(11)INCOME TAXES

The income tax benefit amounted to $436 million, $64 million, and $61 million in 2011, 2010 and 2009, respectively. The following table summarizes the difference between income tax expense at the United States statutory rate of 35%and the income tax benefit at effective worldwide tax rates for 2011, 2010 and 2009:



Millions of dollars	2011			2010			2009
Earnings (loss) before income taxes
United States	$	(240	)	$	(256	)	$	(110	)
Foreign	212			842			403
Earnings (loss) before income taxes	(28		)	586			293
Income tax computed at United States statutory rate	(10		)	205			103
U.S. government tax incentives, including Energy Tax Credits	(379		)	(230		)	(125		)
Foreign government tax incentives, including BEFIEX	(100		)	(103		)	(44		)
Foreign tax rate differential	(13		)	(46		)	(31		)
U.S. foreign tax credits	(37		)	(28		)	(19		)
Valuation allowances	11			(9		)	10
Deductible interest on capital	—			(7		)	(15		)
State and local taxes, net of federal tax benefit	(4		)	(2		)	1
Medicare Part D subsidy	—			—			12
Foreign withholding taxes	10			12			15
Non-deductible government settlements	30			33			—
U.S. tax on foreign dividends and subpart F income	26			49			10
Settlement of global tax audits	10			56			22
Other items, net	20			6			—
Income tax computed at effective worldwide tax rates	$	(436	)	$	(64	)	$	(61	)

Current and deferred tax (benefit) provisions

The following table summarizes our income tax (benefits) provisions for 2011, 2010 and 2009:



	2011						2010						2009
Millions of dollars	Current			Deferred			Current			Deferred			Current			Deferred
United States	$	(18	)	$	(464	)	$	(101	)	$	(204	)	$	11		$	(182	)
Foreign	114			(64		)	204			41			115			(4		)
State and local	(1		)	(3		)	(5		)	1			(4		)	3
	$	95		$	(531	)	$	98		$	(162	)	$	122		$	(183	)
Total income tax benefit				$	(436	)				$	(64	)				$	(61	)

United States government tax incentives

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 and The Emergency Economic Stabilization Act of 2008 (the “Acts”) provided a wide-range of provisions that were intended to ensure that conservation and efficiency were a central component to the United States energy strategy. Among the many provisions were manufacturers' tax credits for the accelerated United States production of super-efficient clothes washers, refrigerators and dishwashers that meet or exceed certain Energy Star thresholds for energy and water conservation levels as set by the United States Department of Energy (“Energy Credit”). The tax credits applied to eligible production during the 2008 to 2011 calendar years. We have historically, and will continue to, invest over 2% of our annual sales in research and development to provide innovative and energy efficient products for our customers. As a result, during 2011, 2010 and 2009 we recognized a tax credit benefit under the provisions of the Act related to the production of qualifying appliances.

Foreign government tax incentives

In previous years, our Brazilian operations earned tax credits under the Brazilian government’s export incentive program (BEFIEX). These credits reduce Brazilian federal excise taxes on domestic sales, resulting in an increase in the operations’ recorded net sales. After a favorable court decision in 2005, upheld by a December 2011 appellate court decision, we were able to recognize approximately $266 million, $225 million, and $69 million of export credits during 2011, 2010 and 2009, respectively. Export credits recognized are not subject to income taxes. We recognize export credits as they are monetized; however, future actions by the Brazilian government could limit our ability to monetize these export credits. As of December 31, 2011, approximately $238 million of future cash monetization remained, including $60 million of related court awarded fees, which will be payable in subsequent years. A Brazilian law change to the inflation index tables reduced available cash monetization by $62 million in 2011.

Settlement of global tax audits

We are in various stages of audits by certain governmental tax authorities. We establish liabilities for the difference between tax return provisions and the benefits recognized in our financial statements. Such amounts represent a reasonable provision for taxes ultimately expected to be paid, and may need to be adjusted over time as more information becomes known. We are no longer subject to any significant United States federal, state, local or foreign income tax examinations by tax authorities for years before 2005.

United States tax on foreign dividends

We have historically reinvested all unremitted earnings of our foreign subsidiaries and affiliates. We plan to distribute approximately $174 million of foreign earnings over the next several years. This distribution is forecasted to result in tax benefits which have not been recorded because of their contingent nature. There has been no deferred tax liability provided on the remaining amount of unremitted earnings of $3 billion at December 31, 2011. Should we make a distribution out of the $3 billion of unremitted earnings, we would be subject to additional United States taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. It is not practicable to estimate the amount of the deferred tax liability associated with these unremitted earnings.

Valuation allowances

At December 31, 2011, we had net operating loss carryforwards of $3 billion, $1.4 billion of which were United States state net operating loss carryforwards. Of the total net operating loss carryforwards, $1.1 billion do not expire, with substantially all of the remaining carryforwards expiring in various years through 2031. As of December 31, 2011, we had $212 million of foreign tax credit carryforwards and $934 million of United States general business credit carryforwards available to offset future payments of federal income taxes, expiring between 2015 and 2031.

We routinely review the future realization of deferred tax assets based on projected future reversal of taxable temporary differences, available tax planning strategies and projected future taxable income. We have recorded a valuation allowance to reflect the net estimated amount of certain deferred tax assets associated with net operating loss and other deferred tax assets we believe will be realized. Our recorded valuation allowance of $208 million at December 31, 2011 consists of $195 million of net operating loss carryforward deferred tax assets and $13 million of other deferred tax assets. We believe that it is more likely than not that we will realize the benefit of existing deferred tax assets, net of valuation allowances mentioned above.

Deferred tax liabilities and assets

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. The following table summarizes the significant components of our deferred tax liabilities and assets at December 31, 2011 and 2010:



Millions of dollars	2011			2010
Deferred tax liabilities
Intangibles	$	527		$	577
Property, net	149			103
LIFO inventory	30			54
Other	178			256
Total deferred tax liabilities	884			990
Deferred tax assets
U.S. general business credit carryforwards, including Energy Tax Credits	934			555
Pensions	468			455
Loss carryforwards	554			351
Postretirement obligations	190			252
Foreign tax credit carryforwards	212			175
Research and development capitalization	200			153
Employee payroll and benefits	112			139
Accrued expenses	94			77
Product warranty accrual	60			68
Receivable and inventory allowances	47			48
Other	166			212
Total deferred tax assets	3,037			2,485
Valuation allowances for deferred tax assets	(208		)	(193		)
Deferred tax assets, net of valuation allowances	2,829			2,292
Net deferred tax assets	$	1,945		$	1,302

Unrecognized tax benefits

The following table represents a reconciliation of the beginning and ending amount of unrecognized tax benefits that if recognized would impact the effective tax rate, excluding federal benefits of state and local tax positions, and interest and penalties:



Millions of dollars	2011			2010			2009
Balance, January 1	$	190		$	157		$	119
Additions for tax positions of the current year	9			2			41
Additions for tax positions of prior years	10			83			25
Reductions for tax positions of prior years	(24		)	(50		)	(16		)
Settlements during the period	(1		)	(1		)	(2		)
Lapses of applicable statute of limitation	(6		)	(1		)	(10		)
	$	178		$	190		$	157

Additions for tax positions of prior years in 2010 includes $43 million of unrecognized tax positions related to United States transfer pricing and Brazilian income tax on export profits.

Additions for tax positions in 2009 include $7 million of unrecognized tax benefits related to our 2009 settlement with the Brazilian competition commission. See Note 6 of the Notes to the Consolidated Financial Statements for additional information.

It is reasonably possible that certain unrecognized tax benefits of $43 million could be settled with various related jurisdictions during the next 12 months.

Charges related to interest and penalties for unrecognized tax benefits amounted to $17 million, $30 million, and $8 million in 2011, 2010, and 2009, respectively. We have accrued a total of $78 million and $66 million at December 31, 2011 and 2010, respectively.