Income Taxes

The components of “Income from Continuing Operations Before Income Taxes” are as follows (in millions):



	Year Ended December 31,
	2012		2011		2010
United States	$	2,022	$	1,033	$	1,053
Foreign	33		79		73
Total Income from Continuing Operations Before Income Taxes.	$	2,055	$	1,112	$	1,126

Components of the income tax provision applicable to continuing operations for federal, foreign and state taxes are as follows (in millions):



	Year Ended December 31,
	2012			2011			2010
Taxes current expense:
Federal	$	17		$	13		$	5
State	10			16			10
Foreign	9			3			4
Total	36			32			19
Taxes deferred expense:
Federal	—			(7		)	5
State	—			(1		)	—
Foreign	(6		)	21			10
Total	(6		)	13			15
Total tax provision	$	30		$	45		$	34
Effective tax rate	1.5		%	4.0		%	3.0		%

The difference between the statutory federal income tax rate and our effective income tax rate is summarized as follows:



	Year Ended December 31,
	2012		2011		2010
Federal income tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) as a result of:
Partnership earnings not subject to tax	(35.0	)%	(35.0	)%	(35.0	)%
Corporate subsidiary earnings subject to tax	—	%	(0.8	)%	(0.1	)%
Income tax expense attributable to corporate equity earnings	0.9	%	1.5	%	0.9	%
Income tax expense attributable to foreign corporate earnings	0.1	%	2.1	%	1.3	%
State taxes	0.5	%	1.2	%	0.9	%
Effective tax rate	1.5	%	4.0	%	3.0	%

Our deferred tax assets and liabilities as of December 31, 2012 and 2011 resulted from the following (in millions):



	December 31,
	2012		2011
Deferred tax assets:
Book accruals	$	2	$	—
Net Operating Loss/Tax credits	42		31
Other	18		3
Total deferred tax assets	62		34
Deferred tax liabilities:
Property, plant and equipment	303		278
Other	8		6
Total deferred tax liabilities	311		284
Net deferred tax liabilities	$	249	$	250

We account for uncertainty in income taxes in accordance with the “Income Taxes” Topic of the Codification. Pursuant to these provisions, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based not only on the technical merits of the tax position based on tax law, but also on the past administrative practices and precedents of the taxing authority. The tax benefits recognized in our financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

A reconciliation of our beginning and ending gross unrecognized tax benefits (excluding interest and penalties) for each of the years ended December 31, 2012 and 2011 is as follows (in millions):



	Year Ended December 31,
	2012			2011
Balance at beginning of period	$	41		$	33
Additions based on current year tax positions	17			8
Additions based on prior year tax positions	—			—
Reductions based on settlements with taxing authority	—			—
Reductions due to lapse in statute of limitations	(6		)	—
Balance at end of period	$	52		$	41

Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the year ended December 31, 2012, we recognized approximately $2 million in interest expense; during the year ended December 31, 2011, we recognized approximately $1 million in interest expense; and during the year ended December 31, 2010, we recognized reductions in interest expense of approximately $1 million.

As of December 31, 2012, (i) we had $4 million of accrued interest and no accrued penalties; (ii) we believe it is reasonably possible that our $52 million liability for unrecognized tax benefits will increase by approximately $9 million during the next twelve months; and (iii) we believe the full amount of $52 million of unrecognized tax benefits, if recognized, would favorably affect our effective income tax rate in future periods. As of December 31, 2011, we had $3 million of accrued interest and no accrued penalties. In addition, we have U.S. and state tax years open to examination for the periods 2007 through 2012.