Income Taxes

Income tax expense was as follows (in millions):



	Year Ended		Year Ended			Year Ended
	December 31, 2014		December 31, 2013			December 31, 2012
Current:
Federal	$	1,190	$	1,346		$	1,204
State	169		206			141
Total current	1,359		1,552			1,345
Deferred:
Federal	852		609			591
State	89		(26		)	69
Total deferred	941		583			660
Total	$	2,300	$	2,135		$	2,005

Reconciliation of the U.S. federal statutory income tax rate to the effective tax rate was as follows:



	Year Ended		Year Ended		Year Ended
	December 31, 2014		December 31, 2013		December 31, 2012
U.S. Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.7		2.0		2.5
Other, net	(0.4	)	(1.0	)	(0.2	)
Effective tax rate	37.3	%	36.0	%	37.3	%

The components of deferred tax assets and liabilities were as follows (in millions):



	December 31, 2014			December 31, 2013
Deferred tax liabilities:
Property and equipment	$	(18,624	)	$	(17,727	)
Hedging	(10		)	(11		)
Pension and retiree health and welfare benefits	—			(13		)
Other	(353		)	(347		)
Total deferred tax liabilities	(18,987		)	(18,098		)
Deferred tax assets:
Compensation and benefits	335			371
Casualty and environmental	307			273
Intangible assets and liabilities	132			190
Long-term debt fair value adjustment under acquisition method accounting	117			141
Pension and retiree health and welfare benefits	202			—
Other	248			257
Total deferred tax assets	1,341			1,232
Net deferred tax liability	$	(17,646	)	$	(16,866	)

Non-current deferred income tax liability	$	(18,001	)	$	(17,224	)
Current portion of deferred income taxes	355			358
Net deferred tax liability	$	(17,646	)	$	(16,866	)

BNSF is included in the consolidated U.S. federal income tax return of Berkshire. BNSF’s tax expense and liabilities have been computed on a stand alone basis, and substantially all of its currently payable income taxes are remitted each quarter to Berkshire. See Note 14 to the Consolidated Financial Statements for information related to income taxes paid to Berkshire during 2014.

All U.S. federal income tax returns of BNSF are closed through the tax period ending February 12, 2010. BNSF is currently under examination for the period February 13 - December 31, 2010 and the year 2011.

BNSF and its subsidiaries have various state income tax returns in the process of examination, administrative appeal or litigation. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.

Uncertain Tax Positions

The amount of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 was $78 million, $56 million, and $48 million, respectively. The amount of unrecognized tax benefits at December 31, 2014 that would affect the Company’s effective tax rate if recognized was $43 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):



	Year Ended			Year Ended			Year Ended
	December 31, 2014			December 31, 2013			December 31, 2012
Beginning balance	$	56		$	48		$	110
Additions for tax positions related to current year	16			16			12
Additions (reductions) for tax positions taken in prior years	13			1			(2		)
Additions (reductions) for tax positions as a result of:
Settlements	(1		)	1			(53		)
Lapse of statute of limitations	(6		)	(10		)	(19		)
Ending balance	$	78		$	56		$	48

It is expected that the amount of unrecognized tax benefits will change in the next twelve months; however, BNSF does not expect the change to have a significant impact on the results of operations, the financial position or the cash flows of the Company.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in income tax expense in the Consolidated Statements of Income, which is consistent with the recognition of these items in prior reporting periods. The Company had recorded a liability of approximately $8 million and $6 million for interest and penalties for the years ended December 31, 2014 and 2013, respectively. For the years ended December 31, 2014, 2013 and 2012, the Company recognized an increase of approximately $3 million and a reduction of approximately $1 million and $8 million in interest and penalty expense, respectively.