The components of earnings (loss) before income taxes and the components of our income tax provision (benefit) are as follows:



	Year ended December 31,
	2019		2018		2017
	(in millions)
Domestic	$	679	$	516	$	(186	)
Non-U.S.	93		31		61
Earnings (loss) before income taxes	$	772	$	547	$	(125	)



Current
Federal	$	4		$	5		$	(43	)
Foreign	21			14			19
State	(48		)	6			(6		)
	(23		)	25			(30		)
Deferred
Federal	112			85			(44		)
Foreign	—			(10		)	(3		)
State	37			3			(7		)
	149			78			(54		)
Income tax provision (benefit) before Tax Reform	126			103			(84		)

Tax Reform - Current
Federal	—			19			54
Foreign	—			—			—
State	—			(3		)	3
	—			16			57
Tax Reform - Deferred
Federal	—			—			(548		)
Foreign	—			—			—
State	—			—			—
	—			—			(548		)
Income tax provision (benefit) - Tax Reform	—			16			(491		)
Income tax provision (benefit)	$	126		$	119		$	(575	)

The Company completed the acquisition of Terra Industries Inc. (Terra) in April 2010. After the acquisition, the Company determined that the manner in which Terra reported the repatriation of cash from foreign affiliates to its U.S. parent for U.S. and foreign income tax purposes was not appropriate. As a result, in 2012 the Company amended certain tax returns, including Terra’s income and withholding tax returns, back to 1999 (the Amended Tax Returns) to correct these tax returns and paid additional income and withholding taxes, and related interest and penalties. In early 2013, the Internal Revenue Service (IRS) commenced an examination of the U.S. tax aspects of the Amended Tax Returns. In 2017, the Company also made a Voluntary Disclosure Filing with the Canadian Revenue Agency (CRA) with respect to the Canadian tax aspects of this matter and paid additional Canadian taxes due.

In December 2019, we received notification that the Joint Committee had approved the IRS audit reports relating to the income tax related matter. As a result, we expect to receive a cash refund in the first half of 2020 of approximately $57 million, including interest. As a result of the approval by the Joint Committee, the Company recognized in the fourth quarter of 2019 the following amounts in its consolidated statement of operations; (i) $5 million of interest income ($4 million, net of tax); and (ii) a reduction in income tax expense of $10 million as a result of the favorable settlement of certain uncertain tax positions.

The Joint Committee has not yet approved the IRS audit report relating to the withholding tax matter. If this approval is received, we expect to receive an additional tax refund of approximately $29 million, excluding related interest, and record a reduction in income tax expense of approximately $12 million.

During the fourth quarter of 2017, we recorded an income tax benefit of $491 million reflecting the impact of the Tax Cuts and Jobs Act (the “Tax Act” or “Tax Reform”) that was enacted on December 22, 2017, including a provisional amount of $57 million for the transition tax liability based on amounts reasonably estimable. In 2018, a $16 million increase to the provisional amount of the transition tax liability was recorded. The adjustment to the provisional amount was required to properly reflect the inclusion of amounts subject to the transition tax in tax returns where the amounts were to be reported. The adjustments related to changes in (i) the amount of includible income subject to the transition tax; (ii) the computation of the allowable foreign tax credits against the transition tax liability and (iii) the allocation of certain gains and losses to various foreign tax credit baskets. The adjustment to the provisional amount represented an approximate 3 percentage point increase to our effective tax rate for the year ended December 31, 2018.

The Tax Act also provided a new category of income from foreign operations, Global Intangible Low-Taxed Income (GILTI), that was subject to federal income tax beginning in the year ended December 31, 2018. The U.S. tax on foreign earnings in the effective tax rate table below includes our tax on GILTI in 2019 and 2018, which is primarily related to Canadian earnings.

The Tax Act also adopted new rules imposing a limitation of the ability of corporations to deduct net business interest expense. For tax years through 2021, this provision limits the deduction of net business interest expense to thirty percent of Adjusted Taxable Income (ATI). Under this provision and proposed regulations issued thereunder, ATI is similar to earnings before interest, income taxes, depreciation and amortization (EBITDA), but (i) substitutes taxable income for net income and (ii) treats depreciation expense capitalized to inventory as not qualifying as depreciation expense for purposes of determining ATI. For calendar year 2019, we do not expect to have any of our net business interest expense disallowed under this provision. For calendar year 2018, we did not have any of our net business interest expense disallowed under this provision.

During 2018 and 2019, the IRS issued proposed regulations clarifying and implementing a number of provisions contained within the Tax Act (the Proposed Regulations). While the majority of the Proposed Regulations are not final and there is no assurance that when finally enacted, the enacted regulations will be the same as the Proposed Regulations, we have computed our 2019 and 2018 income tax provision and related balance sheet accounts reflecting the provisions of the Proposed Regulations.

Differences in the expected income tax provision (benefit) based on statutory rates applied to earnings (loss) before income taxes and the income tax provision (benefit) reflected in the consolidated statements of operations are summarized below.



	Year ended December 31,
	2019			2018			2017
	(in millions, except percentages)
Earnings (loss) before income taxes	$	772		$	547		$	(125	)
Expected tax provision (benefit) at U.S. statutory rate (21% in 2019 and 2018, 35% in 2017)	$	162		$	115		$	(44	)
State income taxes, net of federal	2			3			(21		)
Net earnings attributable to noncontrolling interests	(32		)	(29		)	(32		)
U.S. manufacturing profits deduction	—			—			6
Foreign tax rate differential	2			—			(6		)
U.S. tax on foreign earnings (including GILTI in 2019 and 2018)	3			12			1
Valuation allowance	—			4			(3		)
Tax rate change	—			(2		)	17
Settlement of Terra amended returns	(10		)	—			—
Other	(1		)	—			(2		)
U.S. enacted tax rate change (Tax Reform)	—			—			(552		)
Transition tax liability and other (Tax Reform)	—			16			61
Income tax provision (benefit)	$	126		$	119		$	(575	)
Effective tax rate	16.3		%	21.7		%	457.2		%

Income tax provision (benefit) before Tax Reform⁽¹⁾	$	126		$	103		$	(84	)
Effective tax rate before Tax Reform	16.3		%	18.7		%	67.0		%

_______________________________________________________________________________

On April 2, 2018, we acquired the TNCLP Public Units. Our effective tax rate in 2018 was impacted by a $16 million reduction to our deferred tax liability as a result of the change in our effective state income tax rate as a result of the implementation of legal entity structure changes related to the acquisition. See Note 17—Noncontrolling Interests for additional information.

State income taxes for the years ended December 31, 2019, 2018 and 2017, were also impacted by state tax credits of $25 million, $18 million and $1 million, respectively, net of federal tax effect, principally related to the generation of new jobs at our capital expansion project in Iowa as well as capital assets placed in service at our production facilities in Oklahoma. Most of these credits have been recorded as deferred tax assets and will be available to offset state income tax liabilities in future tax years. Due to limitations on the availability of some of these credits in future tax years, a valuation allowance has been recorded. For the year ended December 31, 2018, we recorded a net increase to the valuation allowance of $11 million.

The foreign tax rate differential is impacted by the inclusion of equity earnings from our equity method investment in PLNL, a foreign operating affiliate, which are included in pre-tax earnings on an after-tax basis, and includes a $4 million deferred tax benefit in 2019 for an enacted tax rate change.

Our effective tax rate is impacted by earnings attributable to noncontrolling interests in CFN and, prior to April 2, 2018, TNCLP, as our consolidated income tax provision (benefit) does not include a tax provision on the earnings attributable to the noncontrolling interests. As a result, earnings attributable to the noncontrolling interests of $153 million, $138 million and $92 million in 2019, 2018 and 2017, respectively, which are included in earnings (loss) before income taxes, impacted the effective tax rate in all three years. See Note 17—Noncontrolling Interests for additional information.

We recorded an income tax receivable of approximately $22 million as a result of the carryback of the tax net operating loss for the year ended December 31, 2017 to prior tax years. The tax receivable from the net operating loss carryback was reduced by an alternative minimum tax of $36 million in the carryback periods. The alternative minimum tax incurred as a result of the carryback of the net operating loss became a refundable tax credit as a result of the impact of the Tax Act. These refundable tax credits were available for tax years subsequent to the tax year ended December 31, 2018 and were recorded in our noncurrent income tax receivable on our consolidated balance sheet as of December 31, 2018. The $22 million income tax receivable for the net operating loss carryback was included in prepaid income taxes on our consolidated balance sheet as of December 31, 2018, and the refund was received in 2019. We utilized the majority of the $36 million refundable tax credit to reduce our income taxes payable for 2019. In addition, we utilized the remaining U.S. federal net operating loss carryforward in 2019. As a result, there are no remaining U.S. federal net operating loss carryforwards at December 31, 2019.

Deferred tax assets and deferred tax liabilities are as follows:



	December 31,
	2019			2018
	(in millions)
Deferred tax assets:
Net operating loss and capital loss carryforwards	$	108		$	271
Retirement and other employee benefits	71			57
State tax credits	72			48
Operating lease liabilities	66			—
Other	61			106
	378			482
Valuation allowance	(60		)	(173		)
	318			309
Deferred tax liabilities:
Depreciation and amortization	(276		)	(262		)
Investments in partnerships	(1,217		)	(1,121		)
Operating lease right-of-use assets	(65		)	—
Foreign earnings	—			(28		)
Other	(6		)	(15		)
	(1,564		)	(1,426		)
Net deferred tax liability	$	(1,246	)	$	(1,117	)

As of December 31, 2018 and 2017, a foreign subsidiary of the Company had net operating loss carryforwards of $379 million and $383 million, respectively, with corresponding deferred tax assets of $99 million and $100 million, respectively. The majority of these carryforwards were indefinitely available in the foreign jurisdiction. As the future realization of these carryforwards was not anticipated, a full valuation allowance was recorded as of December 31, 2018 and 2017. The change in the valuation allowance related to these net operating loss carryforwards was a net decrease of $1 million and $11 million in 2018 and 2017, respectively. During 2019, as a result of group legal entity reorganizations, the foreign net operating loss carryforwards were eliminated, which resulted in a net decrease of $99 million in the net operating loss carryforwards deferred tax asset, with a corresponding reduction in the related valuation allowance. As of December 31, 2019, our net operating loss and capital loss carryforwards are comprised of state net operating loss carryforwards with expiration dates generally ranging from 2027 to 2037 and foreign capital loss carryforwards, which can be carried forward indefinitely. Due to the difficulty in realizing capital loss carryforwards, we have recorded a full valuation allowance against the foreign capital loss carryforwards.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	December 31,
	2019			2018
	(in millions)
Unrecognized tax benefits:
Beginning balance	$	126		$	122
Additions for tax positions taken during the current year	—			—
Additions for tax positions taken during prior years	22			4
Reductions related to lapsed statutes of limitations	—			—
Reductions related to settlements with tax jurisdictions	(44		)	—
Ending balance	$	104		$	126

In 2019, we increased the amount of our unrecognized tax benefits by $22 million. The increase primarily relates to an addition for state investment tax credits. In addition, we reduced the amount of our unrecognized tax benefits in 2019 by $44 million. This reduction primarily relates to the approval by the Joint Committee of the IRS audit report related to the Amended Tax Returns described above.

We file federal, provincial, state and local income tax returns principally in the United States, Canada and the United Kingdom, as well as in certain other foreign jurisdictions. In general, filed tax returns remain subject to examination by United States tax jurisdictions for years 2012 and thereafter, by Canadian tax jurisdictions for years 2006 and thereafter, and by United Kingdom tax jurisdictions for years 2017 and thereafter. Our income tax liability or transition tax expense could be impacted by the finalization of currently on-going U.S. or foreign income tax audits of prior tax years falling before the date of enactment of the Tax Act or audits by the U.S. or foreign taxing authorities, which change the amount of our total income allocable to and taxed in the United States or a foreign country.

Interest expense and penalties of $4 million, $1 million, and $2 million were recorded for the years ended December 31, 2019, 2018 and 2017, respectively. Amounts recognized in our consolidated balance sheets for accrued interest and penalties related to income taxes of $33 million and $29 million as of December 31, 2019 and 2018, respectively, are included in other liabilities.