INCOME TAXES

The components of income tax expense (benefit) applicable to pretax earnings for the years ended December 31 were as follows:



(In millions)	Foreign			U.S.				Total
2015:
Current		$	1,063		$	225			$	1,288
Deferred		42			(1		)		41
Total income tax expense		$	1,105		$	224			$	1,329
2014:
Current		$	995		$	84			$	1,079
Deferred		125			336				461
Total income tax expense		$	1,120		$	420			$	1,540
2013:
Current		$	934		$	302			$	1,236
Deferred		299			123				422
Total income tax expense		$	1,233		$	425			$	1,658

Japan enacted an income tax rate reduction effective for fiscal years beginning after March 31, 2012. The rate was reduced to 33.3% effective April 1, 2012, and an additional reduction to 30.8% became effective January 1, 2015.

Income tax expense in the accompanying statements of earnings varies from the amount computed by applying the expected U.S. tax rate of 35% to pretax earnings. The principal reasons for the differences and the related tax effects for the years ended December 31 were as follows:



(In millions)	2015				2014				2013
Income taxes based on U.S. statutory rates		$	1,352			$	1,572			$	1,685
Utilization of foreign tax credit		(27		)		(32		)		(37		)
Nondeductible expenses		3				5				6
Other, net		1				(5		)		4
Income tax expense		$	1,329			$	1,540			$	1,658

Total income tax expense for the years ended December 31 was allocated as follows:



(In millions)	2015				2014				2013
Statements of earnings		$	1,329			$	1,540			$	1,658
Other comprehensive income (loss):
Unrealized foreign currency translation gains (losses) during period		16				(419		)		253
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) on investment securities during period		(931		)		2,237				(904		)
Reclassification adjustment for realized (gains) losses on investment securities included in net earnings		21				19				19
Unrealized gains (losses) on derivatives during period		0				(3		)		(4		)
Pension liability adjustment during period		(7		)		(31		)		55
Total income tax expense (benefit) related to items of other comprehensive income (loss)		(901		)		1,803				(581		)
Additional paid-in capital (exercise of stock options)		4				(7		)		(8		)
Total income taxes		$	432			$	3,336			$	1,069

The tax effect on other comprehensive income (loss) shown in the table above included a deferred income tax expense of $614 million in 2013, related to certain U.S. dollar-denominated investments that Aflac Japan maintained on behalf of Aflac U.S. As discussed in Note 1, prior to October 1, 2013, there was no translation adjustment to record in pretax other comprehensive income for the portfolio when the yen/dollar exchange rate changed, however deferred tax expense or benefit associated with the foreign exchange translation gains or losses on these U.S. dollar-denominated investments is recognized in total income tax expense on other comprehensive income until the securities mature or are sold. Excluding the tax amounts for these U.S. dollar-denominated investments from total taxes on other comprehensive income would result in an effective income tax rate on pretax other comprehensive income (loss) of 31% in 2013.

The income tax effects of the temporary differences that gave rise to deferred income tax assets and liabilities as of December 31 were as follows:



(In millions)	2015			2014
Deferred income tax liabilities:
Deferred policy acquisition costs		$	2,282		$	2,209
Unrealized gains on investment securities		1,684			2,584
Premiums receivable		139			139
Policy benefit reserves		1,313			1,376
Depreciation		61			51
Other		0			20
Total deferred income tax liabilities		5,479			6,379
Deferred income tax assets:
Other basis differences in investment securities		1,422			1,331
Unfunded retirement benefits		15			16
Other accrued expenses		7			4
Policy and contract claims		113			99
Foreign currency loss on Japan branch		208			327
Deferred compensation		181			226
Capital loss carryforwards		0			26
Other		95			0
Total deferred income tax assets		2,041			2,029
Net deferred income tax liability		3,438			4,350
Current income tax liability		902			943
Total income tax liability		$	4,340		$	5,293

Under U.S. income tax rules, only 35% of non-life operating losses can be offset against life insurance taxable income each year. For current U.S. income tax purposes, there were non-life operating loss carryforwards of $1 million expiring in 2035, and no tax credit carryforwards available at December 31, 2015. The Company did not have any capital loss carryforwards available to offset capital gains at December 31, 2015.

We file federal income tax returns in the United States and Japan as well as state or prefecture income tax returns in various jurisdictions in the two countries. U.S. federal income tax returns for years before 2011 are no longer subject to examination. In Japan, the National Tax Agency (NTA) has completed exams through tax year 2012.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended December 31:



(In millions)	2015			2014
Balance, beginning of year	$	309		$	328
Additions for tax positions of prior years	0			2
Reductions for tax positions of prior years	(45		)	(21		)
Balance, end of year	$	264		$	309

Included in the balance of the liability for unrecognized tax benefits at December 31, 2015, are $261 million of tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility, compared with $307 million at December 31, 2014. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate, but would accelerate the payment of cash to the taxing authority to an earlier period. The Company has accrued approximately $3 million as of December 31, 2015, for permanent uncertainties, which if reversed would not have a material effect on the annual effective rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized approximately $11 million in interest and penalties in 2015, 2014 and 2013. The Company has accrued approximately $22 million for the payment of interest and penalties as of December 31, 2015, compared with $30 million a year ago.

As of December 31, 2015, there were no material uncertain tax positions for which the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.