NOTE 14—INCOME TAXES

The following table reflects loss from continuing operations before income taxes by domestic and foreign tax jurisdictions for the years ended December 31, 2017, 2016 and 2015:


	Year Ended December 31,
(In millions)	2017		2016		2015
U.S.	$	(132.3)	$	(103.4)	$	(43.8)
Foreign		3.7		(0.4)		3.0
Loss from continuing operations before income taxes	$	(128.6)	$	(103.8)	$	(40.8)

The following table summarizes income tax benefit, within continuing operations, for the years ended December 31, 2017, 2016 and 2015:


	Year Ended December 31,
(In millions)	2017		2016		2015
Current income tax expense (benefit):
Federal	$	(1.2)	$	(1.5)	$	(13.9)
State		0.1		0.2		0.4
Foreign		2.6		3.2		6.5
Total current income tax expense (benefit)		1.5		1.9		(7.0)
Deferred income tax expense (benefit):
Federal		(8.9)		(1.6)		1.3
State		(0.2)		0.2		(0.1)
Foreign		(0.2)		(1.1)		(3.3)
Total deferred income tax benefit		(9.3)		(2.5)		(2.1)
Total income tax benefit	$	(7.8)	$	(0.6)	$	(9.1)

The following table provides a reconciliation of the effective tax rates in the consolidated statements of operations from continuing operations for the years ended December 31, 2017, 2016 and 2015 with the statutory U.S. federal income tax rate of 34.0%:


	Year Ended December 31,
	2017		2016		2015
U.S. federal statutory rate	34.0	%	34.0	%	34.0	%
State income taxes	—	%	(0.3)	%	(0.6)	%
Foreign income taxes	0.1	%	(0.4)	%	(0.4)	%
Deferred tax valuation allowance	84.1	%	(24.6)	%	(26.5)	%
Fair value adjustments	1.2	%	—	%	(1.2)	%
Revisions to prior years	(0.2)	%	(0.1)	%	19.1	%
Goodwill impairment	—	%	(9.5)	%	—	%
Other permanent items	(3.8)	%	1.4	%	(2.1)	%
Tax rate change	(109.4)	%	—	%	—	%
Effective tax rate	6.0	%	0.5	%	22.3	%

On December 22, 2017, the U.S. congress enacted The Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act provides for comprehensive tax legislation that reduces the U.S. federal statutory corporate tax rate from 35% to 21% effective January 1, 2018, broadens the U.S. federal income tax base, repeals the corporate alternative minimum tax, requires companies to pay a one-time repatriation tax on earnings of certain foreign subsidiaries that were previously deferred (“Transition Tax”) and creates new taxes on certain foreign sourced earnings. On December 22, 2017, the SEC issued Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), expressing its views regarding ASC 740, Income Taxes, in the reporting period that includes the enactment date of the Act. SAB 118 recognizes that a registrant’s review of certain income tax effects of the Tax Act may be incomplete at the time financial statements are issued for the reporting period that includes the enactment date, including interim periods therein. Specifically, SAB 118 allows a company to report provisional estimates in the reporting period that includes the enactment date if the company does not have the necessary information available, prepared, or fully analyzed for certain income tax effects of the Tax Act. Provisional estimates will be adjusted during a measurement period not to exceed twelve months from the enactment date of the Tax Act, at which time the accounting for the income tax effects of the Act is required to be completed.

As of December 31, 2017, we have not completed our accounting for the income tax effects of the enactment of the Tax Act; however, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time Transition Tax. Our U.S. valuation allowance has decreased by $140.9 million as a result of the reduction of the U.S. corporate income tax rate and AMT credit carryforwards becoming fully refundable under the Tax Act. The Company has provisionally recorded a benefit of $8.9 million as a result of the Tax Act.

The Transition Tax is a tax on previously untaxed accumulated and current earnings and profit (“E&P”) of certain of our foreign subsidiaries. To determine the amount of Transition Tax, a company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant foreign subsidiaries, as well as the amount of non-U.S. income tax paid on such earnings. The Company believes its overall foreign E&P will be offset by its U.S. net operating loss and accordingly has not recorded any provisional Transition Tax obligation as of December 31, 2017. The Company, however, continues to gather additional information to finalize its Transition Tax liability.

We determined that the provisional calculations will be finalized after the underlying timing differences and foreign earnings and profits are finalized with our 2017 federal income tax return filing. Furthermore, we are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new or additional deferred tax amounts. We will consider additional guidance from the U.S. Treasury Department, Internal Revenue Service (the “IRS”) or other standard-setting bodies. Further adjustments, if any, will be recorded during the measurement period in 2018, as permitted by SAB 118.

We continue to review the anticipated impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”), which are not effective until January 1, 2018. We have not recorded any impact associated with either GILTI or BEAT in the tax rate during the period ended December 31, 2017.

The following table provides a summary of the activity in the amount of unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015:


	Year Ended December 31,
(In millions)	2017		2016		2015
Balance, beginning of period	$	0.1	$	0.3	$	—
Additions		0.2		0.1		0.3
Settlements		—		(0.3)		—
Balance, end of period	$	0.3	$	0.1	$	0.3

Unrecognized tax benefits as of December 31, 2017 and 2016, the recognition of which would impact the effective tax rate for each year, were $0.3 million and $0.1 million, respectively. Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense. For the years ended December 31, 2017 and 2016, the interest and penalty amounts were not significant.

As of December 31, 2017, the undistributed earnings of our foreign subsidiaries continue to be permanently reinvested and we do not intend to repatriate any of the amounts. As a result, no additional income taxes have been provided for, outside of the Transition Tax discussed above, for the undistributed earnings or any additional outside basis differences inherent in the foreign entities. It is not practicable to determine the U.S. federal income tax liability that would be payable, if any, should such earnings not be permanently reinvested.

Deferred income taxes are a component of continuing operations and include the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax reporting purposes. The components of the Company’s deferred tax assets, liabilities and valuation allowances as of December 31, 2017 and 2016 are summarized in the following table:


	December 31,
(In millions)	2017		2016
Deferred tax assets:
Net operating loss carryforwards	$	229.6	$	383.0
Alternative minimum tax credits		8.9		10.2
Inventories		—		1.2
Compensation		1.4		3.4
Pension benefits		7.5		6.9
Intangible assets		15.7		10.1
Other		4.5		1.7
Total deferred tax assets		267.6		416.5
Deferred tax valuation allowance		(256.1)		(406.0)
Deferred tax assets, net of valuation allowance		11.5		10.5
Deferred tax liabilities:
Property, plant and equipment		(4.0)		(11.5)
Other		(1.2)		(1.5)
Total deferred tax liabilities		(5.2)		(13.0)
Net deferred tax assets (liabilities)	$	6.3	$	(2.5)

Management assesses deferred tax assets to consider whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets depends on the ability to generate taxable income during the periods and in jurisdictions in which the temporary differences become deductible. As a result of generating losses since 2006, among other factors, we determined that sufficient uncertainty exists as to the realizability of our deferred tax assets and have placed a valuation allowance on nearly all of its U.S. deferred tax assets. The following table provides information about the activity of our deferred tax valuation allowance for the years ended December 31, 2017, 2016 and 2015:


	Year Ended December 31,
(In millions)	2017		2016		2015
Balance, beginning of period	$	406.0	$	382.4	$	385.6
Additions (reductions) recorded in the provision for income taxes		(9.0)		23.6		(5.8)
Changes in tax rates		(140.9)		—		—
Business acquired		—		—		2.6
Balance, end of period	$	256.1	$	406.0	$	382.4

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, as well as foreign jurisdictions located in Canada, Mexico, Germany, Norway, and the United Kingdom. With few exceptions, the 2012 through 2016 tax years remain open to examination. Due to the existing NOLs, the Company is still subject to audit for certain loss years prior to 2008 by the IRS and by various state taxing authorities as the NOLs for a particular year are utilized. In October 2016, the IRS notified the Company of its intention to audit Real Industry’s 2014 federal tax return.

As of December 31, 2017, the Company has estimated U.S. federal NOLs of $960.5 million and non-U.S. NOLs of $29.5 million. The U.S. federal NOLs have a 20‑year life and begin to expire after the 2027 tax year. Additionally, the Company has state NOLs in various jurisdictions, which aggregate to $337.4 million before valuation allowances.