Income Taxes

Income from continuing operations before taxes consisted of the following:



	Years Ended December 31,
	2018		2017		2016
U.S.	$	114,982	$	140,574	$	126,856
International	97,379		81,341		74,933
Total	$	212,361	$	221,915	$	201,789

The provision for income taxes from continuing operations consisted of the following:



	Years Ended December 31,
	2018			2017			2016
U.S. Federal:
Current	$	(50,333	)	$	31,691		$	76,117
Deferred	56,715			(49,812		)	(1,979		)
	6,382			(18,121		)	74,138
U.S. State and Local:
Current	(10,489		)	(2,330		)	6,377
Deferred	(911		)	15,316			4,682
	(11,400		)	12,986			11,059
International:
Current	16,224			(3,418		)	21,014
Deferred	1,177			9,106			764
	17,401			5,688			21,778

Total current	(44,598		)	25,943			103,508
Total deferred	56,981			(25,390		)	3,467
Total provision for income taxes	$	12,383		$	553		$	106,975

Effective tax rate	5.8		%	0.2		%	53.0		%

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Act) was signed into law making significant changes to the Internal Revenue Code. Changes included, but were not limited to, a federal corporate income tax rate decrease from 35% to 21% effective January 1, 2018, the transition of U.S. international taxation from a worldwide tax system to a territorial system by creating a minimum tax on earnings of foreign subsidiaries, and a one-time transition tax on the mandatory deemed repatriation of post-1986 cumulative foreign earnings. As of December 31, 2017, in accordance with the Act, we recorded a net provisional one-time non-cash benefit of $39 million, which was comprised of a provisional $130 million benefit from the remeasurement of net U.S. deferred tax liabilities arising from a lower U.S. tax rate, offset by a provisional $91 million charge related primarily to the U.S. tax on unremitted post-1986 earnings of our foreign subsidiaries. Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant did not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we have completed the analysis based on legislative updates relating to the Act currently available which resulted in an adjustment to the provisional tax recorded of $37 million for the year ended December 31, 2018, which is comprised of a $13 million benefit related to the remeasurement of certain deferred tax assets and liabilities and a $24 million decrease in the U.S. tax on unremitted post-1986 earnings of our foreign subsidiaries.

In addition to the adjustment to the provisional tax benefits, the effective tax rate for 2018 includes a benefit of $17 million from the resolution of certain tax examinations. The effective tax rate for 2017 includes provisional tax benefits of $39 million from the Act, and tax benefits of $30 million from the resolution of certain tax examinations. The effective tax rate for 2016 includes tax benefits of $15 million from the resolution of tax examinations, a $58 million charge associated with the goodwill impairment charge and a $6 million charge for a valuation allowance on tax attribute carryovers.

A reconciliation of income taxes computed at the federal statutory rate and our provision for income taxes consist of the following:



	Years Ended December 31,
	2018			2017			2016
Federal statutory provision	$	44,596		$	77,671		$	70,627
State and local income taxes ⁽¹⁾	1,251			5,418			7,188
Impact of foreign operations taxed at rates other than the U.S. statutory rate	(1,988		)	(15,859		)	(9,236		)
Accrual/release of uncertain tax amounts related to foreign operations	(4,595		)	(17,919		)	(7,482		)
U.S. tax impacts of foreign income in the U.S.	7,683			2,778			2,929
Tax exempt income/reimbursement	—			—			(935		)
Tax incentives/credits/exempt income	2,026			(14,329		)	(9,020		)
Goodwill impairments	—			—			50,003
Remeasurement of U.S. deferred taxes	(13,121		)	(129,960		)	—
U.S. tax on unremitted earnings	(23,711		)	90,916			—
Other, net	242			1,837			2,901
Provision for income taxes	$	12,383		$	553		$	106,975

⁽¹⁾ Includes release of tax uncertainties of $(9) million, $(3) million and $(3) million for the years ended December 31, 2018, 2017 and 2016, respectively.

Deferred tax liabilities and assets at December 31, 2018 and 2017 consisted of the following:



	December 31,
	2018			2017
Deferred tax liabilities:
Depreciation	$	(102,726	)	$	(77,415	)
Deferred profit (for tax purposes) on sale to finance subsidiary	(41,951		)	(60,340		)
Lease revenue and related depreciation	(166,544		)	(133,908		)
Intangible assets	(98,707		)	(106,488		)
Other	(33,353		)	(22,468		)
Gross deferred tax liabilities	(443,281		)	(400,619		)

Deferred tax assets:
Nonpension postretirement benefits	42,422			48,387
Pension	60,063			66,270
Inventory and equipment capitalization	7,216			11,380
Restructuring charges	5,064			12,476
Long-term incentives	11,517			11,544
Net operating loss	106,029			108,006
Tax credit carry forwards	64,148			82,285
Tax uncertainties gross-up	6,692			9,920
Other	46,885			36,936
Gross deferred tax assets	350,036			387,204
Less: Valuation allowance	(142,496		)	(178,156		)
Net deferred tax assets	207,540			209,048
Total deferred taxes, net	$	(235,741	)	$	(191,571	)

A valuation allowance is recognized to reduce the total deferred tax assets to an amount that will more-likely-than-not be realized. The valuation allowance relates primarily to certain foreign, state and local net operating loss and tax credit carryforwards that are more-likely-than-not to expire unutilized.

We have net operating loss carryforwards of $258 million as of December 31, 2018, of which $211 million can be carried forward indefinitely and the remainder expire over the next 15 years. In addition, we have tax credit carryforwards of $64 million, of which $50 million can be carried forward indefinitely and the remainder expire over the next 5 to 15 years.

As of December 31, 2018, we assert that we are no longer permanently reinvested in $724 million of post-1986 earnings generated from non-U.S. subsidiaries, which were subject to the deemed repatriation toll charge under the Act. We continue to be permanently reinvested in our remaining undistributed earnings of $301 million as well as other outside basis differences. While a determination of the full liability that would be incurred if these earnings were repatriated is not practical, we have estimated the withholding taxes would be approximately $13 million.

Uncertain Tax Positions

A reconciliation of the amount of unrecognized tax benefits is as follows:



	2018			2017			2016
Balance at beginning of year	$	89,767		$	124,728		$	139,249
Increases from prior period positions	88			528			—
Decreases from prior period positions	(15,145		)	(31,470		)	(21,207		)
Increases from current period positions	6,001			5,951			10,867
Decreases relating to settlements with tax authorities	(4,844		)	(6,953		)	(1,791		)
Reductions from lapse of applicable statute of limitations	(4,409		)	(3,017		)	(2,390		)
Balance at end of year	$	71,458		$	89,767		$	124,728

The amount of the unrecognized tax benefits at December 31, 2018, 2017 and 2016 that would affect the effective tax rate if recognized was $65 million, $74 million and $104 million, respectively.

On a regular basis, we conclude tax return examinations, statutes of limitations expire, and court decisions interpret tax law. We regularly assess tax uncertainties in light of these developments. As a result, it is reasonably possible that the amount of our unrecognized tax benefits will decrease in the next 12 months, and we expect this change could be up to 30% of our unrecognized tax benefits. We recognize interest and penalties related to uncertain tax positions in our provision for income taxes. We recognized interest and penalties of less than $(1) million, $(4) million and less than $1 million related to uncertain tax positions in our provision for income taxes for the years ended December 31, 2018, 2017 and 2016 respectively. We had $4 million accrued for the payment of interest and penalties at December 31, 2018 and 2017.

Other Tax Matters

As is the case with other large corporations, our tax returns are examined each year by tax authorities in the U.S. and other global taxing jurisdictions in which we have operations. The IRS examinations of our consolidated U.S. income tax returns for tax years prior to 2015 are closed to audit; however, various post-2011 U.S. state and local tax returns are still subject to examination. In Canada, the examination of our tax filings prior to 2014 are closed to audit. Other significant jurisdictions include France, (closed through 2014), Germany, (closed through 2012) and the U.K. (except for an item under appeal, closed through 2016). We also have other less significant tax filings currently subject to examination.

We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the related financial statement implications. We believe we have established tax reserves that are appropriate given the possibility of tax adjustments. However, determining the appropriate level of tax reserves requires judgment regarding the uncertain application of tax law and the possibility of tax adjustments. Future changes in tax reserve requirements could have a material impact, positive or negative, on our results of operations, financial position and cash flows.