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Income taxes

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


	December 31,
	2017			2016
Currently payable (receivable)	$	(129	)	$	500
Deferred		56,182			76,457
Other		554			485

	$	56,607		$	77,442

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017 (“TCJA”). Among its provisions, the TCJA reduces the statutory U.S. Corporate income tax rate from 35% to 21% effective January 1, 2018. The TCJA also provides for a one-time tax on certain accumulated undistributed post-1986 earnings of foreign subsidiaries. Further, the TCJA includes provisions that, in certain instances, impose U.S. income tax liabilities on future earnings of foreign subsidiaries and limit the deductibility of future interest expenses. The TCJA also provides for accelerated deductions of certain capital expenditures made after September 27, 2017 through bonus depreciation. The application of the TCJA may change due to regulations subsequently issued by the U.S. Treasury Department.

Upon the enactment of the TCJA, we recorded a reduction in our deferred income tax liabilities of approximately $35.6 billion for the effect of the aforementioned change in the U.S. statutory income tax rate. As a result, we recorded an income tax benefit of approximately $29.6 billion and we increased regulatory liabilities of our regulated utility subsidiaries by approximately $6.0 billion for the portion of the deferred income tax liability reduction that we will be required to, effectively, refund to customers in the rate setting process. We also recognized an income tax charge of approximately $1.4 billion with respect to the deemed repatriation of the accumulated undistributed post-1986 earnings of our foreign subsidiaries. Thus, upon the enactment of the TCJA, we included a net income tax benefit in our 2017 earnings of approximately $28.2 billion.

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 (“SAB 118”) to provide clarification in implementing the TCJA when registrants do not have the necessary information available to complete the accounting for an element of the TCJA in the period of its enactment. SAB 118 provides for tax amounts to be classified as provisional and subject to remeasurement for up to one year from the enactment date for such elements when the accounting effect is not complete, but can be reasonably estimated.

We consider our estimate of the tax on accumulated undistributed earnings of foreign subsidiaries to be provisional and subject to remeasurement when we obtain the necessary additional information to complete the accounting. While we believe our estimate to be reasonable, it will take additional time to validate the inputs to the foreign earnings and profits calculations, the basis on which the repatriation tax is determined, and how the applicable states will address the U.S. repatriation tax. We currently expect that our accounting for the repatriation tax under the TCJA will be completed by the end of 2018.

We have not established deferred income taxes on accumulated undistributed earnings of certain foreign subsidiaries, which are expected to be reinvested indefinitely. Repatriation of all accumulated earnings of foreign subsidiaries would be impracticable to the extent that such earnings represent capital to support normal business operations. Although no U.S. federal taxes will be imposed on future distributions of foreign earnings, in certain jurisdictions the distributions could be subject to withholding and other local taxes.

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,
	2017			2016
Deferred tax liabilities:
Investments – unrealized appreciation and cost basis differences	$	24,251		$	27,669
Deferred charges reinsurance assumed		3,226			2,876
Property, plant and equipment		26,671			39,345
Goodwill and other intangible assets		7,204			11,344
Other		3,216			5,550

		64,568			86,784

Deferred tax assets:
Unpaid losses and loss adjustment expenses		(1,231	)		(1,363	)
Unearned premiums		(345	)		(1,021	)
Accrued liabilities		(2,501	)		(3,821	)
Other		(4,309	)		(4,122	)

		(8,386	)		(10,327	)

Net deferred tax liability	$	56,182		$	76,457

Income tax expense reflected in our Consolidated Statements of Earnings for each of the three years ending December 31, 2017 is as follows (in millions).


	2017			2016		2015
Federal	$	(23,427	)	$	7,796	$	9,253
State		894			556		578
Foreign		1,018			888		701

	$	(21,515	)	$	9,240	$	10,532

Current	$	3,299		$	6,565	$	5,426
Deferred		(24,814	)		2,675		5,106

	$	(21,515	)	$	9,240	$	10,532

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, 2017 in the table below (in millions).


	2017			2016			2015
Earnings before income taxes	$	23,838		$	33,667		$	34,946


Hypothetical income tax expense computed at the U.S. federal statutory rate	$	8,343		$	11,783		$	12,231
Dividends received deduction and tax exempt interest		(905	)		(789	)		(1,146	)
State income taxes, less U.S. federal income tax benefit		465			361			374
Foreign tax rate differences		(339	)		(421	)		(459	)
U.S. income tax credits		(636	)		(518	)		(461	)
Non-taxable exchange of investments		—			(1,143	)		—
Net benefit from the enactment of the TCJA		(28,200	)		—			—
Other differences, net		(243	)		(33	)		(7	)

	$	(21,515	)	$	9,240		$	10,532

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 income tax liabilities with U.S. federal taxing authorities (the “IRS”) for years before 2010. The IRS continues to audit Berkshire’s consolidated U.S. federal income tax returns for the 2010 through 2013 tax years and we currently believe it is reasonably possible that these examinations will be settled during 2018. 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 these income tax examinations will be settled within the next twelve months. We currently do not believe that the outcome of unresolved issues or claims will be material to our Consolidated Financial Statements.

At December 31, 2017 and 2016, net unrecognized tax benefits were $554 million and $485 million, respectively. Included in the balance at December 31, 2017, were $445 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 where the ultimate recognition is highly certain but there is uncertainty about the timing of such recognition. Because of the impact of deferred income tax accounting, the differences in recognition periods 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, 2017, we do not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months.