NOTE 14. INCOME TAXES

Components of Earnings Before Income Taxes

The following table summarizes the components of earnings before income taxes for the years ended December 31 (in thousands):

	2016		2015		2014
Domestic	$	719,018	$	511,025	$	390,874
International		628,086		437,580		322,754
Earnings before income taxes	$	1,347,104	$	948,605	$	713,628

Summary of Current and Deferred Income Taxes

The following table summarizes the components of the provision for income taxes for the years ended December 31 (in thousands):

	2016			2015			2014
Current income tax expense (benefit):
U.S. federal	$	7,153		$	(11,633	)	$	(6,585	)
International		38,493			27,494			52,155
State and local		14,443			12,286			16,014
Total current tax expense		60,089			28,147			61,584

Deferred income tax expense (benefit):
U.S. federal		(3,306	)		(810	)		(27,374	)
International		(2,219	)		(4,247	)		(59,866	)
Total deferred tax benefit		(5,525	)		(5,057	)		(87,240	)
Total income tax expense (benefit)	$	54,564		$	23,090		$	(25,656	)

Current Income Taxes

Current income tax expense recognized during 2016 is principally due to tax triggered upon the contribution of assets to our Mexico and Japan co-investment ventures and third party sales from our U.S.TRS. Contributions to our co-investment ventures were not significant during 2015, as such there was a limited impact on current income tax expense. Current income tax expense during 2014 is principally due to taxes triggered upon the contribution of the initial portfolio of properties of certain wholly-owned and AFORES entities to FIBRA Prologis. Current income tax expense during 2015 and 2014 was netted against a current benefit recognized during each year as a result of the operating losses generated by our U.S. TRS.

For the years ended December 31, 2016, 2015 and 2014, we recognized a net expense of $0.3 million and $3.0 million and a net benefit of $1.1 million for uncertain tax positions, respectively.

During the years ended December 31, 2016, 2015 and 2014, cash paid for income taxes, net of refunds, was $29.3 million, $24.1 million and $105.4 million, respectively.

Deferred Income Taxes

The deferred income tax benefits recognized in 2016, 2015 and 2014 were primarily due to a reduction in book basis of the real estate as compared to the tax basis and the reversal of deferred tax liabilities from the contribution and dispositions of properties. The deferred tax liabilities were originally recorded at the time of acquisition. The majority of the deferred tax benefit we recognized in 2014 was due to the reversal of deferred tax liabilities in connection with the initial contribution of properties to FIBRA Prologis and due to the expiration of the holding period on properties previously acquired with existing built-in-gains.

The following table summarizes the deferred income tax assets and liabilities at December 31 (in thousands):

	2016			2015
Gross deferred income tax assets:
Net operating loss carryforwards (1)	$	350,909		$	321,144
Basis difference – real estate properties		56,827			89,856
Basis difference – equity investments and intangibles		4,666			15,593
Section 163(j) interest limitation		40,766			32,684
Capital loss carryforward		25,145			25,282
Other – temporary differences		5,578			8,993
Total gross deferred income tax assets		483,891			493,552
Valuation allowance		(456,699	)		(467,440	)
Gross deferred income tax assets, net of valuation allowance		27,192			26,112
Gross deferred income tax liabilities:
Basis difference – real estate properties		70,914			82,160
Basis difference – equity investments and intangibles		6,864			6,170
Other – temporary differences		1,028			993
Total gross deferred income tax liabilities		78,806			89,323
Net deferred income tax liabilities	$	51,614		$	63,211

(1)	At December 31, 2016, we had NOL carryforwards as follows (in thousands):

	U.S.			Europe			Mexico			Japan			Other
Gross NOL carryforward	$	97,565		$	640,431		$	371,284		$	115,154		$	48,318
Tax-effected NOL carryforward		36,597			162,067			117,633			23,001			11,611
Valuation allowance		(36,597	)		(146,684	)		(117,633	)		(23,001	)		(11,611	)
Net deferred tax asset – NOL carryforward	$	-		$	15,383		$	-		$	-		$	-
Expiration periods	2023 – 2036			2017 – indefinite			2017 – 2027			2017 – 2025			2017 – indefinite

The deferred tax asset valuation allowance at December 31, 2016, is adequate to reduce the total deferred tax asset to an amount that we estimate will more likely than not be realized.

Liability for Uncertain Tax Positions

During the years ended December 31, 2016, 2015 and 2014, we believe that we have complied with the REIT requirements of the Internal Revenue Code. The statute of limitations for our tax returns is generally three years. As such, our tax returns that remain subject to examination would be primarily from 2013 and thereafter.

The liability for uncertain tax positions was $3.0 million, $3.3 million and $0.3 million for the years ended December 31, 2016, 2015 and 2014, respectively, and principally consisted of estimated federal income tax liabilities and included accrued interest and penalties.