INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2013

Income before income taxes and equity in affiliated companies' net earnings

Geographic sources of income before income taxes and equity in affiliated companies’ net earnings for the years ended December 31 consist of the following:



	2013		2012		2011
United States	$	1,104	$	1,539	$	2,112
Foreign	3,809		3,948		6,706
Total	$	4,913	$	5,487	$	8,818

Provision for (benefit from) income taxes

FCX’s provision for income taxes for the years ended December 31 consists of the following:



	2013				2012				2011
Current income taxes:
Federal	$	203			$	238			$	394
State	9				7				21
Foreign	1,081				1,002				1,934
Total current	1,293				1,247				2,349

Deferred income taxes (benefits):
Federal	234				87				82
State	(35		)		18				(19		)
Foreign	346				363				622
Total deferred	545				468				685

Adjustments	(199		)	^a	(205		)	^b,c	53			^d
Federal operating loss carryforwards	(164		)	^e	—				—
Provision for income taxes	$	1,475			$	1,510			$	3,087

As a result of the oil and gas acquisitions, FCX recognized a net tax benefit of $199 million consisting of income tax benefits of $190 million associated with net reductions in FCX's valuation allowances, $69 million related to the release of the deferred tax liability on PXP's investment in MMR common stock and $16 million associated with the revaluation of state deferred tax liabilities, partially offset by income tax expense of $76 million associated with the write off of deferred tax assets related to environmental liabilities.


b.	In 2012, Sociedad Minera Cerro Verde S.A.A. (Cerro Verde) signed a new 15-year mining stability agreement with the Peruvian government, which became effective January 1, 2014. In connection with the new mining stability agreement, Cerro Verde's income tax rate increased from 30 percent to 32 percent, and FCX recognized additional deferred tax expense of $29 million.

With the exception of TFM, FCX has not elected to permanently reinvest earnings from its foreign subsidiaries and has recorded deferred tax liabilities for foreign earnings that are available to be repatriated to the U.S. Cerro Verde previously recorded deferred Peruvian income tax liabilities for income taxes that would become payable if the reinvested profits used to fund the initial Cerro Verde sulfide expansion were distributed prior to the expiration of Cerro Verde's 1998 stability agreement on December 31, 2013. Because reinvested profits at Cerro Verde were not expected to be distributed prior to December 31, 2013, a net deferred income tax liability of $234 million was reversed and recognized as an income tax benefit in 2012.

In September 2011, Peru enacted a new mining tax and royalty regime and also created a special mining burden that companies with stability agreements could elect to pay. Cerro Verde elected to pay this special mining burden during the remaining term of its 1998 stability agreement, which expired on December 31, 2013. As a result, Cerro Verde recognized additional tax expense of $53 million in 2011.


e.	Benefit from the use of federal operating loss carryforwards acquired as part of the oil and gas acquisitions.

Reconciliation of the U.S. federal statutory tax rate to effective income tax rate

A reconciliation of the U.S. federal statutory tax rate to FCX’s effective income tax rate for the years ended December 31 follows:



	2013						2012						2011
	Amount				Percent		Amount				Percent		Amount			Percent
U.S. federal statutory tax rate	$	1,720			35	%	$	1,920			35	%	$	3,086		35	%
Foreign tax credit limitation	117				2		110				2		163			2
Percentage depletion	(223		)		(5	)	(263		)		(5	)	(283		)	(3	)
Withholding and other impacts on
foreign earnings	83				2		(221		)	^b	(4	)	170			2
Valuation allowance on minimum
tax credits	(190		)	^a	(4	)	(9		)		—		(47		)	(1	)
State income taxes	(43		)		—		17				—		—			—
Other items, net	11			^a	—		(44		)		—		(2		)	—
Provision for income taxes	$	1,475			30	%	$	1,510			28	%	$	3,087		35	%


a.	Included a net tax benefit of $199 million as a result of the oil and gas acquisitions.


b.	Included the reversal of Cerro Verde's deferred income tax liability of $234 million.

Components of deferred tax assets and liabilities

The components of deferred taxes follow:



	December 31,
	2013			2012
Deferred tax assets:
Foreign tax credits	$	2,144		$	2,022
Accrued expenses	1,098			819
Minimum tax credits	603			474
Net operating loss carryforwards	925			343
Employee benefit plans	443			315
Other	557			374
Deferred tax assets	5,770			4,347
Valuation allowances	(2,487		)	(2,443		)
Net deferred tax assets	3,283			1,904

Deferred tax liabilities:
Property, plant, equipment and mining development costs	(4,887		)	(4,462		)
Oil and gas properties	(4,708		)	—
Undistributed earnings	(936		)	(884		)
Other	(34		)	(70		)
Total deferred tax liabilities	(10,565		)	(5,416		)
Net deferred tax liabilities	$	(7,282	)	$	(3,512	)

Reserve for unrecognized tax benefits, interest and penalties

A summary of the activities associated with FCX’s reserve for unrecognized tax benefits, interest and penalties follows:



	Unrecognized Tax Benefits			Interest			Penalties
Balance at January 1, 2012	$	146		$	34		$	—
Additions:
Prior year tax positions	17			*			*
Current year tax positions	24			*			*
Interest and penalties	—			3			—
Decreases:
Prior year tax positions	(37		)	*			*
Current year tax positions	—			*			*
Settlements with tax authorities	(11		)	*			*
Lapse of statute of limitations	(1		)	*			*
Interest and penalties	—			(6		)	—
Balance at December 31, 2012	138			31			—
Additions:
Prior year tax positions	18			*			*
Current year tax positions	14			*			*
Acquisition of PXP	5			*			*
Interest and penalties	—			7			—
Decreases:
Prior year tax positions	(37		)	*			*
Current year tax positions	—			*			*
Settlements with tax authorities	—			*			*
Lapse of statute of limitations	(28		)	*			*
Interest and penalties	—			(17		)	—
Balance at December 31, 2013	$	110		$	21		$	—

* Amounts not allocated.

Summary of income tax examinations

The tax years for FCX's major tax jurisdictions that remain subject to examination are as follows:



Jurisdiction	Years Subject to Examination	Additional Open Years
U.S. Federal	2007-2012	2013
Indonesia	2005-2008, 2011-2012	2009-2010, 2013
Peru	2009-2010	2011-2013
Chile	2011-2012	2013
Africa	2010-2012	2013

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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