INCOME TAXES

Income Tax Expense

The following table is a summary of income tax expense for each of the years ended December 31:



(in millions)	2015			2014			2013
Current tax expense	$	15.1		$	33.6		$	25.2
Deferred income taxes, net	420.4			329.2			313.8
Investment tax credit, net	(1.7		)	(1.1		)	(1.1		)
Total income tax expense	$	433.8		$	361.7		$	337.9

Statutory Rate Reconciliation

The provision for income taxes for each of the years ended December 31 differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income before income taxes as a result of the following:



	2015					2014					2013
				Effective					Effective					Effective
(in millions)	Amount			Tax Rate		Amount			Tax Rate		Amount			Tax Rate
Expected tax at statutory federal tax rates	$	375.5		35.0	%	$	332.5		35.0	%	$	320.3		35.0	%
State income taxes net of federal tax benefit	73.1			6.8	%	50.5			5.3	%	49.0			5.3	%
Production tax credits	(17.4		)	(1.6	)%	(17.4		)	(1.8	)%	(16.7		)	(1.8	)%
AFUDC – Equity	(7.1		)	(0.7	)%	(1.9		)	(0.2	)%	(6.4		)	(0.7	)%
Investment tax credit restored	(1.7		)	(0.2	)%	(1.1		)	(0.1	)%	(1.1		)	(0.1	)%
Treasury grant	(1.7		)	(0.2	)%	(3.8		)	(0.4	)%	(7.4		)	(0.8	)%
Other, net	13.1			1.3	%	2.9			0.2	%	0.2			—	%
Total income tax expense	$	433.8		40.4	%	$	361.7		38.0	%	$	337.9		36.9	%

Deferred Income Tax Assets and Liabilities

The components of deferred income taxes as of December 31 are as follows:



(in millions)	2015			2014
Deferred tax assets
Future tax benefits	$	382.8		$	221.7
Employee benefits and compensation	229.9			111.9
Deferred revenues	219.9			221.3
Property-related	59.5			28.8
Other	177.1			118.4
Total deferred tax assets	1,069.2			702.1
Valuation allowance	(17.1		)	—
Net deferred tax assets	$	1,052.1		$	702.1

Deferred tax liabilities
Property-related	4,451.5			2,750.4
Employee benefits and compensation	428.9			242.5
Investment in transmission affiliate	420.4			188.6
Deferred transmission costs	76.7			58.5
Other	296.9			126.1
Total deferred tax liabilities	5,674.4			3,366.1
Deferred tax liability, net	$	4,622.3		$	2,664.0

Consistent with rate-making treatment, deferred taxes in the table above are offset for temporary differences that have related regulatory assets and liabilities.

The components of net deferred tax assets associated with federal and state tax benefit carryforwards as of December 31, 2015 and 2014 are summarized in the table below:



2015 (in millions)	Gross Value		Deferred Tax Effect		Valuation Allowance			Earliest Year of Expiration
Future tax benefits as of December 31, 2015
Federal net operating loss	$	412.3	$	144.3	$	—		2031
Federal foreign tax credit	—		15.2		(15.2		)	2017
Other federal tax credit	—		207.8		—			2025
Charitable contribution	4.7		1.9		(1.9		)	2016
State net operating loss	185.9		9.3		—			2024
State tax credit	—		4.3		—			2016
Balance as of December 31, 2015	$	602.9	$	382.8	$	(17.1	)



2014 (in millions)	Gross Value		Deferred Tax Effect		Valuation Allowance		Earliest Year of Expiration
Future tax benefits as of December 31, 2014
Federal net operating loss	$	416.2	$	145.7	$	—	2029
Federal tax credit	—		76.0		—		2029
Balance as of December 31, 2014	$	416.2	$	221.7	$	—

Valuation allowances of approximately $17.1 million have been established for certain tax benefit carryforwards obtained in the Integrys acquisition based on our projected ability to realize such benefits by offsetting future tax liabilities. This is primarily the result of the extension of bonus depreciation. Realization is dependent on generating sufficient tax liabilities prior to expiration of the tax benefit carryforwards.

Unrecognized Tax Benefits

We previously adopted accounting guidance related to uncertainty in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(in millions)	2015			2014
Balance as of January 1	$	7.2		$	8.4
Acquired legacy Integrys unrecognized tax benefits	3.6			—
Additions for tax positions of prior years	0.3			—
Additions based on tax positions related to the current year	0.2			—
Reductions for tax positions of prior years	(1.1		)	(1.2		)
Settlements during the period	(0.7		)	—
Balance as of December 31	$	9.5		$	7.2

The amount of unrecognized tax benefits as of December 31, 2015 and 2014, excludes deferred tax assets related to uncertainty in income taxes of $6.2 million and $7.2 million, respectively. As of December 31, 2015, our effective tax rate could be affected by recognition of approximately $2.2 million of unrecognized tax benefits. As of December 31, 2014, there were no unrecognized tax benefits that, if recognized, would impact the effective tax rate.

We recognize interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. For the year ended December 31, 2015, we recognized no accrued interest in our income statements. For the years ended December 31, 2014 and 2013, we recognized approximately $0.3 million and $0.2 million, respectively, of accrued interest in our income statements. For the years ended December 31, 2015, 2014, and 2013, we recognized no penalties in our income statements. For the year ended December 31, 2015, we had $0.7 million of interest accrued and $0.1 million of penalties accrued on our balance sheets. For the year ended December 31, 2014, we had approximately $0.7 million of interest accrued and no penalties accrued on our balance sheets.

We do not anticipate any significant increases or decreases in the total amounts of unrecognized tax benefits within the next 12 months.

We file income tax returns in the United States federal jurisdiction and state tax returns based on income in our major state operating jurisdictions of Wisconsin, Illinois, Michigan, and Minnesota. We also file tax returns in other state and local jurisdictions with varying statutes of limitations. As of December 31, 2015, we were subject to examination by state or local tax authorities for the 2008 through 2015 tax years in our major state operating jurisdictions as follows:



Jurisdiction		Years
Federal		2012–2015
Illinois		2008–2015
Michigan		2008–2015
Minnesota		2011–2015
Wisconsin		2011–2015