Income Taxes

The income tax provision from continuing operations consisted of the following amounts:



	Year Ended December 31,
	2015			2014			2013
	(In millions, except percentages)
Current
State	$	6		$	8		$	11
Total — current	6			8			11
Deferred
U.S. Federal	1,020			(50		)	(207		)
State	315			41			(57		)
Foreign	1			4			(29		)
Total — deferred	1,336			(5		)	(293		)
Total income tax expense/(benefit)	$	1,342		$	3		$	(282	)
Effective tax rate	(26.3		)%	2.2		%	44.5		%

The following represents the domestic and foreign components of income/(loss) before income tax expense/(benefit):



	Year Ended December 31,
	2015			2014		2013
	(In millions)
U.S.	$	(5,105	)	$	126	$	(549	)
Foreign	11			9		(85		)
Total	$	(5,094	)	$	135	$	(634	)

A reconciliation of the U.S. federal statutory rate of 35% to NRG's effective rate is as follows:



	Year Ended December 31,
	2015			2014			2013
	(In millions, except percentages)
(Loss)/Income Before Income Taxes	$	(5,094	)	$	135		$	(634	)
Tax at 35%	(1,783		)	47			(222		)
State taxes	(218		)	9			19
Foreign operations	1			1			5
Federal and state tax credits, excluding PTCs	(5		)	(1		)	(36		)
Valuation allowance	3,039			6			(5		)
Expiration/utilization of capital losses	—			—			10
Reversal of valuation allowance on expired/utilized capital losses	—			—			(10		)
Impact of non-taxable equity earnings	(10		)	(11		)	(14		)
Book goodwill impairment	340			—			—
Net interest accrued on uncertain tax positions	(3		)	(2		)	(3		)
Production tax credit	(33		)	(48		)	(14		)
Recognition of uncertain tax benefits	(15		)	(30		)	(11		)
Tax expense attributable to consolidated partnerships	12			4			8
Impact of change in effective state tax rate	19			22			(21		)
Other	(2		)	6			12
Income tax expense/(benefit)	$	1,342		$	3		$	(282	)
Effective income tax rate	(26.3		)%	2.2		%	44.5		%

For the year ended December 31, 2015, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to recording of a valuation allowance on the federal and certain state net deferred tax assets that may not be realizable under a “more likely than not” measurement. In addition, a portion of the book goodwill impairment is classified as a permanent reversal impacting the effective tax rate.

For the year ended December 31, 2014, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to the generation of PTCs generated from various wind facilities including assets acquired in the EME transaction, and a benefit resulting from the recognition of uncertain tax benefits, partially offset by state and local income taxes including a change in the effective state rate.

For the year ended December 31, 2013, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to the generation of ITCs from the Company's Agua Caliente solar project in Arizona of $36 million and PTCs generated from certain Gulf Coast wind facilities of $14 million.

The temporary differences, which gave rise to the Company's deferred tax assets and liabilities consisted of the following:



	As of December 31,
	2015			2014
	(In millions)
Deferred tax liabilities:
Emissions allowances	$	31		$	25
Difference between book and tax basis of property	—			127
Derivatives, net	22			320
Goodwill	—			202
Cumulative translation adjustments	2			8
Investment in projects	838			849
Intangibles amortization (excluding goodwill)	—			99
Other	—			2
Total deferred tax liabilities	893			1,632
Deferred tax assets:
Deferred compensation, pension, accrued vacation and other reserves	255			266
Discount/premium on notes	68			99
Difference between book and tax basis of property	1,210			—
Goodwill	39			—
Differences between book and tax basis of contracts	516			531
Pension and other postretirement benefits	218			157
Equity compensation	50			77
Bad debt reserve	6			9
U.S. capital loss carryforwards	1			—
U.S. Federal net operating loss carryforwards	1,373			1,523
Foreign net operating loss carryforwards	59			65
State net operating loss carryforwards	230			302
Foreign capital loss carryforwards	1			1
Deferred financing costs	6			23
Federal and state tax credit carryforwards	439			357
Federal benefit on state uncertain tax positions	17			17
Intangibles amortization (excluding goodwill)	90			—
Inventory obsolescence	27			29
Other	11			—
Total deferred tax assets	4,616			3,456
Valuation allowance	(3,575		)	(265		)
Total deferred tax assets, net of valuation allowance	1,041			3,191
Net deferred tax asset	$	148		$	1,559

The following table summarizes NRG's net deferred tax position:



	As of December 31,
	2015			2014
	(In millions)
Net deferred tax asset — noncurrent	$	167		$	1,580
Net deferred tax liability — noncurrent	(19		)	(21		)
Net deferred tax asset	$	148		$	1,559

Deferred tax assets and valuation allowance

Net deferred tax balance — As of December 31, 2015, and 2014, NRG recorded a net deferred tax asset of $148 million and $1.5 billion, respectively. The Company believes the federal and certain state net deferred tax assets may not be realizable under a “more likely than not” measurement and as such, a valuation allowance has been recorded to reduce the asset accordingly. The Company assesses cumulative and forecasted pretax book earnings, the future reversal of existing taxable temporary differences as well as assumptions and analysis used in assessing certain fixed assets and goodwill impairments during the quarter.

Based on the Company's assessment of positive and negative evidence, including available tax planning strategies, NRG believes that it is more likely than not that a benefit will not be realized on $3,575 million and $265 million of tax assets as of December 31, 2015, and 2014, respectively, thus a valuation allowance has been recorded.

NOL carryforwards — At December 31, 2015, the Company had tax effected cumulative domestic NOLs consisting of carryforwards for federal income tax purposes of $1.4 billion and state of $230 million. The Company estimates it will need to generate future taxable income to fully realize the net federal deferred tax asset before expiration commencing in 2026. In addition, NRG has cumulative foreign NOL carryforwards of $59 million with no expiration date.

Valuation allowance — As of December 31, 2015, the Company's tax effected valuation allowance was $3,575 million, consisting of domestic federal net deferred tax assets of approximately $2,973 million, domestic state net deferred tax assets of $542 million, foreign net operating loss carryforwards of $59 million and foreign capital loss carryforwards of approximately $1 million. Based upon the assessment of cumulative and forecasted pretax book earnings, the future reversal of existing taxable temporary differences as well as assumptions and analysis used in assessing certain fixed assets and goodwill impairments, it was determined that a valuation allowance was required to be recorded during the quarter.

Taxes Receivable and Payable

As of December 31, 2015, NRG recorded a current tax payable of $5 million that represents a tax liability due for domestic state taxes. NRG has a domestic tax receivable of $42 million, of which $13 million relates to federal cash grants applied for eligible solar energy projects, net of sequestration. The remaining balance of $29 million is primarily related to current tax refunds due from the New York State Empire Zone program generated in years 2010 through 2014.

Uncertain tax benefits

NRG has identified uncertain tax benefits whose after-tax value is $32 million for which, as of December 31, 2015, and 2014, NRG has recorded a non-current tax liability of $35 million and $53 million, respectively. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense. During the year ended December 31, 2015, the Company recognized a benefit of $5 million in interest and penalties and accrued interest of $2 million. As of December 31, 2015 and 2014, NRG had cumulative interest and penalties related to these uncertain tax benefits of $3 million and $5 million, respectively.

Tax jurisdictions — NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia.

The Company is no longer subject to U.S. federal income tax examinations for years prior to 2012. With few exceptions, state and local income tax examinations are no longer open for years before 2009.

The following table reconciles the total amounts of uncertain tax benefits:



	As of December 31,
	2015			2014
	(In millions)
Balance as of January 1	$	71		$	115
Increase due to current year positions	4			—
Increase due to prior year positions	—			10
Decrease due to prior year positions	(25		)	(27		)
Decrease due to settlements and payments	(18		)	(27		)
Uncertain tax benefits as of December 31	$	32		$	71