INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2017

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

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



	2017			2016			2015
U.S.	$	20		$	(5,179	)	$	(14,589	)
Foreign	2,882		^a	1,707			461
Total	$	2,902		$	(3,472	)	$	(14,128	)


a.	As a result of the unfavorable Peruvian Supreme Court ruling on the Cerro Verde royalty dispute, FCX incurred pre-tax charges of $348 million to income from continuing operations and $7 million of net tax expense for the year 2017.

Schedule of Benefit from (Provision for) income taxes

FCX’s (provision for) benefit from income taxes for the years ended December 31 consist of the following:



	2017				2016				2015
Current income taxes:
Federal	$	(3	)		$	164			$	89
State	(10		)		17				2
Foreign	(1,426		)		(352		)		(160		)
Total current	(1,439		)		(171		)		(69		)

Deferred income taxes:
Federal	64				137				3,403
State	10				41				154
Foreign	89				(451		)		(163		)
Total deferred	163				(273		)		3,394

Adjustments	393			^a	13			^b	(1,374		)	^c
Operating loss carryforwards	—				60				—
(Provision for) benefit from income taxes	$	(883	)		$	(371	)		$	1,951


a.	Reflects provisional tax credits associated with the Tax Cuts and Jobs Act (the Act), including reversal of valuation allowances associated with anticipated refunds of alternative minimum tax (AMT) credits ($272 million, net of reserves) and a decrease in corporate income tax rates ($121 million). Refer to “Tax Reform” below for further discussion.


b.	Benefit related to changes in Peruvian tax rules.


c.	Adjustments include net provisions of $1.2 billion associated with an increase in the beginning of the year valuation allowance related to the impairment of U.S. oil and gas properties and $0.2 billion resulting from the termination of PT-FI’s Delaware domestication.

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:



	2017						2016						2015
	Amount				Percent		Amount				Percent		Amount				Percent
U.S. federal statutory tax rate	$	(1,016	)		(35	)%	$	1,215			(35	)%	$	4,945			(35	)%
Valuation allowance, net	28			^a	1		(1,680		)	^b	48		(2,955		)	^b	21
Foreign tax credit limitation	(159		)		(5	)	(598		)		17		(228		)		2
Tax reform	393				14		—				—		—				—
Mining royalty dispute	(129		)		(5	)	—				—		—				—
Impairment of oil and gas properties	—				—		520			^c	(15	)	—				—
Percentage depletion	227				8		211				(6	)	186				(1	)
Withholding and other impacts on
foreign earnings	(216		)		(7	)	(93		)		3		(193		)		1
Effect of foreign rates different than the U.S.
federal statutory rate	17				1		45				(1	)	12				—
State income taxes	(5		)		(1	)	46			^b	(1	)	105			^b	(1	)
Other items, net	(23		)		(1	)	(37		)		1		79				(1	)
(Provision for) benefit from income taxes	$	(883	)	^d	(30	)%	$	(371	)	^e	11	%	$	1,951			(14	)%


a.	Refer to “Valuation Allowance” below for further discussion of current year changes.


b.	Includes tax charges totaling $1.6 billion in 2016 and $3.3 billion in 2015 as a result of the impairment to U.S. oil and gas properties to establish valuation allowances against U.S. federal and state deferred tax assets that will not generate a future benefit.


c.	Reflects a loss under U.S. federal income tax law related to the impairment of investments in oil and gas properties.

Includes net charges of $7 million associated with the Cerro Verde mining royalties dispute, consisting of tax charges of $136 million for disputed royalties and other related mining taxes for the period October 2011 through the year 2013 (when royalties were determined based on operating income), mostly offset by a tax benefit of $129 million associated with disputed royalties and other related mining taxes for the period December 2006 through the year 2013. Refer to Note 12 for further discussion.


e.	Includes a net tax benefit related to changes in Peruvian tax rules of $13 million.

Components of deferred tax assets and liabilities

The components of deferred taxes follow:



	December 31,
	2017			2016
Deferred tax assets:
Foreign tax credits	$	2,129		$	2,094
Accrued expenses	789			923
Oil and gas properties	236			346
AMT credits	—			444
Net operating losses	2,043			2,898
Employee benefit plans	248			403
Other	259			485
Deferred tax assets	5,704			7,593
Valuation allowances	(4,575		)	(6,058		)
Net deferred tax assets	1,129			1,535

Deferred tax liabilities:
Property, plant, equipment and mine development costs	(3,710		)	(4,326		)
Undistributed earnings	(811		)	(779		)
Other	(226		)	(195		)
Total deferred tax liabilities	(4,747		)	(5,300		)
Net deferred tax liabilities	$	(3,618	)	$	(3,765	)

Reserve for unrecognized tax benefits, interest and penalties

A summary of the activities associated with FCX’s reserve for unrecognized tax benefits for the years ended December 31 follows:



	2017			2016			2015
Balance at beginning of year	$	101		$	110		$	104
Additions:
Prior year tax positions	302			5			7
Current year tax positions	6			28			11
Decreases:
Prior year tax positions	(1		)	(3		)	(6		)
Settlements with taxing authorities	(17		)	—			—
Lapse of statute of limitations	(1		)	(39		)	(6		)
Balance at end of year	$	390		$	101		$	110

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	N/A	2014-2017
Indonesia	2008, 2011-2016	2017
Peru	2012	2013-2017
Chile	2015-2016	2017

Excluding surface water and withholding tax assessments discussed below and the Indonesian government’s imposition of a 7.5 percent export duty (refer to Note 13), a summary of these assessments follows:



Tax Year	Tax Assessment		Interest Assessment		Total
2005	$	77	$	37	$	114
2007	48		24		72
2008, 2010 to 2011	56		37		93
2012	125		1		126
2013	160		80		240
2014	160		7		167
2015	169		—		169
	$	795	$	186	$	981

A summary of these assessments follows:



Tax Year	Tax Assessment		Penalty and Interest Assessment		Total
2003 to 2005	$	16	$	54	$	70
2006	7		59		66
2007 to 2008	33		31		64
2009	59		49		108
2010	66		107		173
2011, 2014 to 2017	72		64		136
	$	253	$	364	$	617