Income Taxes

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



	Year Ended December 31,
	2017			2016			2015
	(in millions)
Current:
Federal	$	(11.1	)	$	(130.3	)	$	271.2
State	0.6			3.3			19.6
Foreign	6.3			7.7			18.6
Total current	(4.2		)	(119.3		)	309.4
Deferred:
Federal
Effect of Tax Cuts and Jobs Act	(476.2		)	—			—
Other	135.6			313.0			117.4
	(340.6		)	313.0			117.4
State	4.2			8.1			(0.3		)
Foreign	(1.0		)	0.3			(0.5		)
Total deferred	(337.4		)	321.4			116.6
Provision	$	(341.6	)	$	202.1		$	426.0

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,
	2017		2016		2015
Statutory rate	35.0	%	35.0	%	35.0	%
Effect of Tax Cuts and Jobs Act	(128.0	)	—		—
State taxes	1.3		1.4		1.2
Domestic production activities deduction	—		—		(1.4	)
Noncontrolling interest in partially-owned subsidiaries	(1.0	)	(1.3	)	(0.8	)
Settlements with tax authorities	(1.1	)	(0.1	)	—
Equity compensation	0.5		—		—
Changes in valuation allowances and reserves	1.8		0.3		—
Other, net	(0.3	)	0.4		—
Effective rate	(91.8	)%	35.7	%	34.0	%

Our effective tax rate reflects the Company's estimate for 2017 of its state income tax expense, income attributable to the noncontrolling interests in partially-owned leasing subsidiaries for which no income tax expense is provided, excess tax deficiencies related to equity compensation in accordance with ASU 2016-09, and the impact of the completion of income tax audits that resulted in a net tax benefit. See Note 5 Partially-Owned Leasing Subsidiaries for a further explanation of activities with respect to our partially-owned leasing subsidiaries.

The Tax Cuts and Jobs Act (the "Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign-sourced earnings. As of December 31, 2017, we have completed an initial assessment of the tax effects of the Act, and have made a reasonable estimate of the effects on our existing deferred tax balances. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to impact future tax returns. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts resulting in adjustments in future periods in 2018. The impact of the Act may differ from our estimate due to changes in the regulations, rulings, guidance, and interpretations issued by the IRS and the FASB as well as interpretations and assumptions made by the Company. For the items for which we were able to determine a reasonable estimate, we recognized a provisional net benefit of $476.2 million for the year ended December 31, 2017, which is included as a component of income tax expense.

Income (loss) before income taxes for the years ended December 31, 2017, 2016, and 2015 was $376.1 million, $573.1 million, and $1,241.1 million, respectively, for U.S. operations, and $(4.1) million, $(6.3) million, and $10.9 million, respectively, for foreign operations, principally Mexico and Canada. The Company provides deferred income taxes on the unrepatriated earnings of its foreign operations where it results in a deferred tax liability.

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,
	2017			2016
	(in millions)
Deferred tax liabilities:
Depreciation, depletion, and amortization	$	628.0		$	919.6
Partially-owned subsidiaries basis difference	117.2			171.5
Convertible debt	93.3			137.4
Total deferred tax liabilities	838.5			1,228.5
Deferred tax assets:
Workers compensation, pensions, and other benefits	23.8			46.7
Warranties and reserves	7.1			12.1
Equity items	32.0			52.6
Tax loss carryforwards and credits	33.7			24.9
Inventory	17.0			29.2
Accrued liabilities and other	10.9			6.5
Total deferred tax assets	124.5			172.0
Net deferred tax liabilities before valuation allowances	714.0			1,056.5
Valuation allowances	12.0			11.7
Net deferred tax liabilities before reserve for uncertain tax positions	726.0			1,068.2
Deferred tax assets included in reserve for uncertain tax positions	(2.1		)	(11.2		)
Adjusted net deferred tax liabilities	$	723.9		$	1,057.0

At December 31, 2017, the Company had $18.9 million of federal consolidated net operating loss carryforwards and $7.8 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 year ended December 31, 2017, the Internal Revenue Service ("IRS") formally closed its audit of the 2006-2009 tax years, and the 2013 tax year. We have adjusted unrecognized tax benefits and deferred tax amounts related to these tax years resulting in a $5.8 million tax benefit. The 2014-2016 tax years have been reviewed by the IRS with no significant adjustments. The 2014-2017 tax years remain open.

We have various subsidiaries in Mexico that file separate tax returns and are subject to examination by taxing authorities at different times. The 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, 2017, 2016, and 2015 was as follows:



	Year Ended December 31,
	2017			2016			2015
	(in millions)
Beginning balance	$	28.2		$	65.2		$	62.3
Additions for tax positions related to the current year	—			—			5.5
Additions for tax positions of prior years	4.7			1.0			—
Reductions for tax positions of prior years	—			(26.6		)	(0.7		)
Settlements	(23.3		)	(7.1		)	(1.9		)
Expiration of statute of limitations	(1.3		)	(4.3		)	—
Ending balance	$	8.3		$	28.2		$	65.2

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 prior years of $4.7 million and $1.0 million for the years ended December 31, 2017 and 2016, respectively, are due to state 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 that have been agreed to by the IRS. 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.

Settlements during the year ended December 31, 2017 were due to the resolution of our 2006-2009 tax years. Settlements for the year ended December 31, 2016 represent federal tax positions for the 2010-2011 tax years. Expiration of statutes of limitations during the years ended December 31, 2017 and 2016 relate to the 2013 and 2012 federal tax return, respectively, 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, 2017 and 2016, that would affect the Company’s effective tax rate if recognized was $10.2 million and $13.1 million, respectively. There is a reasonable possibility that unrecognized federal and state tax benefits will decrease by $5.2 million by December 31, 2018 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, 2017 and 2016 was $4.1 million and $8.9 million, respectively. Income tax expense for the years ended December 31, 2017, 2016, and 2015 included decreases of $4.8 million and $3.5 million and increases of $0.8 million, respectively, with regard to interest expense and penalties related to uncertain tax positions.