8. INCOME TAXES

The provision for income taxes by taxing jurisdiction and by significant component consisted of the following in millions of dollars:


	2017		2016		2015
Current:
U.S.:
Federal	$	360	$	51	$	377
State		48		26		32
Foreign		463		340		449
Total current		871		417		858
Deferred:
U.S.:
Federal		59		297		21
State		7		11		4
Foreign		34		(25)		(43)
Total deferred		100		283		(18)
Provision for income taxes	$	971	$	700	$	840

Based upon the location of the company’s operations, the consolidated income before income taxes in the U.S. in 2017, 2016, and 2015 was $1,607 million, $967 million, and $1,838 million, respectively, and in foreign countries was $1,547 million, $1,257 million, and $942 million, respectively. Certain foreign operations are branches of Deere & Company and are subject to U.S. as well as foreign income tax regulations. The pretax income by location and the preceding analysis of the income tax provision by taxing jurisdiction are not directly related.

A comparison of the statutory and effective income tax provision and reasons for related differences in millions of dollars follow:


	2017		2016		2015
U.S. federal income tax provision at a statutory rate of 35 percent	$	1,104	$	778	$	973
Increase (decrease) resulting from:
State and local income taxes, net of federal income tax benefit		35		26		23
Differences in taxability of foreign earnings		(83)		(107)		(449)
Nondeductible impairment charges				4
Research and business tax credits		(63)		(57)		(76)
Tax rates on foreign earnings		(86)		(27)		(36)
Valuation allowance on deferred taxes		89		79		384
Other-net		(25)		4		21
Provision for income taxes	$	971	$	700	$	840

At October 29, 2017, accumulated earnings in certain subsidiaries outside the U.S. totaled $5,961 million for which no provision for U.S. income taxes or foreign withholding taxes has been made because it is expected that such earnings will be reinvested outside the U.S. indefinitely. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable. At October 29, 2017, the amount of cash and cash equivalents and marketable securities held by these foreign subsidiaries, in which earnings are considered indefinitely reinvested, was $3,386 million.

Deferred income taxes arise because there are certain items that are treated differently for financial accounting than for income tax reporting purposes. An analysis of the deferred income tax assets and liabilities at October 29, 2017 and October 30, 2016 in millions of dollars follows:


	2017				2016
	Deferred		Deferred		Deferred		Deferred
	Tax		Tax		Tax		Tax
	Assets		Liabilities		Assets		Liabilities
Other postretirement benefit liabilities	$	2,011			$	2,191
Lease transactions			$	933			$	817
Tax loss and tax credit carryforwards		677				661
Accrual for sales allowances		680				592
Tax over book depreciation				569				578
Pension liability - net		420				706
Foreign unrealized losses		7				472
Accrual for employee benefits		141				133
Share-based compensation		116				152
Goodwill and other intangible assets				130				89
Allowance for credit losses		107				88
Deferred compensation		59				50
Undistributed foreign earnings				21				30
Other items		432		172		471		175
Less valuation allowances		(620)				(1,029)
Deferred income tax assets and liabilities	$	4,030	$	1,825	$	4,487	$	1,689

Deere & Company files a consolidated federal income tax return in the U.S., which includes the wholly-owned financial services subsidiaries. These subsidiaries account for income taxes generally as if they filed separate income tax returns.

At October 29, 2017, certain tax loss and tax credit carryforwards of $677 million were available with $209 million expiring from 2018 through 2037 and $468 million with an indefinite carryforward period.

A reconciliation of the total amounts of unrecognized tax benefits at October 29, 2017, October 30, 2016, and November 1, 2015 in millions of dollars follows:


	2017		2016		2015
Beginning of year balance	$	198	$	229	$	213
Increases to tax positions taken during the current year		35		14		32
Increases to tax positions taken during prior years		13		11		29
Decreases to tax positions taken during prior years		(17)		(36)		(15)
Decreases due to lapse of statute of limitations		(11)		(7)		(11)
Settlements		(1)		(5)		(6)
Foreign exchange		4		(8)		(13)
End of year balance	$	221	$	198	$	229

The amount of unrecognized tax benefits at October 29, 2017 and October 30, 2016 that would affect the effective tax rate if the tax benefits were recognized was $86 million and $81 million, respectively. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next twelve months would not be significant.

The company files its tax returns according to the tax laws of the jurisdictions in which it operates, which includes the U.S. federal jurisdiction and various state and foreign jurisdictions. The U.S. Internal Revenue Service has completed the examination of the company’s federal income tax returns for periods prior to 2009. The years 2009 through 2014 federal income tax returns are currently under examination. Various state and foreign income tax returns, including major tax jurisdictions in Canada and Germany, also remain subject to examination by taxing authorities.

The company’s policy is to recognize interest related to income taxes in interest expense and interest income and recognize penalties in selling, administrative and general expenses. During 2017, 2016, and 2015, the total amount of expense from interest and penalties was $6 million, none, and $23 million and the interest income was $6 million, none, and $3 million, respectively. At October 29, 2017 and October 30, 2016, the liability for accrued interest and penalties totaled $66 million and $68 million, respectively, and there was no receivable for interest at either year-end.