially all of the 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 $9.9 billion, net of foreign taxes, at December 31, 2014, 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 $140 million would be required, assuming utilization of available foreign tax credits.

Discontinued operations include income tax charges of $454 million, $550 million and $466 million in 2014, 2013 and 2012, respectively.

Additional paid-in capital was credited $4 million in 2014, $6 million in 2013 and $8 million in 2012 for an excess tax benefit from the exercise of certain stock-based compensation awards.

As of December 31, 2014, Occidental had liabilities for unrecognized tax benefits of approximately $61 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)	2014		2013
Balance at January 1,	$	61	$	76
Reductions based on tax positions related to prior years and settlements	—		(15		)
Balance at December 31,	$	61	$	61

Management believes it is unlikely that Occidental’s liabilities for unrecognized tax benefits related to existing matters would increase or decrease within the next 12 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. 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, 2014, 2013 and 2012.

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