Taxes



Income Taxes	Year ended December 31
	2016			2015			2014
Income tax expense (benefit)
U.S. federal
Current	$	(623	)	$	(817	)	$	748
Deferred	(1,558		)	(580		)	1,330
State and local
Current	(15		)	(187		)	336
Deferred	(121		)	(109		)	36
Total United States	(2,317		)	(1,693		)	2,450
International
Current	2,744			2,997			9,235
Deferred	(2,156		)	(1,172		)	207
Total International	588			1,825			9,442
Total income tax expense (benefit)	$	(1,729	)	$	132		$	11,892

The reconciliation between the U.S. statutory federal income tax rate and the company’s effective income tax rate is detailed in the following table:



	2016			2015¹			2014¹
Income (loss) before income taxes
United States	$	(4,317	)	$	(2,877	)	$	6,296
International	2,157			7,719			24,906
Total income (loss) before income taxes	(2,160		)	4,842			31,202
Theoretical tax (at U.S. statutory rate of 35%)	(756		)	1,695			10,921
Equity affiliate accounting effect	(704		)	(1,286		)	(2,039		)
Effect of income taxes from international operations	608			72			2,708
State and local taxes on income, net of U.S. federal income tax benefit	(44		)	(74		)	234
Prior year tax adjustments, claims and settlements	(349		)	84			(76		)
Tax credits	(188		)	(35		)	(68		)
Other²	(296		)	(324		)	212
Total income tax expense (benefit)	$	(1,729	)	$	132		$	11,892

Effective income tax rate	80.0		%	2.7		%	38.1		%

¹2014 and 2015 conformed to 2016 presentation.

²Includes one-time tax benefits associated with changes in uncertain tax positions and valuation allowances.

The 2016 decline in income tax expense of $1,861, from an expense of $132 in 2015 to a benefit of $1,729 in 2016, is a result of the year-over-year reduction in total income before income tax expense, which is primarily due to effects of lower crude oil prices. The company’s effective tax rate changed from 2.7 percent in 2015 to 80 percent in 2016. The change in effective tax rate is primarily a consequence of the mix effect resulting from the absolute level of earnings or losses and whether they arose in higher or lower tax rate jurisdictions.

The company records its deferred taxes on a tax-jurisdiction basis. The reported deferred tax balances are composed of the following:



				At December 31
	2016			2015
Deferred tax liabilities
Properties, plant and equipment	$	25,180		$	27,044
Investments and other	5,222			3,743
Total deferred tax liabilities	30,402			30,787
Deferred tax assets
Foreign tax credits	(10,976		)	(10,534		)
Abandonment/environmental reserves	(6,251		)	(6,880		)
Employee benefits	(4,392		)	(4,801		)
Deferred credits	(1,950		)	(1,810		)
Tax loss carryforwards	(6,030		)	(2,748		)
Other accrued liabilities	(510		)	(525		)
Inventory	(374		)	(120		)
Miscellaneous	(3,121		)	(2,525		)
Total deferred tax assets	(33,604		)	(29,943		)
Deferred tax assets valuation allowance	16,069			15,412
Total deferred taxes, net	$	12,867		$	16,256

Deferred tax liabilities at the end of 2016 were essentially unchanged from year-end 2015. Deferred tax assets increased by approximately $3,700 in 2016. The increase primarily related to increased tax loss carryforwards.

The overall valuation allowance relates to deferred tax assets for U.S. foreign tax credit carryforwards, tax loss carryforwards and temporary differences. It reduces the deferred tax assets to amounts that are, in management’s assessment, more likely than not to be realized. At the end of 2016, the company had tax loss carryforwards of approximately $16,538 and tax credit carryforwards of approximately $1,423, primarily related to various international tax jurisdictions. Whereas some of these tax loss carryforwards do not have an expiration date, others expire at various times from 2017 through 2036. U.S. foreign tax credit carryforwards of $10,976 will expire between 2017 and 2026.

At December 31, 2016 and 2015, deferred taxes were classified on the Consolidated Balance Sheet as follows:



	At December 31
	2016			2015
Deferred charges and other assets	$	(4,649	)	$	(3,909	)
Noncurrent deferred income taxes	17,516			20,165
Total deferred income taxes, net	$	12,867		$	16,256

Effective January 1, 2016, Chevron early-adopted Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes (ASU 2015-17), on a retrospective basis. The standard provides that all deferred income taxes be classified as noncurrent on the Consolidated Balance Sheet. The prior requirement was to classify most deferred tax assets and liabilities based on the classification of the underlying asset or liability. The December 31, 2015, Consolidated Balance Sheet has been restated and the effects are reductions of $917 in "Prepaid expenses and other current assets," $603 in "Deferred charges and other assets," $996 in "Federal and other taxes on income," and $524 in "Noncurrent deferred income taxes."

Income taxes are not accrued for unremitted earnings of international operations that have been or are intended to be reinvested indefinitely. Undistributed earnings of international consolidated subsidiaries and affiliates for which no deferred income tax provision has been made for possible future remittances totaled approximately $46,400 at December 31, 2016. This amount represents earnings reinvested as part of the company’s ongoing international business. It is not practicable to estimate the amount of taxes that might be payable on the possible remittance of earnings that are intended to be reinvested indefinitely. At the end of 2016, deferred income taxes were recorded for the undistributed earnings of certain international operations where indefinite reinvestment of the earnings is not planned. The company does not anticipate incurring significant additional taxes on remittances of earnings that are not indefinitely reinvested.

Uncertain Income Tax Positions The company recognizes a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” in the accounting standards for income taxes refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.

The following table indicates the changes to the company’s unrecognized tax benefits for the years ended December 31, 2016, 2015 and 2014. The term “unrecognized tax benefits” in the accounting standards for income taxes refers to the differences between a tax position taken or expected to be taken in a tax return and the benefit measured and recognized in the financial statements. Interest and penalties are not included.



	2016			2015			2014
Balance at January 1	$	3,042		$	3,552		$	3,848
Foreign currency effects	1			(27		)	(25		)
Additions based on tax positions taken in current year	245			154			354
Additions/reductions resulting from current-year asset acquisitions/sales	—			—			(22		)
Additions for tax positions taken in prior years	181			218			37
Reductions for tax positions taken in prior years	(390		)	(678		)	(561		)
Settlements with taxing authorities in current year	(36		)	(5		)	(50		)
Reductions as a result of a lapse of the applicable statute of limitations	(12		)	(172		)	(29		)
Balance at December 31	$	3,031		$	3,042		$	3,552

Approximately 74 percent of the $3,031 of unrecognized tax benefits at December 31, 2016, would have an impact on the effective tax rate if subsequently recognized. Certain of these unrecognized tax benefits relate to tax carryforwards that may require a full valuation allowance at the time of any such recognition.

Tax positions for Chevron and its subsidiaries and affiliates are subject to income tax audits by many tax jurisdictions throughout the world. For the company’s major tax jurisdictions, examinations of tax returns for certain prior tax years had not been completed as of December 31, 2016. For these jurisdictions, the latest years for which income tax examinations had been finalized were as follows: United States – 2011, Nigeria – 2000, Angola – 2009 and Kazakhstan – 2007.

The company engages in ongoing discussions with tax authorities regarding the resolution of tax matters in the various jurisdictions. Both the outcome of these tax matters and the timing of resolution and/or closure of the tax audits are highly uncertain. However, it is reasonably possible that developments on tax matters in certain tax jurisdictions may result in significant increases or decreases in the company’s total unrecognized tax benefits within the next 12 months. Given the number of years that still remain subject to examination and the number of matters being examined in the various tax jurisdictions, the company is unable to estimate the range of possible adjustments to the balance of unrecognized tax benefits.

On the Consolidated Statement of Income, the company reports interest and penalties related to liabilities for uncertain tax positions as “Income tax expense.” As of December 31, 2016, accruals of $424 for anticipated interest and penalty obligations were included on the Consolidated Balance Sheet, compared with accruals of $399 as of year-end 2015. Income tax expense associated with interest and penalties was $38, $195 and $4 in 2016, 2015 and 2014, respectively.



Taxes Other Than on Income	Year ended December 31
	2016		2015		2014
United States
Excise and similar taxes on products and merchandise	$	4,335	$	4,426	$	4,633
Import duties and other levies	9		4		6
Property and other miscellaneous taxes	1,680		1,367		1,002
Payroll taxes	252		270		273
Taxes on production	159		157		349
Total United States	6,435		6,224		6,263
International
Excise and similar taxes on products and merchandise	2,570		2,933		3,553
Import duties and other levies	33		40		45
Property and other miscellaneous taxes	2,379		2,548		2,277
Payroll taxes	145		161		172
Taxes on production	106		124		230
Total International	5,233		5,806		6,277
Total taxes other than on income	$	11,668	$	12,030	$	12,540