

	2019		2018			2017
Current tax expense:
U.S.	$	1	$	24		$	1
Foreign	40		51			11
State and local	1		—			2
Total current tax expense	42		75			14
Deferred tax expense (benefit):
U.S.	34		76			28
Foreign	6		(5		)	9
State and local	—		3			1
Total deferred tax expense	40		74			38
Income tax expense	$	82	$	149		$	52

The deferred tax expense or benefit represents tax effects of current year deductions or items of income that will be recognized in future periods for tax purposes. The fiscal year 2018 deferred income tax expense in the U.S. was primarily attributable to the revaluation of deferred tax assets for the new effective tax rate and the utilization of the foreign tax credit related to the transition tax. The deferred income tax expense in the U.S. in fiscal year 2017 was primarily attributable to the tax effect of the gain on sale of equity investment, partially offset by the additional reversal of a valuation allowance.



	September 30,
	2019			2018
Accrued compensation and benefits	$	19		$	15
Accrued product warranties	11			11
Inventory costs	7			6
Receivables	8			8
Asbestos and environmental	8			28
Accrued retiree healthcare benefits	16			21
Retirement pension plans	59			41
Property	7			10
Loss and credit carryforwards	230			278
Other	18			19
Sub-total	383			437
Less: Valuation allowances	(207		)	(236		)
Deferred income taxes - asset	$	176		$	201
Taxes on undistributed income	$	(10	)	$	(14	)
Intangible assets	(51		)	(54		)
Debt basis difference	(8		)	(9		)
Deferred income taxes - liability	$	(69	)	$	(77	)
Net deferred income tax assets	$	107		$	124

In prior years, the company established valuation allowances against the net deferred tax assets of its 100%-owned subsidiaries in France, Germany, Brazil, the U.K. and certain other countries. In evaluating its ability to recover these net deferred tax assets, the company utilizes a consistent approach which considers its historical operating results, including an assessment of the degree to which any gains or losses are driven by items that are unusual in nature and tax planning strategies. In addition, the company reviews changes in near-term market conditions and other factors that impact future operating results.

During the fourth quarter of fiscal year 2018, as a result of sustained profitability in Brazil evidenced by strong earnings history, future forecasted income, and additional positive evidence, the company determined it was more likely then not it would be able to realize the deferred tax assets in Brazil. Accordingly, the company reversed the valuation allowance, resulting in a non-cash income tax benefit of $9 million.

As of September 30, 2019, the company continues to maintain the valuation allowances in France, Germany, the U.K. and certain other jurisdictions, as the company believes the negative evidence continues to outweigh the positive evidence that it will be able to recover these net deferred tax assets. If, in the future, the company generates taxable income on a sustained basis, its conclusion regarding the need for valuation allowances in these jurisdictions could change.

The expiration periods for deferred tax assets related to net operating losses and tax credit carryforwards as of September 30, 2019 are included below (in millions). Also included are the associated valuation allowances on these deferred tax assets (in millions).



	Fiscal Year Expiration Periods
	2020-2024		2025-2034		2035-2039		Indefinite		Total
Net Operating Losses and Tax Credit Carryforwards	$	14	$	30	$	11	$	175	$	230
Valuation Allowances on these Deferred Tax Assets	$	5	$	11	$	—	$	172	$	188

Realization of deferred tax assets representing net operating loss and tax credit carryforwards for which a valuation allowance has not been provided is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that such deferred tax assets will be realized. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if the company is unable to generate sufficient future taxable income during the carryforward period.



	2019			2018			2017
Expense for income taxes at statutory tax rate	$	79		$	68		$	133
State and local income taxes	3			2			14
Foreign income taxed at rates other than statutory	11			4			(9		)
Legislative changes	1			126			—
Joint venture equity income	(6		)	(6		)	(7		)
Correlated tax relief	—			—			(7		)
U.S. tax impact on non-U.S. earnings	—			4			8
Nondeductible expenses	16			8			10
Tax credits	(11		)	(9		)	(14		)
Valuation allowances	(7		)	(40		)	(56		)
Impact of capital loss	—			(1		)	(15		)
Other	(4		)	(7		)	(5		)
Income tax expense	$	82		$	149		$	52

On December 22, 2017, the U.S. government enacted the U.S. tax reform. The U.S. tax reform made broad and complex changes to the U.S. tax code that affected the company's fiscal year ended September 30, 2018, including, but not limited to, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent and requiring a one-time transition tax on deemed repatriated earnings of foreign subsidiaries.

The SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the U.S. tax reform. SAB 118 provides a measurement period that should not extend beyond one year from the U.S. tax reform enactment date for companies to complete the accounting under ASC 740. The company completed their accounting for the enactment date income tax effects of U.S. tax reform as of December 31, 2018. As reflected in the September 30, 2019 financial statements, the results of this accounting were a reduction to the estimated tax expense at September 30, 2018 from $89 million to $87 million for the refinement of the U.S. tax reform items.

At September 30, 2019, $1,163 million of non-U.S. earnings are considered indefinitely reinvested in operations outside the U.S., for which deferred taxes have not been provided. Quantification of the deferred tax liability, if any, associated with permanently reinvested earnings is not practicable.

Additionally, the company has accounted for the tax impacts related to the Global Intangible Low Tax Income ("GILTI"), Base Erosion Anti Abuse Tax ("BEAT") and Foreign Derived Intangible Income ("FDII") regimes as well as all other provisions of the U.S. tax reform that are effective in fiscal year 2019. The company has elected to treat GILTI as a period cost and, therefore, has not recognized deferred taxes for basis differences that may reverse as GILTI tax in future periods.

The total amount of gross unrecognized tax benefits the company recorded in accordance with ASC Topic 740 as of September 30, 2019 was $276 million, of which $230 million represents the amount that, if recognized, would favorably affect the effective income tax rate in future periods.



	2019			2018			2017
Balance at beginning of the period	$	261		$	269		$	243
Additions to tax positions recorded during the current year	11			—			—
Additions to tax positions recorded during the prior year	9			—			26
Reductions to tax position recorded in prior years	—			(6		)	—
Reductions to tax positions due to lapse of statutory limits	(4		)	(1		)	(2		)
Translation, other	(1		)	(1		)	2
Balance at end of the period	$	276		$	261		$	269

The company’s continuing practice is to recognize interest and penalties on uncertain tax positions in the provision for income taxes in the Consolidated Statement of Operations. At September 30, 2019 and 2018, the company recorded assets of $12 million and $13 million, respectively, of interest on uncertain tax positions in the Consolidated Balance Sheet. In addition, penalties of $1 million were recorded as of September 30, 2019 and 2018. The income tax expense related to interest was $1 million and income tax benefit of $4 million and $5 million for the fiscal years ended September 30, 2019, 2018 and 2017, respectively. The income tax benefit related to penalties was immaterial in fiscal years ended September 30, 2019, 2018 and 2017.

The company files tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world. The company’s Canadian federal income tax returns for fiscal years 2015 and 2016 are currently under audit. The company's German subsidiary is currently under audit for fiscal years 2008 through 2013. The company's Indian subsidiary is currently under audit for fiscal years 2015 and 2016. The company's U.K. subsidiaries are under audit for fiscal years 2015 and 2016. In addition, the company is under audit in various state tax jurisdictions for various years. It is reasonably possible that audit settlements, the conclusion of current examinations or the expiration of the statute of limitations in several jurisdictions could change the company’s unrecognized tax benefits during the next twelve months. It is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefit in the next twelve months.

In addition to the audits listed above, the company has open tax years primarily from 2001-2018 with various significant taxing jurisdictions, including the U.S., Brazil, Canada, China, Italy, Mexico, Sweden and the U.K. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. The company has recorded a tax benefit only for those positions that meet the more-likely-than-not standard.