Income Taxes

The components of the provision for income taxes are as follows:



	Year Ended December 31,
	2016			2015			2014
	(in millions)
Current:
Federal	$	(130.3	)	$	271.2		$	322.7
State	3.3			19.6			19.4
Foreign	7.7			18.6			18.5
Total current	(119.3		)	309.4			360.6
Deferred:
Federal	313.0			117.4			(4.0		)
State	8.1			(0.3		)	1.2
Foreign	0.3			(0.5		)	(3.0		)
Total deferred	321.4			116.6			(5.8		)
Provision	$	202.1		$	426.0		$	354.8

The provision for income taxes results in effective tax rates that differ from the statutory rates. The following is a reconciliation between the statutory U.S. federal income tax rate and the Company’s effective income tax rate on income before income taxes:



	Year Ended December 31,
	2016		2015		2014
Statutory rate	35.0	%	35.0	%	35.0	%
State taxes	1.4		1.2		1.4
Domestic production activities deduction	—		(1.4	)	(2.0	)
Noncontrolling interest in partially-owned subsidiaries	(1.3	)	(0.8	)	(1.1	)
Changes in valuation allowances and reserves	0.3		—		0.1
Other, net	0.3		—		(0.1	)
Effective rate	35.7	%	34.0	%	33.3	%

Income (loss) before income taxes for the years ended December 31, 2016, 2015, and 2014 was $573.1 million, $1,241.1 million, and $1,051.4 million, respectively, for U.S. operations, and $(6.3) million, $10.9 million, and $12.6 million, respectively, for foreign operations, principally Mexico. The Company provides deferred income taxes on the unrepatriated earnings of its foreign operations where it results in a deferred tax liability. Our effective tax rate reflects the current tax benefit available for U.S. manufacturing activity, when applicable.

Deferred income taxes represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax liabilities and assets are as follows:



	December 31,
	2016			2015
	(in millions)
Deferred tax liabilities:
Depreciation, depletion, and amortization	$	919.6		$	711.6
Partially-owned subsidiaries basis difference	171.5			144.0
Convertible debt	137.4			125.2
Total deferred tax liabilities	1,228.5			980.8
Deferred tax assets:
Workers compensation, pensions, and other benefits	46.7			73.7
Warranties and reserves	12.1			11.4
Equity items	52.6			52.4
Tax loss carryforwards and credits	24.9			25.7
Inventory	29.2			34.1
Accrued liabilities and other	6.5			8.3
Total deferred tax assets	172.0			205.6
Net deferred tax liabilities before valuation allowances	1,056.5			775.2
Valuation allowances	11.7			10.1
Net deferred tax liabilities before reserve for uncertain tax positions	1,068.2			785.3
Deferred tax assets included in reserve for uncertain tax positions	(11.2		)	(50.5		)
Adjusted net deferred tax liabilities	$	1,057.0		$	734.8

At December 31, 2016, the Company had $21.0 million of federal consolidated net operating loss carryforwards and $6.5 million of tax-effected state loss carryforwards remaining. The federal net operating loss carryforwards were acquired as part of an acquisition of a company in 2010 and are subject to limitations on the amount that can be utilized in any one tax year. The federal net operating loss carryforwards are due to expire in 2028 and 2029. We have established a valuation allowance for federal, state, and foreign tax operating losses and credits that we have estimated may not be realizable.

Taxing authority examinations

During the fourth quarter of 2016, the Internal Revenue Service ("IRS") formally closed its audit of the 2010-2011 tax years and sent the results of its 2006-2009 tax year examinations to the Joint Committee on Taxation ("JCT") for review as required. We now consider the 2010-2011 tax years effectively settled and, as of December 31, 2016, have adjusted the related reserves and deferred tax assets affected by the settlement with no significant effect on the Company’s consolidated financial statements. We expect the 2006-2009 tax year examinations to be effectively settled in 2017. The 2013-2015 tax years are currently under IRS audit examination. The statute of limitations expired on the 2012 tax year for the federal tax return.

We have various subsidiaries in Mexico that file separate tax returns and are subject to examination by taxing authorities at different times. The 2007 tax year of one of our Mexican subsidiaries is still under review for transfer pricing purposes only, and its statute of limitations remains open through the later of the resolution of the mutual agreement process or July 2018. The remaining entities are generally open for their 2010 tax years and forward.

Unrecognized tax benefits

The change in unrecognized tax benefits for the years ended December 31, 2016, 2015, and 2014 was as follows:



	Year Ended December 31,
	2016			2015			2014
	(in millions)
Beginning balance	$	65.2		$	62.3		$	55.0
Additions for tax positions related to the current year	—			5.5			5.0
Additions for tax positions of prior years	1.0			—			2.5
Reductions for tax positions of prior years	(26.6		)	(0.7		)	(0.1		)
Settlements	(7.1		)	(1.9		)	—
Expiration of statute of limitations	(4.3		)	—			(0.1		)
Ending balance	$	28.2		$	65.2		$	62.3

Additions for tax positions related to the current year in the amount of $5.5 million for the year ended December 31, 2015 were amounts provided for tax positions that were taken for federal and state income tax purposes when we filed the tax return. Additions for tax positions related to the current year in the amount of $5.0 million for the year ended December 31, 2014, were amounts provided for tax positions taken for federal, state, and Mexico income tax purposes.

Additions for tax positions related to prior years of $1.0 million for the year ended December 31, 2016 are due to a state filing position. Additions for tax positions of prior years in the amount of $2.5 million recorded in the year ended December 31, 2014 are related to federal, state, and foreign tax positions.

Reductions for tax positions of prior years of $26.6 million for the year ended December 31, 2016 related primarily to remeasured federal tax positions based upon new information for which we are now highly certain that we would ultimately prevail. The corresponding deferred tax assets related to these positions have also been removed. The reduction in tax positions of prior years of $0.7 million for the year ended December 31, 2015 was related to changes to transfer pricing and state taxes and $0.1 million for the year ended December 31, 2014 was primarily related to changes in state taxes.

Settlements for the year ended December 31, 2016 represent federal tax positions for the 2010-2011 tax years that settled during the fourth quarter of 2016. Expiration of statutes of limitations relate to the 2012 federal tax return as well as some state statutes. Settlements during the twelve months ended December 31, 2015 were due to a state tax position effectively settled upon audit and a settlement of an audit of one of our Mexican companies.

The total amount of unrecognized tax benefits including interest and penalties at December 31, 2016 and 2015, that would affect the Company’s effective tax rate if recognized was $13.1 million and $13.9 million, respectively. There is a reasonable possibility that unrecognized federal and state tax benefits will decrease by $24.4 million by December 31, 2017 due to settlements and lapses in statutes of limitations for assessing tax years in which an extension was not requested by the taxing authority.

Trinity accounts for interest expense and penalties related to income tax issues as income tax expense. Accordingly, interest expense and penalties associated with an uncertain tax position are included in the income tax provision. The total amount of accrued interest and penalties as of December 31, 2016 and 2015 was $8.9 million and $12.4 million, respectively. Income tax expense for the year ended December 31, 2016 included decreases of $3.5 million with regard to interest expense and penalties related to uncertain tax positions. Income tax expense for the years ended December 31, 2015 and 2014 included increases of $0.8 million, and $0.8 million, respectively, with regard to interest expense and penalties related to uncertain tax positions.