Income before income taxes and equity income (pre-tax income) from continuing operations was as follows:



	Year Ended December 31,
	2019		2018		2017
Domestic income	$	679	$	331	$	354
Foreign income	143		218		171
Income before Income Taxes and Equity Income	$	822	$	549	$	525

The components of Income tax expense from continuing operations were as follows:



	Year Ended December 31,
	2019			2018			2017
Federal Income Taxes
Current	$	(3	)	$	37		$	(12	)
Deferred	98			83			411
Foreign Income Taxes
Current	43			46			62
Deferred	5			57			(21		)
State Income Taxes
Current	15			29			19
Deferred	21			(5		)	9
Income Tax Expense	$	179		$	247		$	468



	Year Ended December 31,
	2019		2018		2017
U.S. federal statutory income tax rate	21.0	%	21.0	%	35.0	%
Nondeductible expenses	1.3	%	3.7	%	1.3	%
Effect of tax law changes	(4.6	)%	14.5	%	76.2	%
Change in valuation allowance for deferred tax assets	2.0	%	0.6	%	1.1	%
State taxes, net of federal benefit	3.5	%	2.3	%	3.6	%
Audit and other tax return adjustments	0.6	%	(1.8	)%	(9.4	)%
Tax-exempt income, credits and incentives	(2.1	)%	(2.2	)%	(3.2	)%
Foreign rate differential adjusted for U.S. taxation of foreign profits⁽¹⁾	0.1	%	4.8	%	(16.5	)%
Other	—	%	2.1	%	1.0	%
Effective Income Tax Rate	21.8	%	45.0	%	89.1	%

On a consolidated basis, including discontinued operations, we paid a total of $94, $80 and $84 in income taxes to federal, foreign and state jurisdictions during the three years ended December 31, 2019, 2018 and 2017, respectively.

Total income tax expense (benefit) was allocated to the following items:



	Year Ended December 31,
	2019			2018			2017
Pre-tax income	$	179		$	247		$	468
Discontinued operations⁽¹⁾	95			10			1
Common shareholders' equity:
Changes in defined benefit plans	(55		)	131			63
Cash flow hedges	(1		)	5			5
Translation adjustments	8			(9		)	1
Retained Earnings	—			36			—
Total Income Tax Expense	$	226		$	420		$	538

_____________

We recognize tax liabilities when, despite our belief that our tax return positions are supportable, we believe that certain positions may not be fully sustained upon review by tax authorities. Each period, we assess uncertain tax positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement - the more-likely-than-not recognition threshold. Where we have determined that our tax return filing position does not satisfy the more likely than not recognition threshold, we have recorded no tax benefits.

We are also subject to ongoing tax examinations in numerous jurisdictions due to the extensive geographical scope of our operations. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can increase or decrease our effective tax rate, as well as impact our operating results. The specific timing of when the resolution of each tax position will be reached is uncertain. As of December 31, 2019, we do not believe that there are any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.



	2019			2018			2017
Balance at January 1	$	108		$	125		$	165
Additions related to current year	42			2			1
Additions related to prior years positions	17			3			10
Reductions related to prior years positions	(36		)	(13		)	(46		)
Settlements with taxing authorities⁽¹⁾	(1		)	(6		)	(5		)
Reductions related to lapse of statute of limitations	(3		)	(3		)	(3		)
Currency	—			—			3
Balance at December 31	$	127		$	108		$	125

Included in the balances at December 31, 2019, 2018 and 2017 are $3, $8 and $8, respectively, of tax positions that are highly certain of realizability but for which there is uncertainty about the timing or that they may be reduced through an indirect benefit from other taxing jurisdictions. Because of the impact of deferred tax accounting, other than for the possible incurrence of interest and penalties, the disallowance of these positions would not affect the annual effective tax rate.

Within income tax expense, we recognize interest and penalties accrued on unrecognized tax benefits, as well as interest received from favorable settlements. We had $2, $2 and $5 accrued for the payment of interest and penalties associated with unrecognized tax benefits at December 31, 2019, 2018 and 2017, respectively.

In the U.S., we are no longer subject to U.S. federal income tax examinations for years before 2015. With respect to our major foreign jurisdictions, we are no longer subject to tax examinations by tax authorities for years before 2011.

On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted. The Tax Act significantly revised the U.S. corporate income tax system by, among other things, lowering the U.S. statutory corporate income tax rate from 35% to 21% and implementing a territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries.

Foreign tax effects: The deemed repatriation tax associated with the Tax Act was $164 and was based on total post-1986 earnings and profits (E&P) that had previously been deferred from U.S. income taxes. We utilized our existing foreign tax credit carryforwards to settle this deemed repatriation tax. Our net charge for the Tax Act also included a charge of $99 for other tax liabilities and adjustments resulting from our actual and anticipated distributions of our net accumulated foreign E&P. As a consequence of the Tax Act, we now no longer consider our post 1986 E&P indefinitely reinvested.

Deferred tax assets and liabilities: Our net charge includes a $191 charge for the remeasurement of certain deferred tax assets and liabilities based on the new statutory income tax rate of 25%, inclusive of estimated state taxes.

At December 31, 2019 we have not provided deferred taxes on our undistributed pre-1987 E&P of approximately $350, as such undistributed earnings have been determined to be indefinitely reinvested and we currently do not plan to initiate any action that would precipitate a deferred tax impact. The decrease from the amount at December 31, 2018 of $1.5 billion is due to our sale of Fuji Xerox in November 2019 – refer to Note 7 – Divestitures for additional information regarding this sale. Additionally, we have also not provided deferred taxes on the outside basis differences in our investments in foreign subsidiaries that are unrelated to undistributed earnings. These basis differences are also indefinitely reinvested. A determination of the unrecognized deferred taxes related to these components is not practicable.

The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows:



	December 31,
	2019			2018
Deferred Tax Assets
Research and development	$	143		$	252
Post-retirement medical benefits	98			99
Net operating losses	389			389
Operating reserves, accruals and deferrals	95			138
Tax credit carryforwards	239			254
Deferred and share-based compensation	26			32
Pension	298			266
Depreciation	9			90
Operating lease liabilities	347			—
Other	62			46
Subtotal	1,706			1,566
Valuation allowance	(399		)	(397		)
Total	$	1,307		$	1,169

Deferred Tax Liabilities
Finance lease and installment sales	$	243		$	291
Intangibles and goodwill	128			129
Unremitted earnings of foreign subsidiaries	39			59
Operating lease ROU assets	319			—
Other	17			1
Total	$	746		$	480

Total Deferred Taxes, Net	$	561		$	689

Reconciliation to the Consolidated Balance Sheets
Deferred tax assets	$	598		$	740
Deferred tax liabilities⁽¹⁾	(37		)	(51		)
Total Deferred Taxes, Net	$	561		$	689

We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and the amounts reported, as well as net operating loss and tax credit carryforwards. Deferred tax assets are assessed for realizability and, where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. We apply judgment in assessing the realizability of these deferred tax assets and the need for any valuation allowances. In determining the amount of deferred tax assets that are more-likely-than-not to be realized, we considered historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary difference and tax planning strategies. The deferred tax assets requiring significant judgment are US tax credit carryforwards with a limited life and a foreign net operating loss with an indefinite carryforward period.

The net change in the total valuation allowance for the years ended December 31, 2019, 2018 and 2017 was an increase of $2, a decrease of $38 and an increase of $19, respectively. The valuation allowance relates primarily to certain net operating loss carryforwards, tax credit carryforwards and deductible temporary differences for which we have concluded it is more-likely-than-not that these items will not be realized in the ordinary course of operations.

Although realization is not assured, we have concluded that it is more-likely-than-not that the deferred tax assets, for which a valuation allowance was determined to be unnecessary, will be realized in the ordinary course of operations based on the available positive and negative evidence, including scheduling of deferred tax liabilities and projected income from operating activities. The amount of the net deferred tax assets considered realizable, however, could change in the near term if future income or income tax rates are higher or lower than currently estimated, or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences.

At December 31, 2019, we had tax credit carryforwards of $239 available to offset future income taxes, of which $1 are available to carryforward indefinitely while the remaining $238 will expire 2020 through 2040 if not utilized. We also had net operating loss carryforwards for income tax purposes of $522 that will expire 2020 through 2040, if not utilized, and $1.7 billion available to offset future taxable income indefinitely.