Income Taxes

Income tax provisions (benefits) were:



	2014								2013							2012
(In millions)	Current		Deferred			Total			Current		Deferred			Total		Current			Deferred		Total
Federal	$	1,382	$	(199	)	$	1,183		$	954	$	20		$	974	$	1,185		$	432	$	1,617
State and local	135		(37		)	98			131		8			139		169			57		226
Foreign	5		(6		)	(1		)	5		(5		)	—		(1		)	3		2
Total	$	1,522	$	(242	)	$	1,280		$	1,090	$	23		$	1,113	$	1,353		$	492	$	1,845

A reconciliation of the federal statutory income tax rate (35 percent) applied to income before income taxes to the provision for income taxes follows:



	2014		2013		2012
Statutory rate applied to income before income taxes	35	%	35	%	35	%
State and local income taxes, net of federal income tax effects	2		3		2
Domestic manufacturing deduction	(2	)	(2	)	(1	)
Other	(2	)	(2	)	(1	)
Provision for income taxes	33	%	34	%	35	%

Deferred tax assets and liabilities resulted from the following:



	December 31,
(In millions)	2014		2013
Deferred tax assets:
Employee benefits	$	616	$	483
Environmental	54		37
Investments in subsidiaries and affiliates	24		—
Other	70		49
Total deferred tax assets	764		569
Deferred tax liabilities:
Property, plant and equipment	2,411		2,290
Inventories	614		614
Investments in subsidiaries and affiliates	—		267
Other	101		70
Total deferred tax liabilities	3,126		3,241
Net deferred tax liabilities	$	2,362	$	2,672

Net deferred tax liabilities were classified in the consolidated balance sheets as follows:



	December 31,
(In millions)	2014		2013
Assets:
Other noncurrent assets	$	7	$	2
Liabilities:
Accrued taxes	355		370
Deferred income taxes	2,014		2,304
Net deferred tax liabilities	$	2,362	$	2,672

Tax carryforwards – At December 31, 2014, our federal operating loss carryforwards included $11 million acquired with the biodiesel facility acquisition, which expire in 2022 through 2034. State and local operating loss carryforwards of $1 million expire in 2015 through 2029.

Valuation allowances – As of December 31, 2014 and 2013, $4 million and $3 million of valuation allowances were recognized related to income taxes. A federal valuation allowance was established for both December 31, 2014 and 2013 of $3 million, primarily due to the expected realizability of foreign tax credits. A state and local valuation allowance was established as of December 31, 2014 of $1 million, based on estimates of future financial income and expected realizability of state and local tax operating losses.

MPC is continuously undergoing examination of its U.S. federal income tax returns by the Internal Revenue Service. Such audits have been completed through the 2009 tax year. We believe adequate provision has been made for federal income taxes and interest which may become payable for years not yet settled. Further, we are routinely involved in U.S. state income tax audits. We believe all other audits will be resolved with the amounts paid and/or provided for these liabilities. As of December 31, 2014, our income tax returns remain subject to examination in the following major tax jurisdictions for the tax years indicated:



United States Federal	2010	-	2013
States	2004	-	2013

As a result of the Spinoff and pursuant to the tax sharing agreement by Marathon Oil and MPC, the unrecognized tax benefits related to MPC operations for which Marathon Oil was the taxpayer remain the responsibility of Marathon Oil and MPC has indemnified Marathon Oil. During 2013, we settled with Marathon Oil our U.S. federal and related state return liabilities for the 2008-2009 tax years, resulting in a reduction in unrecognized tax benefits of $21 million, which are also reflected in the table below as settlements.

During 2013, we settled with Marathon Oil for the 2011 period prior to the spinoff based on filed tax returns and in accordance with the tax sharing agreement, resulting in a $39 million increase to additional paid-in capital.

The following table summarizes the activity in unrecognized tax benefits:



(In millions)	2014			2013			2012
January 1 balance	$	13		$	40		$	20
Additions for tax positions of prior years	7			30			32
Reductions for tax positions of prior years	(10		)	(25		)	(6		)
Settlements	2			(30		)	(6		)
Statute of limitations	—			(2		)	—
December 31 balance	$	12		$	13		$	40

If the unrecognized tax benefits as of December 31, 2014 were recognized, $5 million would affect our effective income tax rate. There were $4 million of uncertain tax positions as of December 31, 2014 for which it is reasonably possible that the amount of unrecognized tax benefits would significantly decrease during the next twelve months.

Interest and penalties related to income taxes are recorded as part of the provision for income taxes. Such interest and penalties were net receipts (expenses) of less than $1 million, ($11 million) and $1 million in 2014, 2013 and 2012, respectively. As of December 31, 2014 and 2013, $14 million and $15 million of interest and penalties were accrued related to income taxes.