Income taxes

The provision for taxes on income for the years ended December 31 consists of the following:



	2016			2015			2014
Pretax income
Domestic	$	318,702		$	255,897		$	224,683
Foreign	122,575			72,049			101,024
Total pretax income	$	441,277		$	327,946		$	325,707
Current
Federal	$	110,567		$	55,678		$	40,600
State	10,808			6,000			6,889
Foreign	40,788			31,610			29,630
Total current	$	162,163		$	93,288		$	77,119
Deferred
Federal	$	(861	)	$	11,002		$	29,078
State	(869		)	(2,359		)	5,067
Foreign	4,198			(14,193		)	(2,506		)
Total deferred	$	2,468		$	(5,550	)	$	31,639
Total taxes	$	164,631		$	87,738		$	108,758

Deferred tax liabilities/(assets) are comprised of the following at December 31:



	2016			2015
Property, plant and equipment	$	115,946		$	118,216
Intangibles	219,584			232,420
Gross deferred tax liabilities	$	335,530		$	350,636
Retiree health benefits	$	(971	)	$	(2,078	)
Foreign loss carryforwards	(61,381		)	(65,123		)
U.S. Federal loss carryforwards	(10,105		)	(1,214		)
Capital loss carryforwards	(20		)	(69		)
Employee benefits	(202,085		)	(192,798		)
Accrued liabilities and other	(93,142		)	(118,511		)
Gross deferred tax assets	$	(367,704	)	$	(379,793	)
Valuation allowance on deferred tax assets	$	49,797		$	49,464
Total deferred taxes, net	$	17,623		$	20,307

Federal operating loss carryforwards of approximately $2,600 remaining from the Tegrant acquisition were fully utilized in 2016. Federal loss carryforwards of approximately $29,000 were acquired in the 2016 acquisition of Plastic Packaging Inc. Foreign subsidiary loss carryforwards of approximately $241,000 remain at December 31, 2016. Their use is limited to future taxable earnings of the respective foreign subsidiaries. Approximately $226,200 of these loss carryforwards do not have an expiration date. Of the remaining foreign subsidiary loss carryforwards, approximately $7,700 expire within the next five years and approximately $7,100 expire between 2022 and 2034. Approximately $8,200 in tax value of state loss carryforwards and $16,000 of state credit carryforwards remain at December 31, 2016. These state loss and credit carryforwards are limited based upon future taxable earnings of the respective entities and expire between 2017 and 2036. State loss and credit carryforwards are reflected at their "tax" value, as opposed to the amount of expected gross deduction due to the vastly different apportionment and statutory tax rates applicable to the various entities and states in which they file.

The Company has recorded a $15,900 deferred tax asset in France primarily related to cumulative net operating losses. These losses have an indefinite carryforward period and the Company expects to utilize them over the next 20 to 25 years. Accordingly, a valuation allowance on the deferred asset has not been provided.

A reconciliation of the U.S. federal statutory tax rate to the actual consolidated tax expense is as follows:



	2016					2015					2014
Statutory tax rate	$	154,447		35.0	%	$	114,781		35.0	%	$	113,998		35.0	%
State income taxes, net of federal tax benefit	7,477			1.7		4,872			1.5	%	8,465			2.6	%
Valuation allowance	639			0.1		(8,080		)	(2.5	)%	(2,264		)	(0.7	)%
Tax examinations including change in reserve for uncertain tax positions	732			0.2		(3,245		)	(1.0	)%	(2,109		)	(0.6	)%
Adjustments to prior year deferred taxes	(2,401		)	(0.5	)	1,596			0.5	%	(518		)	(0.2	)%
Foreign earnings taxed at other than U.S. rates	(15,930		)	(3.6	)	(9,065		)	(2.8	)%	(8,891		)	(2.7	)%
Disposition of business	22,810			5.2		(11,996		)	(3.6	)%	—			—	%
Effect of tax rate changes enacted during the year	2,517			0.6		(2,235		)	(0.7	)%	81			—	%
Deduction related to qualified production activities	(5,215		)	(1.2	)	(5,968		)	(1.8	)%	(4,003		)	(1.2	)%
Other, net	(445		)	(0.1	)	7,078			2.2	%	3,999			1.2	%
Total taxes	$	164,631		37.3	%	$	87,738		26.8	%	$	108,758		33.4	%

The change in “Tax examinations including change in reserve for uncertain tax positions” is shown net of associated deferred taxes and accrued interest. Included in the change are net increases of approximately $3,000, $3,200 and $3,500 for uncertain items arising in 2016, 2015 and 2014, respectively, combined with adjustments related to prior year items, primarily decreases related to lapses of statutes of limitations in international, federal and state jurisdictions as well as overall changes in facts and judgment. These adjustments decreased the reserve by a total of approximately $(2,300), $(6,500) and $(5,600) in 2016, 2015 and 2014, respectively.

In many of the countries in which the Company operates, earnings are taxed at rates lower than in the U.S. This benefit is reflected in “Foreign earnings taxed at other than U.S. rates” along with other items, if any, that impacted taxes on foreign earnings in the periods presented.

The effect on tax expense for "Disposition of business" in 2016 relates to the sale of the Company's rigid plastic blow molding operations, its retail security packaging operation in Juncos, Puerto Rico, and its paper mill in France. The above adjustment reflects the recognition of tax gains in excess of book gains due to basis differences, and losses on which no future tax benefit will be recognized. For 2015, the adjustment pertains primarily to recognition of beneficial tax attributes related to the disposition of a portion of the Company's metal ends and closures business.

The benefits included in “Adjustments to prior year deferred taxes” for each of the years presented consist primarily of adjustments to deferred tax assets and liabilities arising from changes in estimates.

Undistributed earnings of international subsidiaries totaled approximately $799,373 at December 31, 2016. Deferred taxes have not been provided on the undistributed earnings, as the Company considers these amounts to be indefinitely reinvested to finance the growth and expansion of its international operations. Computation of the potential deferred tax liability associated with those undistributed earnings is not practicable. All or a portion of these earnings could become subject to current tax if they were remitted or loaned to the U.S. parent company, the stock of the foreign subsidiaries were sold, or through a future change in U.S. tax law.

Reserve for uncertain tax positions

The following table sets forth the reconciliation of the gross amounts of unrecognized tax benefits at the beginning and ending of the periods indicated:



	2016			2015			2014
Gross Unrecognized Tax Benefits at January 1	$	17,200		$	26,000		$	28,800
Increases in prior years’ unrecognized tax benefits	1,400			1,500			6,800
Decreases in prior years’ unrecognized tax benefits	(3,500		)	(2,100		)	(5,500		)
Increases in current year's unrecognized tax benefits	3,000			1,700			4,600
Decreases in unrecognized tax benefits from the lapse of statutes of limitations	(100		)	(9,200		)	(5,900		)
Settlements	(300		)	(700		)	(2,800		)
Gross Unrecognized Tax Benefits at December 31	$	17,700		$	17,200		$	26,000

Of the unrecognized tax benefit balances at December 31, 2016 and December 31, 2015, approximately $15,300 and $15,000, respectively, would have an impact on the effective tax rate if ultimately recognized.

Interest and/or penalties related to income taxes are reported as part of income tax expense. The Company had approximately $2,300 and $2,200 accrued for interest related to uncertain tax positions at December 31, 2016 and December 31, 2015, respectively. Tax expense for the year ended December 31, 2016, includes approximately $200 of interest expense, which is comprised of an interest benefit of approximately $550 related to the adjustment of prior years' items and interest expense of $750 on unrecognized tax benefits. The amounts listed above for accrued interest and interest expense do not reflect the benefit of a federal tax deduction which would be available if the interest were ultimately paid.

The Company and/or its subsidiaries file federal, state and local income tax returns in the United States and various foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, or non-U.S., income tax examinations by tax authorities for years before 2012. With respect to state and local income taxes, the Company is no longer subject to examination prior to 2012, with few exceptions.

The Company has $1,900 of reserves for uncertain tax benefits for which it believes it is reasonably possible that a resolution may be reached within the next twelve months. The estimate for the potential outcome of any uncertain tax issue is highly judgmental. The Company believes it has adequately provided for any reasonably foreseeable outcome related to these matters. However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which earnings or deductions are realized may differ from current estimates. As a result, the effective tax rate may fluctuate significantly on a quarterly basis. The Company has operations in many countries outside of the United States and the taxes paid on those earnings are subject to varying rates. The Company is not dependent upon the favorable benefit of any one jurisdiction to an extent that loss of those benefits would have a material effect on the Company's overall effective tax rate.

In February 2017, the Company received a draft Notice of Proposed Adjustment (“NOPA”) from the Internal Revenue Service (IRS) proposing an adjustment to income for the 2013 tax year based on the IRS's recharacterization of a distribution of an intercompany note made in 2012, and the subsequent repayment of the note over the course of 2013, as if it were a cash distribution made in 2013. At the time the distribution was paid in 2012, it was characterized as a dividend to the extent of earnings and profits, with the remainder as a tax free return of basis and capital gain. As the IRS proposes to recharacterize the distribution, the entire distribution would be characterized as a dividend. The incremental tax liability associated with the income adjustment proposed in the NOPA would be approximately $84,000, excluding interest and penalties. The Company expects a final NOPA to be issued during the first quarter of 2017, and intends to file a protest to the proposed deficiency with the IRS, which will cause the matter to be referred to the Appeals Division of the IRS. The Company strongly believes the position of the IRS with regard to this matter is inconsistent with applicable tax laws and existing Treasury regulations, and that the Company's previously reported income tax provision for the year in question is appropriate. However, there can be no assurance that this matter will be resolved in the Company's favor. Regardless of whether the matter is resolved in the Company's favor, the final resolution of this matter could be expensive and time consuming to defend and/or settle. While the Company believes that the amount of tax originally paid with respect to this distribution is correct, and accordingly has not provided additional reserve for tax uncertainty, there is still a possibility that an adverse outcome of the matter could have a material effect on its results of operations and financial condition.