Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

Income Tax Provision

Our income tax provision consisted of the following:


	Year Ended December 31,
(in millions)	2019		2018		2017
Current tax benefit (provision):
Federal	$	94	$	187	$	(4)
State and local	(39)		(26)		5
International	(13)		(13)		(54)
Deferred tax provision:
Federal	(1,343)		(1,226)		(2,093)
State and local	(130)		(138)		(149)
Income tax provision	$	(1,431)	$	(1,216)	$	(2,295)

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,
	2019		2018		2017
U.S. federal statutory income tax rate	21.0	%	21.0	%	35.0	%
State taxes, net of federal benefit	2.3		2.5		1.8
Foreign tax rate differential	—		0.1		(2.2)
Tax Cuts and Jobs Act adjustment	—		(0.5)		7.2
Other	(0.2)		0.5		—
Effective income tax rate	23.1	%	23.6	%	41.8	%

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.

At December 31, 2019, we had a basis difference in our investments in foreign subsidiaries of $212 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)	2019		2018
Deferred tax assets:
Net operating loss carryforwards	$	560	$	674
Pension, postretirement and other benefits	2,241		2,435
Alternative minimum tax credit carryforward	94		189
Deferred revenue	1,667		1,620
Operating lease liabilities	1,446		1,579
Other	350		357
Valuation allowance	(58)		(13)
Total deferred tax assets	$	6,300	$	6,841
Deferred tax liabilities:
Depreciation	$	5,190	$	4,185
Operating lease right-of-use assets	1,298		1,388
Intangible assets	1,049		1,052
Other	99		137
Total deferred tax liabilities	$	7,636	$	6,762

Net deferred tax (liabilities) assets⁽¹⁾	$	(1,336)	$	79

⁽¹⁾At December 31, 2019, the net deferred tax liabilities of $1.3 billion included $120 million of net state deferred tax assets, which are recorded in other noncurrent assets, and $1.5 billion of net federal deferred tax liabilities, which are recorded in deferred income taxes, net. 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 other noncurrent assets, and $163 million of net federal deferred tax liabilities, which are recorded in deferred income taxes, net.

At December 31, 2019, we had $94 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 $1.9 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 ("Income Tax Allocation"). The 2017 tax reform reduced the statutory tax rate in the U.S. from 35% to 21%. 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, $672 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.

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 2019, 2018 and 2017 tax years.