Income Taxes

The components of income before income taxes are as follows:



		2016			2015			2014
United States		$	2,630		$	2,879		$	2,557
Foreign		5,923			4,563			6,200
		$	8,553		$	7,442		$	8,757

The provision for income taxes consisted of the following:

		2016			2015			2014
Current:	U.S. Federal	$	1,219		$	1,143		$	1,364
	Foreign	824			773			851
	State	77			65			210
		2,120			1,981			2,425
Deferred:	U.S. Federal	109			(14		)	(33		)
	Foreign	(33		)	(32		)	(60		)
	State	(22		)	6			(133		)
		54			(40		)	(226		)
		$	2,174		$	1,941		$	2,199



A reconciliation of the U.S. Federal statutory tax rate to our annual tax rate is as follows:

	2016		2015		2014
U.S. Federal statutory tax rate	35.0	%	35.0	%	35.0	%
State income tax, net of U.S. Federal tax benefit	0.4		0.6		0.6
Lower taxes on foreign results	(8.0	)	(10.5	)	(8.6	)
Impact of Venezuela impairment charges	—		6.4		—
Tax settlements	—		(3.1	)	—
Other, net	(2.0	)	(2.3	)	(1.9	)
Annual tax rate	25.4	%	26.1	%	25.1	%

Deferred tax liabilities and assets are comprised of the following:



Deferred tax liabilities	2016			2015
Debt guarantee of wholly-owned subsidiary	$	839		$	842
Property, plant and equipment	1,967			2,023
Intangible assets other than nondeductible goodwill	4,124			3,920
Other	245			299
Gross deferred tax liabilities	7,175			7,084
Deferred tax assets
Net carryforwards	1,255			1,279
Share-based compensation	219			240
Retiree medical benefits	316			343
Other employee-related benefits	614			547
Pension benefits	419			424
Deductible state tax and interest benefits	189			186
Other	839			933
Gross deferred tax assets	3,851			3,952
Valuation allowances	(1,110		)	(1,136		)
Deferred tax assets, net	2,741			2,816
Net deferred tax liabilities	$	4,434		$	4,268

Deferred taxes are included within the following balance sheet accounts:



	2016		2015
Assets:
Prepaid expenses and other current assets	$	639	$	691
Liabilities:
Deferred income taxes	$	5,073	$	4,959

A summary of our valuation allowance activity is as follows:



	2016			2015			2014
Balance, beginning of year	$	1,136		$	1,230		$	1,360
Provision/(Benefit)	13			(26		)	(25		)
Other deductions	(39		)	(68		)	(105		)
Balance, end of year	$	1,110		$	1,136		$	1,230

For additional unaudited information on our income tax policies, including our reserves for income taxes, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Reserves

A number of years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions and the related open tax audits are as follows:



Jurisdiction	Years Open to Audit	Years Currently Under Audit
United States	2010, 2012-2015	2012-2013
Mexico	2011-2015	2014
United Kingdom	2014-2015	None
Canada (Domestic)	2011-2015	2011-2014
Canada (International)	2009-2015	2010-2014
Russia	2012-2015	2013-2015

While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our reserves reflect the probable outcome of known tax contingencies. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution. For further unaudited information on the impact of the resolution of open tax issues, see “Other Consolidated Results” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In 2015, we reached an agreement with the IRS resolving substantially all open matters related to the audits of taxable years 2010 and 2011 (two immaterial matters were still open as of December 31, 2016). The agreement resulted in a 2015 non-cash tax benefit totaling $230 million.

As of December 31, 2016, the total gross amount of reserves for income taxes, reported in other liabilities, was $1,885 million. We accrue interest related to reserves for income taxes in our provision for income taxes and any associated penalties are recorded in selling, general and administrative expenses. The gross amount of interest accrued, reported in other liabilities, was $193 million as of December 31, 2016, of which $61 million of expense was recognized in 2016. The gross amount of interest accrued, reported in other liabilities, was $144 million as of December 26, 2015, of which $14 million of expense was recognized in 2015.

A rollforward of our reserves for all federal, state and foreign tax jurisdictions, is as follows:



	2016			2015
Balance, beginning of year	$	1,547		$	1,587
Additions for tax positions related to the current year	349			248
Additions for tax positions from prior years	139			122
Reductions for tax positions from prior years	(70		)	(261		)
Settlement payments	(26		)	(78		)
Statutes of limitations expiration	(27		)	(34		)
Translation and other	(27		)	(37		)
Balance, end of year	$	1,885		$	1,547

Carryforwards and Allowances

Operating loss carryforwards totaling $11.3 billion at year-end 2016 are being carried forward in a number of foreign and state jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future taxable income. These operating losses will expire as follows: $0.1 billion in 2017, $9.9 billion between 2018 and 2036 and $1.3 billion may be carried forward indefinitely. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Undistributed International Earnings

As of December 31, 2016, we had approximately $44.9 billion of undistributed international earnings. We intend to continue to reinvest earnings outside the United States for the foreseeable future and, therefore, have not recognized any U.S. tax expense on these earnings. It is not practicable for us to determine the amount of unrecognized U.S. tax expense on these reinvested international earnings.