Income Taxes

Income tax expense was as follows (in millions):



	Year Ended		Year Ended			Year Ended
	December 31, 2018		December 31, 2017			December 31, 2016
Current:
Federal	$	1,037	$	1,286		$	999
State	228		163			127
Total current	1,265		1,449			1,126
Deferred:
Federal	366		(6,555		)	901
State	13		134			97
Total deferred	379		(6,421		)	998
Total	$	1,644	$	(4,972	)	$	2,124

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, 2018		December 31, 2017		December 31, 2016
U.S. Federal statutory income tax rate	21.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.8		2.9		2.5
Tax law change	—		(116.0	)	—
Other, net	0.2		(0.5	)	(0.2	)
Effective tax rate	24.0	%	(78.6	)%	37.3	%

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



	December 31, 2018			December 31, 2017
Deferred tax liabilities:
Property and equipment	$	(13,860	)	$	(13,583	)
Other	(346		)	(391		)
Total deferred tax liabilities	(14,206		)	(13,974		)
Deferred tax assets:
Compensation and benefits	165			112
Casualty and Environmental	122			159
Long-term debt fair value adjustment under acquisition method accounting	27			32
Intangible assets and liabilities	16			32
Pension and retiree health and welfare benefits	16			16
Other	65			171
Total deferred tax assets	411			522
Net deferred tax liability	$	(13,795	)	$	(13,452	)

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 all of its currently payable federal income taxes are remitted to Berkshire. See Note 15 to the Consolidated Financial Statements for information related to income taxes paid to Berkshire during 2018.

All U.S. federal income tax returns of BNSF are closed for audit through the tax period ended December 31, 2011. BNSF is currently under examination for the years 2012 and 2013 through Berkshire's consolidated U.S. federal income tax return.

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.

Tax Reform

As a result of the Tax Act signed into law on December 22, 2017, the provision for income taxes for the fourth quarter of 2017 was adjusted to reflect the revaluation of BNSF’s deferred tax liability by $7.3 billion as a result of the reduction of the federal income tax rate from 35 percent to 21 percent effective January 1, 2018. The effective tax rate for 2017 was negative 78.6 percent. Without the decrease to income tax expense arising from the Tax Act, the effective tax rate for 2017 would have been positive 37.4 percent.

Uncertain Tax Positions

The amount of unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016, was $50 million, $57 million, and $62 million, respectively. The amount of unrecognized tax benefits at December 31, 2018 that would affect the Company’s effective tax rate if recognized was $34 million, computed at the federal income tax rate expected to be applicable in the taxable period in which the amount may be incurred by the Company. 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, 2018			December 31, 2017			December 31, 2016
Beginning balance	$	57		$	62		$	69
Additions for tax positions related to current year	2			7			4
Additions (reductions) for tax positions taken in prior years	5			(1		)	(1		)
Additions (reductions) for tax positions as a result of:
Settlements	—			—			1
Lapse of statute of limitations	(14		)	(11		)	(11		)
Ending balance	$	50		$	57		$	62

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. The Company had recorded a liability of approximately $7 million and $6 million for interest and penalties for the years ended December 31, 2018 and 2017, respectively.