Income Taxes

Income (loss) from continuing operations before income taxes were:



	Year Ended December 31,
(In millions)		2018		2017			2016
United States		$	642	$	(783	)	$	(1,449	)
Foreign		785		329			285
Total		$	1,427	$	(454	)	$	(1,164	)

Income tax provisions (benefits) for continuing operations were:



	Year Ended December 31,
	2018									2017									2016
(In millions)	Current			Deferred			Total			Current			Deferred			Total			Current		Deferred			Total
Federal	$	6		$	—		$	6		$	(32	)	$	41		$	9		$	2	$	836		$	838
State and local	(1		)	(23		)	(24		)	(14		)	2			(12		)	2		8			10
Foreign	274			75			349			483			(104		)	379			91		(16		)	75
Total	$	279		$	52		$	331		$	437		$	(61	)	$	376		$	95	$	828		$	923

A reconciliation of the federal statutory income tax rate applied to income (loss) from continuing operations before income taxes to the provision (benefit) for income taxes follows:



	Year Ended December 31,
(In millions)	2018			2017			2016
Total pre-tax income (loss) from continuing operations	$	1,427		$	(454	)	$	(1,164	)
Total income tax expense (benefit)	$	331		$	376		$	923
Effective income tax rate on continuing operations	23		%	83		%	79		%

Income taxes at the statutory tax rate^(a)(b)	$	300		$	(159	)	$	(407	)
Effects of foreign operations	214			140			47
Adjustments to valuation allowances	(177		)	446			1,270
State income taxes	(17		)	(19		)	9
Tax law change	—			(35		)	6
Other federal tax effects	11			3			(2		)
Income tax expense (benefit) on continuing operations	$	331		$	376		$	923

^(a) Includes income tax benefits primarily related to our U.S. federal income taxes where we have maintained a full valuation allowance since December 2016.

^(b) As a result of the Tax Reform Legislation (see below), the U.S. corporate income tax rate was reduced to 21% in 2018. The U.S. corporate income tax rate was 35% in 2017 and 2016.

The effective income tax rate is influenced by a variety of factors including the geographic and functional sources of income and the relative magnitude of these sources of income. The difference between the total provision and the sum of the amounts allocated to segments is reported in the "Not Allocated to Segments" column of the tables in Note 7.

Effects of foreign operations – The effects of foreign operations increased our tax expense in 2018, 2017 and 2016 due to the mix of pre-tax income between high and low tax jurisdictions, including Libya where the tax rate is 93.5%. Excluding Libya, the effective tax rates on continuing operations would be an expense of 14% in 2018, an expense of 5% in 2017, and an expense of 79% in 2016. As a result of the sale of our Libya subsidiary in the first quarter of 2018, we do not expect to incur further tax expense related to Libya.

Adjustments to valuation allowances – Since December 31, 2016, we have maintained a full valuation allowance on our net federal deferred tax assets. In 2018, we reduced our valuation allowance by $177 million primarily related to current year activity in the U.S.

Change in tax law – On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Reform Legislation”). Tax Reform Legislation, which is also commonly referred to as “U.S. tax reform”, significantly changing U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018, and repeal of the corporate alternative minimum tax (“AMT”), and a one-time deemed repatriation of accumulated foreign earnings. In the fourth quarter of 2017, we remeasured our deferred taxes at 21%, in accordance with U.S. GAAP. The impact of the remeasurement on our federal deferred tax assets and liabilities was equally offset by an adjustment to our valuation allowance with no material impact to current year earnings. In accordance with Staff Accounting Bulletin No. 118 ("SAB 118") we finalized our tax position in the fourth quarter of 2018 with no material changes made to positions considered provisional as of December 31, 2017.

Deferred tax assets and liabilities resulted from the following:



	Year Ended December 31,
(In millions)	2018			2017
Deferred tax assets:
Employee benefits	$	102		$	111
Operating loss carryforwards	1,304			1,030
Capital loss carryforwards	2			3
Foreign tax credits	611			611
Other credit carryforwards	—			—
Investments in subsidiaries and affiliates	—			174
Other	5			69
Subtotal	2,024			1,998
Valuation allowance	(749		)	(926		)
Total deferred tax assets	1,275			1,072
Deferred tax liabilities:
Property, plant and equipment	1,018			1,332
Accrued revenue	60			81
Other	3			3
Total deferred tax liabilities	1,081			1,416
Net deferred tax liabilities	$	—		$	344
Net deferred tax assets	$	194		$	—

Operating loss carryforwards – At December 31, 2018, our operating loss carryforwards, relating to tax years beginning prior to January 1, 2018, before valuation allowance, include $655 million from the U.S. that expire in 2035-2037. Our operating loss carryforwards in the U.S. for tax years beginning after December 31, 2017, before our valuation allowance, include $472 million which can be carried forward indefinitely. Foreign operating loss carryforwards include $26 million that begin to expire in 2019. State operating loss carryforwards of $151 million expire in 2019 through 2038.

Valuation allowances – At December 31, 2018, we reflect a valuation allowance in our consolidated balance sheet of $749 million against our net deferred tax assets in various jurisdictions in which we operate.

Property, plant and equipment – At December 31, 2018, we reflected a deferred tax liability of $1,018 million. The reduction primarily relates to the sale of our Libya subsidiary in the first quarter of 2018.

Net deferred tax assets and liabilities were classified in the consolidated balance sheets as follows:



	December 31,
(In millions)	2018		2017
Assets:
Other noncurrent assets	$	393	$	489
Liabilities:
Noncurrent deferred tax liabilities	199		833
Net deferred tax liabilities	$	—	$	344
Net deferred tax assets	$	194	$	—

We are continuously undergoing examination of our U.S. federal income tax returns by the IRS. Such audits have been completed through the 2014 tax year, with the exception of 2010-2011. Based on the status of the proposed settlement in the 2010-2011 IRS Federal Tax Audit ("IRS Audit"), as of December 31, 2018 we have established a receivable of $146 million with $73 million classified in other current assets on the consolidated balance sheet based on the AMT refunds we expect to receive in the next 12 months, and a receivable classified in other noncurrent assets of $73 million on the consolidated balance sheet related to future AMT refunds. As of December 31, 2018, we do not consider the IRS Audit to be effectively settled, however we believe the IRS Audit will be settled within the next 12 months. As a result, we have established an uncertain tax position for the same amount resulting in no impact to the consolidated statement of income for the year ended December 31, 2018. See Note 25 for further detail. Further, we are routinely involved in U.S. state income tax audits and foreign jurisdiction tax audits. We believe all other audits will be resolved within the amounts paid and/or provided for these liabilities.

As of December 31, 2018, our income tax returns remain subject to examination in the following major tax jurisdictions for the tax years indicated:



United States^(a)	2008-2017
Equatorial Guinea	2007-2017
United Kingdom	2008-2017


^(a)	Includes federal and state jurisdictions.

The following table summarizes the activity in unrecognized tax benefits:



(In millions)	2018			2017			2016
Beginning balance	$	126		$	66		$	65
Additions for tax positions of prior years	152			83			6
Reductions for tax positions of prior years	(15		)	(3		)	(5		)
Settlements	—			(20		)	—
Statute of limitations	—			—			—
Ending balance	$	263		$	126		$	66

If the unrecognized tax benefits as of December 31, 2018 were recognized, $160 million would affect our effective income tax rate. As of December 31, 2018, there are $251 million uncertain tax positions for which it is reasonably possible that the amount could significantly change during the next twelve months. In the first quarter 2019 we withdrew our appeal in the U.K. related to the timing of certain Brae area decommissioning costs. As a result in the first quarter of 2019 we expect our unrecognized tax benefits to reduce by $68 million with no adverse earnings impact on our consolidated results of operations. See Note 25 for further detail.

Interest and penalties are recorded as part of the tax provision and were $2 million, $27 million and $1 million related to unrecognized tax benefits in 2018, 2017 and 2016. As of December 31, 2018 and 2017, $27 million and $25 million of interest and penalties were accrued related to income taxes.