Income taxes

12 Months Ended

Dec. 31, 2011

Income taxes

(15) Income taxes

The liabilities for income taxes reflected in our Consolidated Balance Sheets are as follows (in millions).

	December 31,
	2011			2010
Payable currently	$	(229	)	$	(211	)
Deferred		37,105			35,558
Other		928			1,005
	$	37,804		$	36,352

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are shown below (in millions).

	December 31,
	2011			2010
Deferred tax liabilities:
Investments – unrealized appreciation and cost basis differences	$	11,404		$	13,376
Deferred charges reinsurance assumed		1,449			1,334
Property, plant and equipment		28,414			24,746
Other		6,378			5,108
		47,645			44,564
Deferred tax assets:
Unpaid losses and loss adjustment expenses		(967	)		(1,052	)
Unearned premiums		(572	)		(508	)
Accrued liabilities		(3,698	)		(3,652	)
Derivative contract liabilities		(1,676	)		(862	)
Other		(3,627	)		(2,932	)
		(10,540	)		(9,006	)
Net deferred tax liability	$	37,105		$	35,558

We have not established deferred income taxes with respect to undistributed earnings of certain foreign subsidiaries. Earnings expected to remain reinvested indefinitely were approximately $6.6 billion as of December 31, 2011. Upon distribution as dividends or otherwise, such amounts would be subject to taxation in the U.S. as well as foreign countries. However, U.S. income tax liabilities would be offset, in whole or in part, by allowable tax credits with respect to income taxes previously paid to foreign jurisdictions. Further, repatriation of all earnings of foreign subsidiaries would be impracticable to the extent that such earnings represent capital needed to support normal business operations in those jurisdictions. As a result, we currently believe that any incremental U.S. income tax liabilities arising from the repatriation of distributable earnings of foreign subsidiaries would not be material.

Income tax expense reflected in our Consolidated Statements of Earnings for each of the three years ending December 31, 2011 is as follows (in millions).

	2011		2010		2009
Federal	$	3,474	$	4,546	$	2,833
State		444		337		124
Foreign		650		724		581
	$	4,568	$	5,607	$	3,538
Current	$	2,897	$	3,668	$	1,619
Deferred		1,671		1,939		1,919
	$	4,568	$	5,607	$	3,538

Income tax expense is reconciled to hypothetical amounts computed at the U.S. federal statutory rate for each of the three years ending December 31, 2011 in the table below (in millions).

	2011			2010			2009
Earnings before income taxes	$	15,314		$	19,051		$	11,552
Hypothetical amounts applicable to above computed at the federal statutory rate	$	5,360		$	6,668		$	4,043
Dividends received deduction and tax exempt interest		(497	)		(504	)		(512	)
State income taxes, less federal income tax benefit		289			219			81
Foreign tax rate differences		(208	)		(154	)		(92	)
U.S. income tax credits		(241	)		(182	)		(134	)
BNSF holding gain		—			(342	)		—
Other differences, net		(135	)		(98	)		152
	$	4,568		$	5,607		$	3,538

We file income tax returns in the United States and in state, local and foreign jurisdictions. We are under examination by the taxing authorities in many of these jurisdictions. We have settled tax return liabilities with U.S. federal taxing authorities for years before 2005. We anticipate that we will resolve all adjustments proposed by the U.S. Internal Revenue Service (“IRS”) for the 2005 and 2006 tax years at the IRS Appeals Division within the next 12 months and do not currently expect any significant adjustments to our consolidated tax liabilities for those years. The IRS is currently auditing our consolidated U.S. federal income tax returns for the 2007 through 2009 tax years. We are also under audit or subject to audit with respect to income taxes in many state and foreign jurisdictions. It is reasonably possible that certain of our income tax examinations will be settled within the next twelve months. We currently believe that there are no jurisdictions where the outcome of unresolved issues or claims is likely to be material to our Consolidated Financial Statements.

At December 31, 2011 and 2010, net unrecognized tax benefits were $928 million and $1,005 million, respectively. Included in the balance at December 31, 2011, are $698 million of tax positions that, if recognized, would impact the effective tax rate. The remaining balance in net unrecognized tax benefits principally relates to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. As of December 31, 2011, we do not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months.