Income Taxes	9 Months Ended
Sep. 30, 2015
Income Taxes
Income Taxes	NOTE 5. Income Taxes The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2005. The IRS has completed its field examination of the Company’s U.S. federal income tax returns for the years 2005 through 2013. The Company protested certain IRS positions within these tax years and entered into the administrative appeals process with the IRS. In December 2012, the Company received a statutory notice of deficiency for the 2006 year. The Company filed a petition in Tax Court in the first quarter of 2013 relating to the 2006 tax year. Currently, the Company is under examination by the IRS for its U.S. federal income tax returns for the years 2014 and 2015. It is anticipated that the IRS will complete its examination of the Company for 2014 by the end of the first quarter of 2016 and for 2015 by the end of the first quarter of 2017. As of September 30, 2015, the IRS has not proposed any significant adjustments to the Company’s tax positions for which the Company is not adequately reserved. Payments relating to other proposed assessments arising from the 2005 through 2015 examinations may not be made until a final agreement is reached between the Company and the IRS on such assessments or upon a final resolution resulting from the administrative appeals process or judicial action. In addition to the U.S. federal examination, there is also audit activity in several U.S. state and foreign jurisdictions. 3M anticipates changes to the Company’s uncertain tax positions due to the closing and resolution of audit issues for various audit years mentioned above and closure of statutes. The Company is not currently able to reasonably estimate the amount by which the liability for unrecognized tax benefits will increase or decrease during the next 12 months as a result of the ongoing income tax authority examinations. The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of September 30, 2015 and December 31, 2014 are $279 million and $265 million, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized in the consolidated statement of income on a gross basis approximately $5 million of expense and $1 million of benefit for the three months ended September 30, 2015 and September 30, 2014, respectively, and approximately $3 million of expense and $14 million of benefit for the nine months ended September 30, 2015 and September 30, 2014, respectively. At September 30, 2015 and December 31, 2014, accrued interest and penalties in the consolidated balance sheet on a gross basis were $46 million and $44 million, respectively. Included in these interest and penalty amounts are interest and penalties related to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. 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 effective tax rate for the third quarter of 2015 was 29.6 percent, compared to 30.3 percent in the third quarter of 2014, a decrease of 0.7 percentage points. Primary factors that decreased the Company’s effective tax rate on a combined basis by 3.1 percentage points year-on-year included the restoration of tax basis on certain assets for which depreciation deductions were previously limited, an increase in the domestic manufacturer’s deduction benefit, and international taxes, which were impacted by changes in foreign currency rates and changes to the geographic mix of income before taxes. This decrease was partially offset by a 2.4 percentage points year-on-year increase to the Company’s effective tax rate. Primary factors that increased the effective tax rate included remeasurements of 3M’s uncertain tax positions and other items. The effective tax rate for the first nine months of 2015 and 2014 was 29.1 percent, with factors that increased the tax rate completely offset by factors that decreased the tax rate. Primary factors that increased the Company’s effective tax rate on a combined basis by 1.2 percentage points for the first nine months of 2015 when compared to the same period for 2014 included international taxes, which were impacted by changes in foreign currency rates and changes to the geographic mix of income before taxes, and other items. This increase was offset by a 1.2 percentage point year-on-year decrease, which included remeasurements of 3M’s uncertain tax positions, as a result of, among other factors, matters related to transfer pricing, the restoration of tax basis on certain assets for which depreciation deductions were previously limited, and an increase in the domestic manufacturer’s deduction benefit. The provision for income taxes is determined using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets when uncertainty regarding their realizability exits. As of September 30, 2015 and December 31, 2014, the Company had valuation allowances of $37 million and $22 million, respectively, on its deferred tax assets. The increase in valuation allowance at September 30, 2015 is a result of the Capital Safety acquisition, which was completed in August 2015.

NOTE 5. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2005.

The IRS has completed its field examination of the Company’s U.S. federal income tax returns for the years 2005 through 2013. The Company protested certain IRS positions within these tax years and entered into the administrative appeals process with the IRS. In December 2012, the Company received a statutory notice of deficiency for the 2006 year. The Company filed a petition in Tax Court in the first quarter of 2013 relating to the 2006 tax year.

Currently, the Company is under examination by the IRS for its U.S. federal income tax returns for the years 2014 and 2015. It is anticipated that the IRS will complete its examination of the Company for 2014 by the end of the first quarter of 2016 and for 2015 by the end of the first quarter of 2017. As of September 30, 2015, the IRS has not proposed any significant adjustments to the Company’s tax positions for which the Company is not adequately reserved.

Payments relating to other proposed assessments arising from the 2005 through 2015 examinations may not be made until a final agreement is reached between the Company and the IRS on such assessments or upon a final resolution resulting from the administrative appeals process or judicial action. In addition to the U.S. federal examination, there is also audit activity in several U.S. state and foreign jurisdictions.

3M anticipates changes to the Company’s uncertain tax positions due to the closing and resolution of audit issues for various audit years mentioned above and closure of statutes. The Company is not currently able to reasonably estimate the amount by which the liability for unrecognized tax benefits will increase or decrease during the next 12 months as a result of the ongoing income tax authority examinations. The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of September 30, 2015 and December 31, 2014 are $279 million and $265 million, respectively.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized in the consolidated statement of income on a gross basis approximately $5 million of expense and $1 million of benefit for the three months ended September 30, 2015 and September 30, 2014, respectively, and approximately $3 million of expense and $14 million of benefit for the nine months ended September 30, 2015 and September 30, 2014, respectively. At September 30, 2015 and December 31, 2014, accrued interest and penalties in the consolidated balance sheet on a gross basis were $46 million and $44 million, respectively. Included in these interest and penalty amounts are interest and penalties related to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. 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 effective tax rate for the third quarter of 2015 was 29.6 percent, compared to 30.3 percent in the third quarter of 2014, a decrease of 0.7 percentage points. Primary factors that decreased the Company’s effective tax rate on a combined basis by 3.1 percentage points year-on-year included the restoration of tax basis on certain assets for which depreciation deductions were previously limited, an increase in the domestic manufacturer’s deduction benefit, and international taxes, which were impacted by changes in foreign currency rates and changes to the geographic mix of income before taxes. This decrease was partially offset by a 2.4 percentage points year-on-year increase to the Company’s effective tax rate. Primary factors that increased the effective tax rate included remeasurements of 3M’s uncertain tax positions and other items.

The effective tax rate for the first nine months of 2015 and 2014 was 29.1 percent, with factors that increased the tax rate completely offset by factors that decreased the tax rate. Primary factors that increased the Company’s effective tax rate on a combined basis by 1.2 percentage points for the first nine months of 2015 when compared to the same period for 2014 included international taxes, which were impacted by changes in foreign currency rates and changes to the geographic mix of income before taxes, and other items. This increase was offset by a 1.2 percentage point year-on-year decrease, which included remeasurements of 3M’s uncertain tax positions, as a result of, among other factors, matters related to transfer pricing, the restoration of tax basis on certain assets for which depreciation deductions were previously limited, and an increase in the domestic manufacturer’s deduction benefit.

The provision for income taxes is determined using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets when uncertainty regarding their realizability exits. As of September 30, 2015 and December 31, 2014, the Company had valuation allowances of $37 million and $22 million, respectively, on its deferred tax assets. The increase in valuation allowance at September 30, 2015 is a result of the Capital Safety acquisition, which was completed in August 2015.