Income Taxes

12 Months Ended

Dec. 31, 2019

The components of the provision for income taxes on continuing operations were:



	Year Ended December 31
Millions of dollars	2019			2018			2017
Current income taxes:
Federal	$	32		$	19		$	40
Foreign	(426		)	(428		)	(423		)
State	(9		)	(15		)	(14		)
Total current	(403		)	(424		)	(397		)
Deferred income taxes:
Federal	383			286			(678		)
Foreign	(36		)	9			(31		)
State	49			(28		)	(25		)
Total deferred	396			267			(734		)
Income tax provision	$	(7	)	$	(157	)	$	(1,131	)

The United States and foreign components of income (loss) from continuing operations before income taxes were as follows:



	Year Ended December 31
Millions of dollars	2019			2018		2017
United States	$	(1,517	)	$	1,097	$	694
Foreign	395			717		(12		)
Total	$	(1,122	)	$	1,814	$	682

Reconciliations between the actual provision for income taxes on continuing operations and that computed by applying the United States statutory rate to income (loss) from continuing operations before income taxes were as follows:



	Year Ended December 31
	2019		2018		2017
United States statutory rate	21.0	%	21.0	%	35.0	%
Impact of impairments and other charges	(20.9	)	—		—
Adjustments of prior year taxes	13.0		2.0		(2.3	)
Valuation allowance against tax assets	(10.7	)	(16.2	)	(6.2	)
State income taxes	(1.3	)	1.9		1.7
Impact of foreign income taxed at different rates	0.8		(3.0	)	(18.3	)
Venezuela adjustment	—		5.7		36.6
Impact of U.S. tax reform	—		(2.6	)	113.0
Undistributed foreign earnings	—		—		3.8
Other items, net	(2.5	)	(0.1	)	2.5
Total effective tax rate on continuing operations	(0.6	)%	8.7	%	165.8	%

During the year ended December 31, 2019, we recorded a total income tax provision of $7 million on a pre-tax loss of $1.1 billion, resulting in an effective tax rate of -0.6%. The effective tax rate for 2019 was primarily impacted by a $291 million tax benefit associated with the $2.5 billion of impairments and other charges recognized during the year, which primarily consisted of the tax effects of impairment charges taxed at various rates, offset by valuation allowances on deferred tax assets associated with market conditions that negatively impacted our business during the year. See Note 2 for further information. Our 2019 effective tax rate was also impacted by certain discrete tax adjustments related to prior year taxes, offset by additional valuation allowances recorded on deferred tax assets.

The primary components of our deferred tax assets and liabilities were as follows:



	December 31
Millions of dollars	2019		2018
Gross deferred tax assets:
Net operating loss carryforwards	$	1,301	$	1,466
Foreign tax credit carryforwards	877		728
Research and development tax credit carryforwards	198		139
Employee compensation and benefits	215		242
Accrued liabilities	316		101
Other	382		265
Total gross deferred tax assets	3,289		2,941
Gross deferred tax liabilities:
Depreciation and amortization	373		635
Operating lease right-of-use assets	109		—
Undistributed foreign earnings	2		2
Other	56		64
Total gross deferred tax liabilities	540		701
Valuation allowances	1,082		913
Net deferred income tax asset	$	1,667	$	1,327

At December 31, 2019, we had $1.5 billion of domestic and foreign tax-effected net operating loss carryforwards, with approximately $200 million estimated to be utilized against our unrecognized tax benefits. The ultimate realization of these deferred tax assets depends on the ability to generate sufficient taxable income in the appropriate taxing jurisdiction. $157 million of the net operating loss carryforwards will expire after taxable years ended from 2020 through 2024, $219 million will expire after taxable years ended from 2025 through 2029, and $755 million will expire after taxable years ended from 2030 through 2040. The remaining balance will not expire. Additionally, we had $967 million of foreign tax credit carryforwards that will expire from 2025 through 2029, which are offset by foreign branch deferred activity reflected in the above table, along with $198 million of research and development tax credit carryforwards that will expire from 2030 through 2040. During the year ended December 31, 2019, we increased our valuation allowance on deferred tax assets by $169 million related to $85 million associated with foreign deferred tax assets and $84 million associated with foreign tax credits.

In accordance with the Tax Cuts and Jobs Act of 2017, a company’s foreign earnings accumulated under the legacy tax laws are deemed to be repatriated into the United States. We have provided federal and state income tax related to this deemed repatriation. We have not provided incremental United States income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries as of December 31, 2019. The Company generally does not provide for taxes related to its undistributed earnings because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested.

The following table presents a rollforward of our unrecognized tax benefits and associated interest and penalties.



Millions of dollars	Unrecognized Tax Benefits				Interest and Penalties
Balance at January 1, 2017	$	427			$	61
Change in prior year tax positions	(108		)		—
Change in current year tax positions	24				2
Cash settlements with taxing authorities	(6		)		—
Lapse of statute of limitations	(4		)		(3		)
Balance at December 31, 2017	$	333			$	60
Change in prior year tax positions	32				11
Change in current year tax positions	63				—
Cash settlements with taxing authorities	(7		)		(2		)
Lapse of statute of limitations	(4		)		(2		)
Balance at December 31, 2018	$	417		(a)	$	67
Change in prior year tax positions	25				11
Change in current year tax positions	29				—
Cash settlements with taxing authorities	(4		)		—
Lapse of statute of limitations	(42		)		(8		)
Balance at December 31, 2019	$	425		(a)(b)	$	70

(a)

Includes $25 million as of December 31, 2019 and $18 million as of December 31, 2018 in foreign unrecognized tax benefits that would give rise to a United States tax credit. As of December 31, 2019 and December 31, 2018, a net $271 million and $399 million without a net operating loss carryforward offset, respectively, of unrecognized tax benefits would positively impact the effective tax rate and be recognized as additional tax benefits in our statement of operations if resolved in our favor.


(b)	Includes $30 million that could be resolved within the next 12 months.

We file income tax returns in the United States federal jurisdiction and in various states and foreign jurisdictions. In most cases, we are no longer subject to state, local, or non-United States income tax examination by tax authorities for years before 2009. Tax filings of our subsidiaries, unconsolidated affiliates and related entities are routinely examined in the normal course of business by tax authorities. Currently, our United States federal tax filings for the tax years 2016 through 2018 are under review by the Internal Revenue Service (IRS). Tax years 2012 through 2015 have been closed by exam and approved by Joint Committee. Amended tax returns filed for tax years 2008 through 2011 are under review by the IRS.