INCOME TAXES

The sources of income before taxes, classified between domestic and foreign entities are as follows:



Pre-tax income	2016		2015		2014
Domestic	$	914.0	$	593.5	$	752.5
Foreign	191.5		132.5		68.1
Total pre-tax income	$	1,105.5	$	726.0	$	820.6

The provisions (benefits) for income taxes in the accompanying consolidated statements of operations consist of the following:



	Years Ended December 31,
	2016			2015			2014
Current:
Federal	$	235.1		$	218.3		$	233.6
State	38.6			33.7			24.0
Foreign	43.9			69.4			22.7
	$	317.6		$	321.4		$	280.3
Deferred:
Federal	$	64.4		$	(14.1	)	$	29.1
State	6.0			(4.2		)	3.7
Foreign	(15.7		)	(15.8		)	(5.1		)
	54.7			(34.1		)	27.7
	$	372.3		$	287.3		$	308.0

In 2016, as a result of the early adoption of the accounting standard associated with simplifying several aspects of share-based compensation, a benefit of $14.0 in excess stock-based compensation was recorded directly to income tax expense. For 2015 and 2014, a portion of the tax benefit associated with option exercises from stock plans, which reduce taxes payable, were recorded through additional paid-in capital. The benefits recorded through additional paid-in capital were approximately $13.1 and $5.9 in 2015 and 2014, respectively.

The effective tax rates on earnings before income taxes are reconciled to statutory U.S. income tax rates as follows:



	Years Ended December 31,
	2016		2015		2014
Statutory U.S. rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of U.S. Federal income tax effect	2.6		3.2		2.7
Foreign earnings taxed at lower rates than the statutory U.S. rate	(3.1	)	(1.8	)	—
Restructuring and acquisition items	—		2.7		—
Share-based compensation	(1.2	)	—		—
Other	0.4		1.1		0.3
Effective rate	33.7	%	40.2	%	38.0	%

The effective rate for 2016 was favorably impacted by foreign earnings taxed at rates lower than the U.S. statutory rate and the early adoption of the share-based compensation standard.

The effective rate for 2015 was unfavorably impacted by restructuring and acquisition items, the recording of additional uncertain tax reserves, and a decrease in the benefit recorded from releasing uncertain tax reserves. The 2015 rate was favorably impacted by foreign earnings taxed at rates lower than the U.S. statutory rate.

The effective rate for 2014 was unfavorably impacted by the recording of a full valuation allowance for the write down of two of the Company's investments.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:



	December 31, 2016			December 31, 2015
Deferred tax assets:
Accounts receivable	$	13.5		$	13.4
Employee compensation and benefits	160.8			140.6
Self insurance reserves	7.4			36.9
Postretirement benefit obligation	1.9			7.5
Acquisition and restructuring reserves	38.5			24.5
Tax loss carryforwards	167.7			123.9
Other	7.6			4.3
	397.4			351.1
Less: valuation allowance	(31.3		)	(15.1		)
Deferred tax assets, net of valuation allowance	$	366.1		$	336.0

Deferred tax liabilities:
Deferred earnings	$	(193.2	)	$	(189.5	)
Intangible assets	(1,047.4		)	(978.1		)
Property, plant and equipment	(208.8		)	(177.0		)
Zero-coupon subordinated notes	(48.5		)	(87.4		)
Currency translation adjustment	(47.0		)	(47.3		)
Total gross deferred tax liabilities	(1,544.9		)	(1,479.3		)
Net deferred tax liabilities	$	(1,178.8	)	$	(1,143.3	)

The Company has U.S. federal tax loss carryforwards of approximately $390.7, which expire periodically through 2035. The increase in the U.S. federal tax loss carryforwards results from the acquisition of Sequenom, Inc. The utilization of tax loss carryforwards is limited due to change of ownership rules, however, at this time, the Company expects to fully utilize substantially all U.S. federal tax loss carryforwards with the exception of approximately $3.9 for which a full valuation allowance has been provided. The Company has U.S. state tax loss carryforwards of $392.4, which also expire periodically through 2035, and on which a valuation allowance of $336.3 has been provided. The Company's U.S. state loss carryforwards increased as a result of the finalization of the Covance Inc. purchase price accounting. The Company has foreign tax loss carryforwards of $41.6 of which $29.3 has a full valuation allowance. Most of the foreign losses have an indefinite carryover. In addition to the foreign net operating losses, the Company has a foreign capital loss carryforward of $6.9. The capital loss has an indefinite life and has a full valuation allowance.

The valuation allowance increased from $15.1 in 2015 to $31.3 in 2016 primarily due to the finalization of the Covance Inc. purchase price accounting and the recording of state tax loss carryforwards with a full valuation allowance.

Unrecognized income tax benefits were $18.4 and $24.2 at December 31, 2016 and 2015, respectively. It is anticipated that the amount of the unrecognized income tax benefits will change within the next 12 months; however, these changes are not expected to have a significant impact on the results of operations, cash flows or the financial position of the Company.

The Company recognizes interest and penalties related to unrecognized income tax benefits in income tax expense. Accrued interest and penalties related to uncertain tax positions totaled $9.9 and $12.7 as of December 31, 2016 and 2015, respectively. During the years ended December 31, 2016, 2015 and 2014, the Company recognized $1.2, $1.8 and $2.2, respectively, in interest and penalties expense, which was offset by a benefit from reversing previous accruals for interest and penalties of $4.0, $2.2 and $3.3, respectively.

The following table shows a reconciliation of the unrecognized income tax benefits, excluding interest and penalties, from uncertain tax positions for the years ended December 31, 2016, 2015 and 2014:



	2016			2015			2014
Balance as of January 1	$	24.2		$	16.7		$	25.6
Increase in reserve for tax positions taken in the current year	2.3			4.1			—
Increase in reserve as a result of acquisition	—			8.5			—
Decrease in reserve as a result of lapses in the statute of limitations	(8.1		)	(5.1		)	(8.9		)
Balance as of December 31	$	18.4		$	24.2		$	16.7

As of December 31, 2016 and 2015, $18.4 and $24.2, respectively, are the approximate amounts of unrecognized income tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.

The Company has substantially concluded all U.S. federal income tax matters for years through 2012. Substantially all material state and local and foreign income tax matters have been concluded through 2011 and 2004, respectively.

The Internal Revenue Service concluded the examination of the Company's 2014 federal consolidated income tax return, which did not include Covance Inc., in the third quarter of 2016. In the third quarter, the Company was notified that Covance Inc.'s 2013 federal consolidated income tax return was under examination. The Canada Revenue Agency is currently examining the Company's 2013 and 2014 Canadian subsidiaries' tax returns. The Company has various state and foreign income tax examinations ongoing throughout the year. The Company believes adequate provisions have been recorded related to all open tax years.

The Company changed its method for accounting for foreign earnings at the beginning of 2015 as a result of the Acquisition. Prior to the Acquisition, the Company provided tax for substantially all of its foreign earnings. Other than certain amounts associated with the Acquisition, the Company considers its foreign earnings are now permanently invested outside of the U.S. as it intends to leave its future generated unremitted foreign earnings invested indefinitely outside the U.S. given its expanded global profile. It is not practical to estimate the amount of additional tax that could be payable if accumulated earnings were remitted. Total unremitted foreign earnings for which income tax has not been provided are approximately $3,144.3 as of December 31, 2016.