INCOME TAXES

Operating loss carryforwards at December 31, 2011 amounted to $381 million compared with $505 million at the end of 2010. Such amounts included U.S. state and local operating loss carryforwards determined more likely than not to be utilized. At December 31, 2011, $205 million of the operating loss carryforwards were subject to expiration in the years 2012 through 2016. The remaining balances expire in years beyond 2016 or have an indefinite carryforward period. Tax credit carryforwards amounted to $39 million at December 31, 2011 and $39 million at December 31, 2010, all of which expire in years beyond 2016.

Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $63 million at December 31, 2011, $103 million at December 31, 2010 and $58 million at December 31, 2009. It is not practicable to calculate the unrecognized deferred tax liability on those earnings.

The Corporation had valuation allowances that were primarily related to the realization of recorded tax benefits on tax loss carryforwards from operations in the United States of $121 million at December 31, 2011 and $104 million at December 31, 2010.

The tax rate for 2011 was positively impacted by U.S. state and business credits. These events resulted in an effective tax rate for 2011 that was lower than the U.S. statutory rate. UCC's reported effective tax rate for 2011 was 30.7 percent.

The tax rate for 2010 was positively impacted by dividends received from investments in related companies accounted for using the cost method and the reversal of certain state tax liabilities (uncertain tax positions). These events resulted in an effective tax rate for 2010 that was lower than the U.S. statutory rate. UCC's reported effective tax rate for 2010 was 25.8 percent.

The tax rate for 2009 was positively impacted by dividends received from investments in related companies accounted for using the cost method. This positive impact was partially offset by the tax effect of the Corporation's sale of its ownership interest in OPTIMAL. These events resulted in an effective tax rate for 2009 that was lower than the U.S. statutory rate. UCC's reported effective tax rate for 2009 was 25.6 percent.



Domestic and Foreign Components of Income Before Income Taxes
In millions	2011			2010		2009
Domestic	$	389		$	611	$	933
Foreign	(1		)	8		2
Total	$	388		$	619	$	935



Reconciliation to U.S. Statutory Rate
In millions	2011			2010			2009
Taxes at U.S. statutory rate	$	136		$	216		$	327
Equity earnings effect (1)	—			—			26
U.S. business credits	(6		)	—			—
Benefit of dividend income from investments in related companies	(2		)	(14		)	(67		)
Unrecognized tax benefits	(1		)	(28		)	(5		)
U.S. federal audit settlement	—			—			(28		)
Federal tax accrual adjustments (1)	—			—			(18		)
State and local tax impact	(5		)	(7		)	7
Other - net	(3		)	(7		)	(3		)
Total tax provision	$	119		$	160		$	239
Effective tax rate	30.7		%	25.8		%	25.6		%


(1)	The amount for the noted reconciliation item is immaterial for 2011 and 2010 and has been

included in the “Other - net” category.



Provision for Income Taxes
			2011									2010								2009
In millions	Current		Deferred			Total			Current			Deferred			Total			Current		Deferred			Total
Federal	$	156	$	(41	)	$	115		$	237		$	(38	)	$	199		$	293	$	(68	)	$	225
State and local	—		(2		)	(2		)	(42		)	(2		)	(44		)	10		(2		)	8
Foreign	6		—			6			5			—			5			5		1			6
Total	$	162	$	(43	)	$	119		$	200		$	(40	)	$	160		$	308	$	(69	)	$	239



Deferred Tax Balances at December 31 In millions	2011					2010
Deferred Tax Balances at December 31 In millions	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
Property	$	—		$	229	$	—		$	242
Tax loss and credit carryforwards	100			—		102			—
Postretirement benefit obligations	772			363		716			368
Other accruals and reserves	576			4		549			4
Inventory	9			—		9			—
Long-term debt	—			1		—			1
Investments	—			1		—			1
Other - net	48			48		53			63
Subtotal	$	1,505		$	646	$	1,429		$	679
Valuation allowances	(121		)	—		(104		)	—
Total	$	1,384		$	646	$	1,325		$	679

Uncertain Tax Positions

At December 31, 2011, the total amount of unrecognized tax benefits was $161 million ($163 million at December 31, 2010), of which $152 million ($153 million at December 31, 2010) would impact the effective tax rate, if recognized.

Interest and penalties associated with unrecognized tax benefits are recognized as components of the “Provision for income taxes” and were a credit of $2 million in 2011, expense of $6 million in 2010 and expense of $13 million in 2009. The Corporation's accrual for interest and penalties was a credit of $2 million at December 31, 2011 and expense of $1 million at December 31, 2010.



Total Gross Unrecognized Tax Benefits
In millions	2011			2010			2009
Balance at January 1	$	163		$	208		$	265
Increases related to positions taken on items from prior years	—			—			6
Decreases related to positions taken on items from prior years	(1		)	(18		)	(5		)
Increases related to positions taken in current year	1			5			—
Settlement of uncertain tax positions with tax authorities	—			(8		)	(58		)
Decreases due to expiration of statutes of limitations	(2		)	(24		)	—
Balance at December 31	$	161		$	163		$	208

The Corporation is included in Dow's consolidated federal income tax group and consolidated tax return. Current and deferred tax expenses are calculated for the Corporation as a stand-alone group and are allocated to the group from the consolidated totals. UCC is currently under examination in a number of tax jurisdictions, including the U.S. federal and various state jurisdictions. It is reasonably possible that these examinations may be resolved within twelve months. As a result, it is reasonably possible that the total gross unrecognized tax benefits of the Corporation at December 31, 2011, will be reduced by approximately $7 million. The impact on the Corporation's results of operations is expected to be immaterial.

Tax years that remain subject to examination for the Corporation's tax jurisdictions are shown below:



Tax Years Subject to Examination by Major Tax Jurisdiction at December 31
Jurisdiction	Earliest Open Year
Jurisdiction	2011	2010
United States:
Federal income tax	2004	2004
State and local income tax	2004	1996

The reserve for non-income tax contingencies related to issues in the United States was $10 million at December 31, 2011 and $11 million at December 31, 2010. This is management's best estimate of the potential liability for non-income tax contingencies. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law, both legislated and concluded through the various jurisdictions' tax court systems. It is the opinion of the Corporation's management that the possibility is remote that costs in excess of those accrued will have a material impact on the Corporation's consolidated financial statements.