

NOTE 11	DOMESTIC AND FOREIGN INCOME TAXES

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



For the years ended December 31, (in millions)	Domestic			Foreign		Total
2018	$	3,431		$	2,177	$	5,608
2017	$	(609	)	$	1,937	$	1,328
2016	$	(2,698	)	$	1,034	$	(1,664	)

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
2018
Current	$	(23	)	$	52		$	1,077		$	1,106
Deferred	422			12			(63		)	371
	$	399		$	64		$	1,014		$	1,477
2017
Current	$	(81	)	$	11		$	806		$	736
Deferred	(856		)	23			114			(719		)
	$	(937	)	$	34		$	920		$	17
2016
Current	$	(784	)	$	9		$	630		$	(145	)
Deferred	(504		)	(19		)	6			(517		)
	$	(1,288	)	$	(10	)	$	636		$	(662	)

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,	2018		2017		2016
United States federal statutory tax rate	21	%	35	%	35	%
Other than temporary loss on available for sale investment in California Resources stock	—		—		(2	)
Enhanced oil recovery credit	(3	)	(9	)	5
Tax benefit due to write off of exploration blocks	—		—		14
Change in federal income tax rate	—		(44	)	—
Tax (benefit) expense due to reversal of indefinite reinvestment assertion	(2	)	7		—
Operations outside the United States	11		12		(14	)
State income taxes, net of federal benefit	1		2		—
Other	(2	)	(2	)	2
Worldwide effective tax rate	26	%	1	%	40	%

On December 22, 2017, Tax Reform was enacted, which made significant changes to the U.S. federal income tax law, including lowering the federal corporate income tax rate from 35 percent to 21 percent, repealing the corporate alternative minimum tax (AMT) and mandating a deemed repatriation of accumulated earnings and profits of U.S.-owned international corporations. Occidental disclosed, as part of its 2017 financial statements, provisional estimates of the income tax effects of Tax Reform.

The SEC provided a one-year measurement period for companies to complete the accounting requirements with regards to Tax Reform. As a result during 2018, Occidental recorded an additional tax benefit of $25 million that was primarily due to Occidental's review of proposed tax regulations and other regulatory guidance issued in 2018. Specifically, the regulations related to the allocation of expenses between the net operating losses generated in 2017 and the mandatory deemed repatriation of accumulated earnings from certain U.S.-owned international corporations that was included in 2017 taxable income. Upon review of the guidance issued during 2018, Occidental confirmed that the GILTI and BEAT provisions are not expected to have a material impact. Tax Reform also included new limitations on the ability of corporations to deduct interest expense. While these limitations did not adversely impact Occidental in 2018, under proposed regulations the limitations could significantly impact Occidental's ability to deduct interest expense in future years.

The tax effects of temporary differences resulting in deferred income taxes at December 31, 2018, and 2017 were as follows:



	2018					2017
Tax effects of temporary differences (in millions)	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
Property, plant and equipment differences	$	—		$	2,089	$	—		$	2,272
Equity investments, partnerships and foreign subsidiaries	—			161		—			134
Environmental reserves	195			—		191			—
Postretirement benefit accruals	176			—		145			—
Deferred compensation and benefits	170			—		151			—
Asset retirement obligations	280			—		228			—
Foreign tax credit carryforwards	2,356			—		2,750			—
General business credit carryforwards	429			—		407			—
Net operating loss carryforward	29			—		437			—
Federal benefit of state income taxes	18			—		10			—
All other	93			—		146			—
Subtotal	3,746			2,250		4,465			2,406
Valuation allowance	(2,403		)	—		(2,640		)	—
Total deferred taxes	$	1,343		$	2,250	$	1,825		$	2,406

Total deferred tax assets, after valuation allowances, were $1.3 billion and $1.8 billion as of December 31, 2018, and 2017, respectively. Occidental expects to realize the recorded deferred tax assets, net of any allowances, through future operating income and reversal of temporary differences. The increase in net deferred tax liability in 2018 over 2017 is primarily due to the utilization of net operating loss carryforwards in 2018.

As of December 31, 2018, Occidental had foreign tax credit carryforwards of $2.4 billion, state operating loss carryforwards of $28 million and state tax credit carryforwards of $41 million. These carryforward balances have varying carryforward periods through 2038. Occidental has recorded a valuation allowance for all of the foreign tax credit carryforwards, $14 million of the tax-effected state net operating loss carryforwards and $33 million of the state tax credit carryforwards.

At December 31, 2018, Occidental made an indefinite reinvestment assertion with regard to a portion of its foreign undistributed earnings and, as a result, a deferred tax liability of $99 million was released.

A deferred tax liability has not been recognized for temporary differences related to unremitted earnings of certain consolidated international subsidiaries aggregating approximately $837 million at December 31, 2018, as it is Occidental’s intention to reinvest such earnings indefinitely. If the earnings of these international subsidiaries were not indefinitely reinvested, an additional deferred tax liability of approximately $199 million would be required.

Discontinued operations include income tax charges of $249 million in 2016.

As of December 31, 2018, Occidental had no liabilities for unrecognized tax benefits included in deferred credits and other liabilities – other. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



For the years ended December 31, (in millions)	2018			2017		2016
Balance at January 1,	$	22		$	22	$	22
Reductions based on tax positions related to prior years and settlements	(22		)	—		—
Balance at December 31,	$	—		$	22	$	22

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 has recognized $68 million and $76 million in federal income tax receivables at December 31, 2018, and 2017, respectively, which was recorded in other current assets. In addition, Occidental has recognized $68 million and $221 million in federal alternative minimum tax non-current receivables at December 31, 2018, and 2017, respectively, which was recorded in long-term receivables and other assets, net.

Occidental is subject to audit by various tax authorities in varying periods. See Note 10 for a discussion of these matters.

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, 2018, 2017 and 2016.