INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2018

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 for the years ended December 31 consist of the following:



	2018		2017		2016
U.S.	$	390	$	20	$	(5,179	)
Foreign	3,502		2,882		1,707
Total	$	3,892	$	2,902	$	(3,472	)

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:



	2018				2017				2016
Current income taxes:
Federal	$	46		^a	$	(3	)		$	164
State	1				(10		)		17
Foreign	(1,445		)	^a	(1,426		)		(352		)
Total current	(1,398		)		(1,439		)		(171		)

Deferred income taxes:
Federal	(106		)		64				137
State	(8		)		10				41
Foreign	(102		)		89				(451		)
Total deferred	(216		)		163				(273		)

Adjustments	504			^b	393			^c	13			^d
Operating loss carryforwards	119				—				60
Provision for income taxes	$	(991	)		$	(883	)		$	(371	)


a.	In 2018, FCX completed its analysis of the Act and recognized benefits totaling $123 million ($76 million to the U.S. tax provision and $47 million to PT-FI’s tax provision) associated with alternative minimum tax (AMT) credit refunds.


b.	Includes net tax credits totaling $504 million resulting from the reduction in PT-FI's statutory tax rates in accordance with PT-FI’s new special mining license (IUPK).


c.	Includes net tax credits totaling $393 million associated with the Act, including $272 million for the reversal of valuation allowances associated with AMT credit refunds and $121 million for a decrease in corporate income tax rates.


d.	Benefit related to changes in Peruvian tax rules.

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

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



	2018						2017					2016
	Amount				Percent		Amount			Percent		Amount				Percent
U.S. federal statutory tax rate	$	(817	)		(21	)%	$	(1,016	)	(35	)%	$	1,215			(35	)%
Valuation allowance, net	129			^a	3		28			1		(1,680		)	^b	48
Foreign tax credit limitation	(195		)		(5	)	(159		)	(5	)	(598		)		17
U.S. tax reform^c	123				3		393			14		—				—
Cerro Verde royalty dispute^d	(55		)		(1	)	(129		)	(5	)	—				—
Change in PT-FI tax rates	504				13		—			—		—				—
Impairment of oil and gas properties	—				—		—			—		520			^e	(15	)
Percentage depletion	141				4		227			8		211				(6	)
Withholding and other impacts on
foreign earnings	(232		)		(6	)	(216		)	(7	)	(93		)		3
Effect of foreign rates different than the U.S.
federal statutory rate	(494		)		(13	)	17			1		45				(1	)
State income taxes	7				1		(5		)	(1	)	46			^b	(1	)
Other items, net	(102		)		(3	)	(23		)	(1	)	(37		)		1
Provision for income taxes	$	(991	)		(25	)%	$	(883	)	(30	)%	$	(371	)		11	%


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


b.	Includes tax charges totaling $1.6 billion in 2016 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.	Refer to discussion of 2017 U.S. Tax Reform below.


d.	Refer to Note 12 for further discussion of the Cerro Verde royalty dispute.


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

Components of deferred tax assets and liabilities

The components of deferred taxes follow:



	December 31,
	2018			2017
Deferred tax assets:
Foreign tax credits	$	1,814		$	2,129
Accrued expenses	881			789
Oil and gas properties	—			236
Net operating losses	2,235			2,043
Employee benefit plans	245			248
Other	212			260
Deferred tax assets	5,387			5,705
Valuation allowances	(4,507		)	(4,575		)
Net deferred tax assets	880			1,130

Deferred tax liabilities:
Property, plant, equipment and mine development costs	(4,200		)	(3,754		)
Undistributed earnings	(578		)	(811		)
Other	(130		)	(223		)
Total deferred tax liabilities	(4,908		)	(4,788		)
Net deferred tax liabilities	$	(4,028	)	$	(3,658	)

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:



	2018			2017			2016
Balance at beginning of year	$	390		$	101		$	110
Additions:
Prior year tax positions	100			302			5
Current year tax positions	14			6			28
Decreases:
Prior year tax positions	(86		)	(1		)	(3		)
Settlements with taxing authorities	(9		)	(17		)	—
Lapse of statute of limitations	(5		)	(1		)	(39		)
Balance at end of year	$	404		$	390		$	101

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	2014-2018
Indonesia	2008, 2011-2016	2017-2018
Peru	2012-2013	2014-2018
Chile	2016-2017	2018

Excluding surface water and withholding tax assessments discussed below and the Indonesian government’s previous imposition of a 7.5 percent export duty that PT-FI paid under protest during the period April 2017 to December 21, 2018 (refer to Note 13), a summary of these assessments follows:



Tax Year	Tax Assessment		Interest Assessment		Total
2005	$	73	$	35	$	108
2007	47		23		70
2008, 2010 to 2011	55		37		92
2012	124		—		124
2013	154		74		228
2014	139		6		145
2015	158		—		158
2016	266		113		379
	$	1,016	$	288	$	1,304

A summary of these assessments follows:



Tax Year	Tax Assessment		Penalty and Interest Assessment		Total
2003 to 2008	$	56	$	130	$	186
2009	57		51		108
2010	63		105		168
2011	49		65		114
2014 to 2018	32		—		32
	$	257	$	351	$	608