NOTE 4 — INCOME TAXES

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


	2017		2016			2015
Current:
Federal	$	1,067	$	1,129		$	1,259
State		120		125			119
Foreign		19		37			40
Deferred:
Federal		423		75			(163	)
State		3		(5	)		(27	)
Foreign		6		17			33

	$	1,638	$	1,378		$	1,261

Our provision for income taxes for the year ended December 31, 2017 included an increase of $301 million related to the estimated impact of tax rate changes under the 2017 Tax Cuts and Jobs Act (the “Tax Act”) on our deferred tax assets and liabilities. Our provision for income taxes for the years ended December 31, 2017 and 2016 also included tax benefits of $82 million and $162 million, respectively, related to the settlement of employee equity awards. The provision for income taxes reflects $14 million and $15 million of reductions in interest expense (net of tax) and $7 million of interest expense (net of tax) for the years ended December 31, 2017, 2016 and 2015, respectively. 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. Our foreign pretax income was $91 million, $149 million and $178 million for the years ended December 31, 2017, 2016 and 2015, respectively.

The Tax Act was enacted on December 22, 2017. The Tax Act significantly revises U.S. corporate income taxes, including lowering the statutory corporate tax rate from 35% to 21% beginning in 2018 and imposing a mandatory one-time transition tax on undistributed foreign earnings. Due to the complexity and uncertainty regarding numerous provisions of the Tax Act, we have not completed our accounting for its effects. However, we have made reasonable estimates and recorded provisional amounts in our financial statements as of December 31, 2017.

A provisional amount of $301 million related to the remeasurement of our deferred tax assets and liabilities, primarily based on the lower tax rates at which they are expected to reverse in the future, was recorded as a component of our provision for income taxes for the year ended December 31, 2017.

We also reclassified a provisional amount of $127 million from our deferred tax liabilities for the one-time transition tax, based on our estimated undistributed post-1986 foreign earnings and profits. Because we had previously recorded U.S. taxes on these earnings, the transition tax liability, which is payable over an 8-year period, did not affect our 2017 provision for income taxes.

As we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by federal and state taxing authorities or other standard-setting bodies, we may make adjustments to the provisional amounts and record additional amounts for those federal, state, and foreign tax assets and liabilities for which we were unable to make reasonable estimates as of December 31, 2017. Any adjustments or additional amounts recorded may materially impact our provision for income taxes and effective tax rate in the periods in which they are made.

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


	2017			2016			2015
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		2.2			2.1			1.6
Change in liability for uncertain tax positions		—			(1.0	)		0.2
Tax benefit from settlements of employee equity awards		(2.0	)		(3.6	)		—
Impact of rate change on deferred tax balances		7.8			—			—
Other items, net		(0.5	)		(0.2	)		0.4

Effective income tax rate on income applicable to HCA Healthcare, Inc.		42.5			32.3			37.2
Income attributable to noncontrolling interests from consolidated partnerships		(5.1	)		(3.6	)		(5.3	)

Effective income tax rate on income before income taxes		37.4	%		28.7	%		31.9	%

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


	2017				2016
	Assets		Liabilities		Assets		Liabilities
Depreciation and fixed asset basis differences	$	—	$	260	$	—	$	235
Allowances for professional liability and other risks		345		—		495		—
Accounts receivable		243		—		351		—
Compensation		263		—		359		—
Other		420		501		794		918

	$	1,271	$	761	$	1,999	$	1,153

At December 31, 2017, federal and state net operating loss carryforwards (expiring in years 2020 through 2036) available to offset future taxable income approximated $82 million and $121 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):


	2017			2016
Balance at January 1	$	377		$	487
Additions based on tax positions related to the current year		40			11
Additions for tax positions of prior years		11			8
Reductions for tax positions of prior years		(13	)		(18	)
Settlements		—			(101	)
Lapse of applicable statutes of limitations		(16	)		(10	)

Balance at December 31	$	399		$	377

Our liability for unrecognized tax benefits was $439 million, including accrued interest of $44 million and excluding $4 million that was recorded as reductions of the related deferred tax assets, as of December 31, 2017 ($418 million, $45 million and $4 million, respectively, as of December 31, 2016). Unrecognized tax benefits of $145 million ($137 million as of December 31, 2016) would affect the effective rate, if recognized.

We are subject to examination by the IRS for tax years 2014 and later as well as by state and foreign taxing authorities. 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.