NOTE 4 — INCOME TAXES

The provision for income taxes consists of the following (dollars in millions):


	2016			2015			2014
Current:
Federal	$	1,129		$	1,259		$	916
State		125			119			102
Foreign		37			40			52
Deferred:
Federal		75			(163	)		3
State		(5	)		(27	)		(5	)
Foreign		17			33			40

	$	1,378		$	1,261		$	1,108

Our provision for income taxes for the year ended December 31, 2016 included tax benefits of $162 million related to the adoption of ASU 2016-09, which changes how companies account for certain aspects of share-based payments to employees. Under ASU 2016-09, we no longer record excess tax benefits (when the deductible amount related to the settlement of employee equity awards for tax purposes exceeds the cumulative compensation cost recognized for financial reporting purposes) in equity. Instead, we recognize these tax benefits (and deficiencies, if applicable) as a component of our tax provision. This reporting change is applied prospectively and prior period amounts are not restated (the excess tax benefits for the years ending December 31, 2015 and 2014, related to the settlement of employee equity awards, were $222 million and $150 million, respectively, and were recorded in equity). ASU 2016-09 requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity, as previously required. We have elected to apply the change to the statement of cash flows presentation prospectively.

During 2016, the IRS completed its examination of our 2011 and 2012 tax years, resolving all outstanding federal tax issues. We reduced our provision for income taxes for the year ended December 31, 2016 by $51 million, including interest (net of tax), as a result of this resolution. The provision for income taxes reflects $15 million of reductions in interest expense (net of tax) and $7 million and $6 million of interest expense (net of tax) related to taxing authority examinations for the years ended December 31, 2016, 2015 and 2014, respectively. Our foreign pretax income was $149 million, $178 million and $238 million for the years ended December 31, 2016, 2015 and 2014, respectively.

A reconciliation of the federal statutory rate to the effective income tax rate follows:


	2016			2015			2014
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		2.1			1.6			2.3
Change in liability for uncertain tax positions		(1.0	)		0.2			0.5
Tax benefit from settlements of employee equity awards		(3.6	)		—			—
Other items, net		(0.2	)		0.4			(0.6	)

Effective income tax rate on income applicable to HCA Holdings, Inc.		32.3			37.2			37.2
Income attributable to noncontrolling interests from consolidated partnerships		(3.6	)		(5.3	)		(5.4	)

Effective income tax rate on income before income taxes		28.7	%		31.9	%		31.8	%

A summary of the items comprising the deferred tax assets and liabilities at December 31 follows (dollars in millions):


	2016				2015
	Assets		Liabilities		Assets		Liabilities
Depreciation and fixed asset basis differences	$	—	$	235	$	—	$	222
Allowances for professional liability and other risks		495		—		443		—
Accounts receivable		351		—		363		—
Compensation		359		—		334		—
Other		794		918		845		820

	$	1,999	$	1,153	$	1,985	$	1,042

At December 31, 2016, federal and state net operating loss carryforwards (expiring in years 2019 through 2035) available to offset future taxable income approximated $94 million and $103 million, respectively. Utilization of net operating loss carryforwards in any one year may be limited.

The following table summarizes the activity related to our unrecognized tax benefits (dollars in millions):


	2016			2015
Balance at January 1	$	487		$	503
Additions based on tax positions related to the current year		11			13
Additions for tax positions of prior years		8			22
Reductions for tax positions of prior years		(18	)		(45	)
Settlements		(101	)		—
Lapse of applicable statutes of limitations		(10	)		(6	)

Balance at December 31	$	377		$	487

Our liability for unrecognized tax benefits was $418 million, including accrued interest of $45 million and excluding $4 million that was recorded as reductions of the related deferred tax assets, as of December 31, 2016 ($554 million, $73 million and $6 million, respectively, as of December 31, 2015). Unrecognized tax benefits of $137 million ($233 million as of December 31, 2015) would affect the effective rate, if recognized.

Depending on the resolution of any federal, state and foreign tax disputes, the completion of examinations by federal, state or foreign taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible that our liability for unrecognized tax benefits may significantly increase or decrease within the next 12 months. However, we are currently unable to estimate the range of any possible change.