Income Taxes

12 Months Ended

Dec. 31, 2018

INCOME TAXES

Income Tax Provision

Our income tax provision consisted of the following:



	Year Ended December 31,
(in millions)	2018			2017			2016
Current tax (provision) benefit:
Federal	$	187		$	(4	)	$	—
State and local	(26		)	5			(28		)
International	(13		)	(54		)	(12		)
Deferred tax provision:
Federal	(1,226		)	(2,093		)	(1,990		)
State and local	(138		)	(149		)	(128		)
Income tax provision	$	(1,216	)	$	(2,295	)	$	(2,158	)

The following table presents the principal reasons for the difference between the effective tax rate and the U.S. federal statutory income tax rate:



	Year Ended December 31,
	2018		2017		2016
U.S. federal statutory income tax rate	21.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	2.5		1.8		1.8
Foreign tax rate differential	0.1		(2.2	)	(2.1	)
Tax Cuts and Jobs Act adjustment	(0.5	)	7.2		—
Other	0.5		—		(0.7	)
Effective income tax rate	23.6	%	41.8	%	34.0	%

Following the enactment of the Tax Cuts and Jobs Act of 2017 ("2017 tax reform"), we recorded a provisional tax expense estimate of $395 million resulting in a 7.2% increase in our effective tax rate during 2017. The provisional estimate included recognition of tax expense related to certain of our undistributed foreign earnings and tax expense to decrease our federal net deferred tax asset to a 21% statutory tax rate. During 2018 we recognized a $26 million benefit resulting in a 0.5% reduction to our 2018 effective tax rate after finalizing the impact of the 2017 tax reform.

As a result of the 2017 tax reform, we assessed tax on $522 million of foreign earnings which would have been indefinitely reinvested outside the United States and therefore not taxable prior to the 2017 tax reform. At December 31, 2018, we had a basis difference in our investments in foreign subsidiaries of $160 million which is considered to be indefinitely reinvested.

Deferred Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The following table shows significant components of our deferred tax assets and liabilities:



	December 31,
(in millions)	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	674		$	1,297
Pension, postretirement and other benefits	2,435			2,544
Alternative minimum tax credit carryforward	189			379
Deferred revenue	1,620			1,416
Operating lease liabilities	1,579			—
Other	357			728
Valuation allowance	(13		)	(15		)
Total deferred tax assets	$	6,841		$	6,349
Deferred tax liabilities:
Depreciation	$	4,185		$	3,847
Operating lease right-of-use assets	1,388			—
Intangible assets	1,052			1,043
Other	137			105
Total deferred tax liabilities	$	6,762		$	4,995

Net deferred tax assets⁽¹⁾	$	79		$	1,354


⁽¹⁾	At December 31, 2018, the net deferred tax assets of $79 million included $242 million of net state deferred tax assets, which are recorded in deferred income taxes, net, and $163 million of net federal deferred tax liabilities, which are recorded in other noncurrent liabilities.

At December 31, 2018, we had $189 million of federal alternative minimum tax credit carryforwards. As a result of the Tax Cuts and Jobs Act of 2017, this credit becomes refundable to us if not used by 2021. We have $2.2 billion of federal pre-tax net operating loss carryforwards, which will not begin to expire until 2027.

Income Tax Allocation

We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to continuing operations (the "Income Tax Allocation"). The 2017 tax reform reduced the statutory tax rate in the U.S. from 35% to 21% during the prior year. GAAP requires that the tax expense related to tax law changes be recognized in current earnings, even when a portion of the related deferred tax asset originated through amounts recognized in AOCI. As a result, $688 million of income tax expense remains in AOCI, primarily related to pension obligations, and will not be recognized in net income until the pension obligations are fully extinguished, which will not occur for approximately 25 years.

Other

The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We are currently under audit by the IRS for the 2018, 2017, 2016 and 2015 tax years.