INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2014

Dec. 31, 2013

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

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



	2014			2013		2012
United States	$	(2,997	)	$	1,104	$	1,539
Foreign	2,573			3,809		3,948
Total	$	(424	)	$	4,913	$	5,487

Provision for (benefit from) income taxes

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



	2014				2013				2012
Current income taxes:
Federal	$	281			$	203			$	238
State	35				9				7
Foreign	1,128				1,081				1,002
Total current	1,444				1,293				1,247

Deferred income taxes (benefits):
Federal	(606		)		234				87
State	(214		)		(35		)		18
Foreign	33				346				363
Total deferred	(787		)		545				468

Adjustments	—				(199		)	^a	(205		)	^b,c
Federal operating loss carryforwards	(333		)	^d	(164		)	^d	—
Provision for income taxes	$	324			$	1,475			$	1,510

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, 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.

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.


d.	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:



	2014						2013						2012
	Amount				Percent		Amount				Percent		Amount				Percent
U.S. federal statutory tax rate	$	(149	)		35	%	$	1,720			35	%	$	1,920			35	%
Foreign tax credit limitation	167				(39	)	117				2		110				2
Percentage depletion	(263		)	^a	62		(223		)		(5	)	(263		)		(5	)
Withholding and other impacts on
foreign earnings	161				(38	)	306				7		(17		)		—
Effect of foreign rates different than the U.S.
federal statutory rate	(135		)		32		(223		)		(5	)	(204		)		(4	)
Valuation allowance on minimum
tax credits	—				—		(190		)		(4	)	(9		)		—
Goodwill impairment	601				(142	)	—				—		—				—
Goodwill transferred to full cost pool	77				(18	)	—				—		—				—
State income taxes	(115		)		27		(43		)		—		17				—
Other items, net	(20		)		5		11				—		(44		)		—
Provision for income taxes	$	324		^b,c	(76	)%	$	1,475		^d	30	%	$	1,510		^e	28	%


a.	Includes a net charge of $16 million related to a change in U.S. federal income tax law.


b.	Includes charges related to changes in Chilean and Peruvian tax rules of $54 million and $24 million, respectively.


c.	Includes a net charge of $221 million related to the sale of Candelaria/Ojos.


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


e.	Includes 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,
	2014			2013
Deferred tax assets:
Foreign tax credits	$	2,306		$	2,144
Accrued expenses	1,047			1,098
Minimum tax credits	737			603
Net operating loss carryforwards	590			925
Employee benefit plans	422			443
Other	734			557
Deferred tax assets	5,836			5,770
Valuation allowances	(2,434		)	(2,487		)
Net deferred tax assets	3,402			3,283

Deferred tax liabilities:
Property, plant, equipment and mining development costs	(5,331		)	(4,887		)
Oil and gas properties	(3,392		)	(4,708		)
Undistributed earnings	(807		)	(936		)
Other	(185		)	(34		)
Total deferred tax liabilities	(9,715		)	(10,565		)
Net deferred tax liabilities	$	(6,313	)	$	(7,282	)

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, 2013	$	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			—
Additions:
Prior year tax positions	4			*			*
Current year tax positions	11			*			*
Interest and penalties	—			1			—
Decreases:
Prior year tax positions	(12		)	*			*
Current year tax positions	—			*			*
Settlements with tax authorities	(9		)	*			*
Lapse of statute of limitations	—			*			*
Interest and penalties	—			(7		)	—
Balance at December 31, 2014	$	104		$	15		$	—

* 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	2013-2014
Indonesia	2006-2008, 2011-2012	2010, 2013-2014
Peru	2010	2011-2014
Chile	2012-2013	2014
DRC	2013	2012, 2014

- 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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