INCOME TAXES

This note provides details about our income taxes applicable to continuing operations:


•	earnings before income taxes,


•	provision for income taxes,


•	effective income tax rate,


•	deferred tax assets and liabilities and


•	unrecognized tax benefits.

Income taxes related to discontinued operations are discussed in Note 3: Discontinued Operations.

EARNINGS BEFORE INCOME TAXES

Domestic and Foreign Earnings From Continuing Operations Before Income Taxes



DOLLAR AMOUNTS IN MILLIONS
	2015		2014		2013
Domestic earnings	$	421	$	970	$	198
Foreign earnings	82		43		122
Total	$	503	$	1,013	$	320

PROVISION FOR INCOME TAXES

Provision (Benefit) for Income Taxes From Continuing Operations



DOLLAR AMOUNTS IN MILLIONS
	2015			2014			2013
Current:
Federal	$	3		$	(26	)	$	(80	)
State	(1		)	12			(18		)
Foreign	(5		)	3			(21		)
	(3		)	(11		)	(119		)
Deferred:
Federal	(30		)	178			(79		)
State	2			6			6
Foreign	28			12			21
	—			196			(52		)
Total income tax provision (benefit)	$	(3	)	$	185		$	(171	)

EFFECTIVE INCOME TAX RATE

Effective Income Tax Rate Applicable to Continuing Operations



DOLLAR AMOUNTS IN MILLIONS
	2015			2014			2013
U.S. federal statutory income tax	$	176		$	354		$	112
State income taxes, net of federal tax benefit	1			14			7
REIT income not subject to federal income tax	(158		)	(161		)	(101		)
REIT benefit from change to tax law	(13		)	—			—
Foreign taxes	—			(2		)	(8		)
Provision for unrecognized tax benefits	(7		)	(4		)	(193		)
Repatriation of Canadian earnings	—			—			21
Domestic production activities deduction	—			—			(13		)
Other, net	(2		)	(16		)	4
Total income tax provision (benefit)	$	(3	)	$	185		$	(171	)
Effective income tax rate	(0.5		)%	18.3		%	(53.4		)%

DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets and liabilities reflect temporary differences between pretax book income and taxable income. Deferred tax assets represent tax benefits that have already been recorded for book purposes but will be recorded for tax purposes in the future. Deferred tax liabilities represent income that has been recorded for book purposes but will be reported as taxable income in the future.

Balance Sheet Classification of Deferred Income Tax Assets (Liabilities) Related to Continuing Operations



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2015			DECEMBER 31, 2014
Net noncurrent deferred tax asset	4			44
Net noncurrent deferred tax liability	(86		)	(14		)
Net deferred tax asset (liability)	$	(82	)	$	30

Items Included in Our Deferred Income Tax Assets (Liabilities)



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2015			DECEMBER 31, 2014
Postretirement benefits	$	80		$	101
Pension	260			369
State tax credits	56			56
Net operating loss carryforwards	59			86
Cellulosic biofuel producers credit	78			100
Other	203			223
Gross deferred tax assets	736			935
Valuation allowance	(72		)	(72		)
Net deferred tax assets	664			863
Property, plant and equipment	(496		)	(523		)
Timber installment notes	(180		)	(180		)
Other	(70		)	(130		)
Deferred tax liabilities	(746		)	(833		)
Net deferred tax asset (liability)	$	(82	)	$	30

OTHER INFORMATION ABOUT OUR DEFERRED INCOME TAX ASSETS (LIABILITIES)

Other information about our deferred income tax assets (liabilities) include:


•	net operating loss and credit carryforwards,


•	valuation allowances and


•	reinvestment of undistributed earnings.

Net Operating Loss and Credit Carryforwards

Our gross federal, state and foreign net operating loss carryforwards as of the end of 2015 totaled $903 million as follows:


•	U.S. REIT - $433 million, which expire from 2030 through 2035,


•	U.S. TRS - $29 million, which expires in 2035,


•	State - $299 million, which expire from 2024 through 2035; and


•	Foreign - $142 million, which expire from 2016 through 2032.

Our gross federal, state and foreign credit carryforwards as of the end of 2015 totaled $188 million as follows:


•	U.S. TRS - $93 million, which expire from 2019 through 2035,


•	State - $43 million, which expire from 2016 through 2029, and $46 million, which do not expire; and


•	Foreign - $6 million, which expire from 2016 through 2032.

Valuation Allowances

With the exception of the valuation allowance discussed below, we believe it is more likely than not that we will have sufficient future taxable income to realize our deferred tax assets.

Our valuation allowance on our deferred tax assets was $72 million as of the end of 2015, primarily related to foreign and state net operating losses and state and provincial credits.

Reinvestment of Undistributed Earnings

The balance of our foreign undistributed earnings was approximately $34 million at the end of 2015, all of which is permanently reinvested; therefore, it is not subject to U.S. income tax. Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in our foreign subsidiaries.

HOW WE ACCOUNT FOR INCOME TAXES

The Income Taxes section of Note 1: Summary of Significant Accounting Policies provides details about how we account for our income taxes.

UNRECOGNIZED TAX BENEFITS

Unrecognized tax benefits represent potential future obligations to taxing authorities if uncertain tax positions we have taken on previously filed tax returns are not sustained. The total amount of unrecognized tax benefits as of December 31, 2015 and 2014, are $6 million and $11 million, respectively, which does not include related interest of $1 million and $3 million, respectively. These amounts represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were not sustained, such as the federal deduction that could be realized if an unrecognized state deduction was not sustained.

Reconciliation of the Beginning and Ending Amount of Unrecognized Tax Benefits



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2015			DECEMBER 31, 2014
Balance at beginning of year	$	11		$	26
Settlements	(4		)	—
Lapse of statute	(1		)	(15		)
Balance at end of year	$	6		$	11

The net liability recorded in our Consolidated Balance Sheet related to unrecognized tax benefits was $4 million as of December 31, 2015, which includes interest of $1 million and is net of $3 million in credits and loss carryovers available to offset the liability. The net liability as of December 31, 2014, was $4 million, which includes interest of $3 million and is net of $6 million in payments made in advance of settlements and $4 million in credits and loss carryovers available to offset the liability.

The net liability recorded for tax positions across all jurisdictions that, if sustained, would affect our effective tax rate was $5 million as of December 31, 2015, and $12 million as of December 31, 2014, which includes interest of $1 million and $3 million, respectively.

In accordance with our accounting policy, we accrue interest and penalties related to unrecognized tax benefits as a component of income tax expense.

As of December 31, 2015, no U.S. federal income tax returns are under examination, with years 2012 forward open to examination. We are undergoing examinations in state jurisdictions for tax years 2011 through 2013, with tax years 2009 forward open to examination. We are also undergoing and are open to examinations in foreign jurisdictions for tax years 2010 forward. We expect that the outcome of any examination will not have a material effect on our consolidated financial statements; however, audit outcomes and the timing of audit settlements are subject to significant uncertainty.

In the next 12 months, we estimate a decrease of $1 million in unrecognized tax benefits due to the lapse of applicable statutes of limitation.