Income Taxes

Income tax expense was as follows (in millions):



	Year Ended		Year Ended		Year Ended
	December 31, 2016		December 31, 2015		December 31, 2014
Current:
Federal	$	999	$	1,211	$	1,190
State	127		168		169
Total current	1,126		1,379		1,359
Deferred:
Federal	901		1,097		852
State	97		51		89
Total deferred	998		1,148		941
Total	$	2,124	$	2,527	$	2,300

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, 2016		December 31, 2015		December 31, 2014
U.S. Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.5		2.2		2.7
Other, net	(0.2	)	0.1		(0.4	)
Effective tax rate	37.3	%	37.3	%	37.3	%

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



	December 31, 2016			December 31, 2015
Deferred tax liabilities:
Property and equipment	$	(20,634	)	$	(19,660	)
Other	(340		)	(341		)
Total deferred tax liabilities	(20,974		)	(20,001		)
Deferred tax assets:
Compensation and benefits	334			328
Casualty and environmental	278			293
Pension and retiree health and welfare benefits	89			126
Long-term debt fair value adjustment under acquisition method accounting	76			96
Intangible assets and liabilities	72			100
Other	259			231
Total deferred tax assets	1,108			1,174
Net deferred tax liability	$	(19,866	)	$	(18,827	)

Non-current deferred income tax liability	$	(19,866	)	$	(19,072	)
Current portion of deferred income taxes	—			245
Net deferred tax liability	$	(19,866	)	$	(18,827	)

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 2016.

All U.S. federal income tax returns of BNSF are closed for audit through the tax period ending February 12, 2010. BNSF is currently under examination for the period February 13 - December 31, 2010 and years 2011, 2012 and 2013.

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, 2016, 2015 and 2014, was $62 million, $69 million, and $78 million, respectively. The amount of unrecognized tax benefits at December 31, 2016 that would affect the Company’s effective tax rate if recognized was $31 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, 2016			December 31, 2015			December 31, 2014
Beginning balance	$	69		$	78		$	56
Additions for tax positions related to current year	4			7			16
Additions (reductions) for tax positions taken in prior years	(1		)	(8		)	13
Additions (reductions) for tax positions as a result of:
Settlements	1			1			(1		)
Lapse of statute of limitations	(11		)	(9		)	(6		)
Ending balance	$	62		$	69		$	78

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 $5 million for interest and penalties for the years ended December 31, 2016 and 2015. For the year ended December 31, 2016, the incremental interest and penalty expense recognized was less than $1 million. For the years ended December 31, 2015 and 2014, the Company recognized a reduction of approximately $4 million and an increase of approximately $3 million in interest and penalty expense, respectively.