11. Income Taxes

Upon enactment of the Tax Reform Legislation on December 22, 2017, the Company remeasured its U.S. deferred tax assets and liabilities based on the reduction of the U.S. corporate tax rate from 35% to 21%. The Company expects to complete the accounting for the income tax effects related to the adoption of the Tax Reform Legislation and record any necessary adjustments to provisional tax amounts before the end of the measurement period on December 21, 2018. See Note 13—Income Taxes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The following summarizes income tax expense (benefit) and effective tax rates:



	Three Months Ended March 31,
millions except percentages	2018			2017
Current income tax expense (benefit)	$	90		$	762
Deferred income tax expense (benefit)	36			(665		)
Total income tax expense (benefit)	$	126		$	97
Income (loss) before income taxes	300			(178		)
Effective tax rate	42		%	(54		)%

The Company’s tax provision for interim periods is determined using an estimate of its annual current and deferred effective tax rates, adjusted for discrete items. Each quarter, the Company updates these rates and records a cumulative adjustment to current and deferred tax expense by applying the rates to the year-to-date pre-tax income excluding discrete items. The Company’s quarterly estimate of its annual current and deferred effective tax rates can vary significantly based on various forecasted items, including future commodity prices, capital expenditures, expenses for which tax benefits are not recognized, and the geographic mix of pre-tax income and losses.

The increase from the U.S. federal statutory rate of 21% for the three months ended March 31, 2018, was primarily attributable to the following:


•	state taxes, net of federal benefits


•	tax impact from foreign operations


•	non-deductible Algerian exceptional profits tax for Algerian income tax purposes


•	net changes in uncertain tax positions

These increases were partially offset by income attributable to noncontrolling interests.

The Company reported a loss before income taxes for the three months ended March 31, 2017. As a result, items that ordinarily increase or decrease tax rate will have the opposite effect. The decrease from the U.S. federal statutory rate of 35% for the three months ended March 31, 2017, was primarily attributable to the following decreases:


•	state taxes, net of federal benefit


•	non-deductible Algerian exceptional profits tax for Algerian income tax purposes


•	tax impact from foreign operations


•	net changes in uncertain tax positions


•	tax deficiency related to share-based compensation due to the adoption of ASU 2016-09

These decreases were partially offset by the following increases:


•	income attributable to noncontrolling interests


•	federal manufacturing deduction

11. Income Taxes (Continued)

The Company recognized a net tax benefit of $346 million as of March 31, 2018 and December 31, 2017, related to the deduction of its 2015 settlement payment for the Tronox Adversary Proceeding. This benefit is net of uncertain tax positions of $1.2 billion as of March 31, 2018 and December 31, 2017, due to uncertainty related to the deductibility of the settlement payment. Due to the deduction of the settlement payment, the Company had a net operating loss carryback for 2015, which resulted in a tentative tax refund of $881 million in 2016. The IRS has audited this position and, in April 2018, issued a final notice of proposed adjustment denying the deductibility of the settlement payment. The Company disagrees and plans to defend its tax position. Accordingly, the Company has not revised its estimate of the benefit that will ultimately be realized. It is reasonably possible the amount of uncertain tax position and/or tax benefit could materially change as the Company defends its tax position through the appeals process and other available avenues. The Company could be required to repay all or a portion of the tentative refund received with interest prior to determining the final outcome of its position either upon IRS request or litigation of the matter in District or Federal Claims Court. If the payment is ultimately determined not to be deductible, the Company would be required to repay the tentative refund received plus interest and reverse the net benefit of $346 million previously recognized in its consolidated financial statements.