

		2019			2018			2017
Current:	U.S. Federal	$	652		$	437		$	4,925
	Foreign	807			378			724
	State	196			63			136
		1,655			878			5,785
Deferred:	U.S. Federal	325			140			(1,159		)
	Foreign	(31		)	(4,379		)	(9		)
	State	10			(9		)	77
		304			(4,248		)	(1,091		)
		$	1,959		$	(3,370	)	$	4,694



	2019		2018		2017
U.S. Federal statutory tax rate	21.0	%	21.0	%	35.0	%
State income tax, net of U.S. Federal tax benefit	1.6		0.5		0.9
Lower taxes on foreign results	(0.9	)	(2.2	)	(9.4	)
One-time mandatory transition tax - TCJ Act	(0.1	)	0.1		41.4
Remeasurement of deferred taxes - TCJ Act	—		(0.4	)	(15.9	)
International reorganizations	—		(47.3	)	—
Tax settlements	—		(7.8	)	—
Other, net	(0.6	)	(0.6	)	(3.1	)
Annual tax rate	21.0	%	(36.7	)%	48.9	%

During the fourth quarter of 2017, the TCJ Act was enacted in the United States. Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings and reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018.

In 2017, the SEC issued guidance related to the TCJ Act which allowed recording of provisional tax expense using a measurement period, not to exceed one year, when information necessary to complete the accounting for the effects of the TCJ Act is not available. We elected to apply the measurement period provisions of this guidance to certain income tax effects of the TCJ Act when it became effective in the fourth quarter of 2017.

As a result of the enactment of the TCJ Act, we recognized a provisional net tax expense of $2.5 billion ($1.70 per share) in the fourth quarter of 2017. Included in the provisional net tax expense of $2.5 billion recognized in 2017, was a provisional mandatory one-time transition tax of approximately $4 billion on undistributed international earnings, included in other liabilities. This provisional mandatory one-time transition tax was partially offset by a provisional $1.5 billion benefit resulting from the required

remeasurement of our deferred tax assets and liabilities to the new, lower U.S. corporate income tax rate, effective January 1, 2018. The effect of the remeasurement was recorded in the fourth quarter of 2017, consistent with the enactment date of the TCJ Act, and reflected in our provision for income taxes.

The provisional measurement period allowed by the SEC ended in the fourth quarter of 2018. As a result, in 2018, we recognized a net tax benefit of $28 million ($0.02 per share) related to the TCJ Act, primarily reflecting the impact of the final analysis of certain foreign exchange gains or losses, substantiation of foreign tax credits, as well as cash and cash equivalents as of November 30, 2018, the tax year-end of our foreign subsidiaries, partially offset by additional transition tax guidance issued by the United States Department of Treasury, as well as the TCJ Act impact of both the conclusion of certain international tax audits and the resolution with the IRS of all open matters related to the audits of taxable years 2012 and 2013, each discussed below.

While our accounting for the recorded impact of the TCJ Act was deemed to be complete, additional guidance issued by the IRS impacted, and may continue to impact, our recorded amounts after December 29, 2018. In 2019, we recognized a net tax benefit totaling $8 million ($0.01 per share) related to the TCJ Act, including the impact of additional guidance issued by the IRS in the first quarter of 2019 and adjustments related to the filing of our 2018 U.S. federal tax return.

As of December 28, 2019, our mandatory transition tax liability was $3.3 billion, which must be paid through 2026 under the provisions of the TCJ Act. We reduced our liability through cash payments and application of tax overpayments by $663 million in 2019 and $150 million in 2018. We currently expect to pay approximately $0.1 billion of this liability in 2020.

The TCJ Act also created a requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (GILTI), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. During the first quarter of 2018, we elected to treat the tax effect of GILTI as a current-period expense when incurred.

On May 19, 2019, a public referendum held in Switzerland passed the TRAF, effective January 1, 2020. The enactment of certain provisions of the TRAF in 2019 resulted in adjustments to our deferred taxes. During 2019, we recorded net tax expense of $24 million related to the impact of the TRAF. Enactment of the TRAF provisions subsequent to December 28, 2019 is expected to result in adjustments to our consolidated financial statements and related disclosures in future periods. The future impact of the TRAF cannot currently be reasonably estimated; we will continue to monitor and assess the impact the TRAF may have on our business and financial results.

In 2018, we reorganized certain of our international operations, including the intercompany transfer of certain intangible assets. As a result, we recognized other net tax benefits of $4.3 billion ($3.05 per share) in 2018. The related deferred tax asset of $4.4 billion is being amortized over a period of 15 years beginning in 2019. Additionally, the reorganization generated significant net operating loss carryforwards and related deferred tax assets that are not expected to be realized, resulting in the recording of a full valuation allowance.



	2019			2018
Deferred tax liabilities
Debt guarantee of wholly-owned subsidiary	$	578		$	578
Property, plant and equipment	1,583			1,303
Recapture of net operating losses	335			414
Right-of-use assets	345			—
Other	167			71
Gross deferred tax liabilities	3,008			2,366
Deferred tax assets
Net carryforwards	4,168			4,353
Intangible assets other than nondeductible goodwill	793			985
Share-based compensation	94			106
Retiree medical benefits	154			167
Other employee-related benefits	350			303
Pension benefits	104			221
Deductible state tax and interest benefits	126			110
Lease liabilities	345			—
Other	741			739
Gross deferred tax assets	6,875			6,984
Valuation allowances	(3,599		)	(3,753		)
Deferred tax assets, net	3,276			3,231
Net deferred tax assets	$	(268	)	$	(865	)

A summary of our valuation allowance activity is as follows:



	2019			2018			2017
Balance, beginning of year	$	3,753		$	1,163		$	1,110
Provision	(124		)	2,639			33
Other (deductions)/additions	(30		)	(49		)	20
Balance, end of year	$	3,599		$	3,753		$	1,163

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	2014-2018	2014-2016
Mexico	2017-2018	None
United Kingdom	2017-2018	2017
Canada (Domestic)	2015-2018	2015-2016
Canada (International)	2010-2018	2010-2016
Russia	2016-2018	None

In 2018, we recognized a non-cash tax benefit of $364 million ($0.26 per share) resulting from the conclusion of certain international tax audits. Additionally, in 2018, we recognized non-cash tax benefits of $353 million ($0.24 per share) as a result of our agreement with the IRS resolving all open matters related to the audits

of taxable years 2012 and 2013, including the associated state impact. The conclusion of certain international tax audits and the resolution with the IRS, collectively, resulted in non-cash tax benefits totaling $717 million ($0.50 per share) in 2018.

Our annual tax rate is based on our income, statutory tax rates and tax planning strategies and transactions, including transfer pricing arrangements, available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are subject to challenge and that we likely will not succeed. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances, such as the progress of a tax audit, new tax laws or tax authority settlements. 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.

As of December 28, 2019, the total gross amount of reserves for income taxes, reported in other liabilities, was $1.4 billion. 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 $250 million as of December 28, 2019, of which $84 million of tax expense was recognized in 2019. The gross amount of interest accrued, reported in other liabilities, was $179 million as of December 29, 2018, of which $64 million of tax benefit was recognized in 2018.



	2019			2018
Balance, beginning of year	$	1,440		$	2,212
Additions for tax positions related to the current year	179			142
Additions for tax positions from prior years	93			197
Reductions for tax positions from prior years	(201		)	(822		)
Settlement payments	(74		)	(233		)
Statutes of limitations expiration	(47		)	(42		)
Translation and other	5			(14		)
Balance, end of year	$	1,395		$	1,440

Operating loss carryforwards totaling $24.7 billion at year-end 2019 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: $0.2 billion in 2020, $20.3 billion between 2021 and 2039 and $4.2 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.

In 2018, we repatriated $20.4 billion of cash, cash equivalents and short-term investments held in our foreign subsidiaries without such funds being subject to further U.S. federal income tax liability, related to the TCJ Act. As of December 28, 2019, we had approximately $6 billion of undistributed international earnings. We intend to continue to reinvest $6 billion of earnings outside the United States for the foreseeable future and while future distribution of these earnings would not be subject to U.S. federal tax expense, no deferred tax liabilities with respect to items such as certain foreign exchange gains or losses, foreign withholding taxes or state taxes have been recognized. It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested international earnings.