Note 9. Income Taxes

12 Months Ended

Dec. 31, 2019

Note 9. Income Taxes

The components of the provision (benefit) for income taxes from continuing operations are as follows:



	Year Ended December 31,
	2019			2018			2017
	(in millions)
Current:
Federal	$	(6.0	)	$	(19.1	)	$	(61.1	)
State	6.6			(1.5		)	(1.1		)
Foreign	6.1			5.3			4.5
Total current	6.7			(15.3		)	(57.7		)
Deferred:
Federal
Effect of Tax Cuts and Jobs Act	—			(5.9		)	(476.2		)
Other	44.0			49.1			121.9
	44.0			43.2			(354.3		)
State	12.3			14.7			(2.8		)
Foreign	(1.5		)	—			—
Total deferred	54.8			57.9			(357.1		)
Provision (benefit)	$	61.5		$	42.6		$	(414.8	)

The provision for income taxes from continuing operations 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 our effective income tax rate on income before income taxes:



	Year Ended December 31,
	2019		2018		2017
Statutory rate	21.0	%	21.0	%	35.0	%
State taxes	2.2		2.3		(1.9	)
Foreign branch taxes	1.2		2.9		—
Executive compensation limitations	1.2		0.9		—
Interest expense limitations from partially-owned subsidiaries	1.0		1.3		—
Noncontrolling interest in partially-owned subsidiaries	0.1		(0.5	)	(2.0	)
Equity compensation	(0.8	)	(1.4	)	0.8
Changes in state laws and apportionment	4.3		5.2		(0.5	)
Effect of Tax Cuts and Jobs Act	—		(3.9	)	(243.7	)
Changes in valuation allowances and reserves	—		1.6		1.9
Settlements with tax authorities	—		—		(2.1	)
Other, net	0.4		(1.3	)	0.3
Effective rate	30.6	%	28.1	%	(212.2	)%

The effective tax rate is based upon the U.S. statutory rate of 21.0%, 21.0%, and 35.0% for the years ended December 31, 2019, 2018, and 2017, respectively. For the year ended December 31, 2019, the difference between the U.S. statutory rate and effective tax rate is primarily due to state income tax expense, foreign branch taxes, and changes in state tax laws and apportionment. The changes in apportionment include the effects of a one-time, non-cash, deferred tax impact related to our planned Maintenance Services expansion into a new Midwest facility of $9.7 million. For the year ended December 31, 2018, the difference between the U.S. statutory tax rate and the effective tax rate was primarily attributed to state taxes, foreign branch taxes, the impact changes in state apportionment and state tax laws, and the final accounting for the effects of the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017. For the year ended December 31, 2017, the difference between the statutory tax rate and effective tax rate was primarily attributable to the enactment of the Tax Act. See Note 5 for a further explanation of activities with respect to our partially-owned leasing subsidiaries.

The Tax Act reduced the U.S. federal corporate income tax rate from 35.0% to 21.0%. The Tax Act also required certain calendar year companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that had previously not been taxed in the U.S. as part of their 2017 tax return filing. Beginning with the 2018 tax year, the Tax Act subjects certain earnings of foreign subsidiaries to U.S. taxation; in 2018, the Company did not incur the new U.S. tax on the income of its foreign subsidiaries. For the year ended December 31, 2017, we recognized a provisional net benefit of $476.2 million. During the year ended December 31, 2018, we finalized the accounting for the enactment of the Tax Act and recorded an additional benefit of $5.9 million, primarily as a result of truing up deferred taxes and our calculation of the one-time transition tax.

Income (loss) before income taxes for the years ended December 31, 2019, 2018, and 2017 was $201.1 million, $139.8 million, and $186.2 million, respectively, for U.S. operations, and $(0.4) million, $11.8 million, and $9.2 million, respectively, for foreign operations, principally Mexico and Canada.

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,
	2019			2018
	(in millions)
Deferred tax liabilities:
Depreciation, depletion, and amortization	$	913.4		$	718.4
Partially-owned subsidiaries basis difference	144.7			131.7
Right-of-use assets	10.0			—
Total deferred tax liabilities	1,068.1			850.1
Deferred tax assets:
Workers compensation, pensions, and other benefits	3.1			5.7
Warranties and reserves	4.5			8.1
Equity items	46.1			34.0
Tax loss carryforwards and credits	229.0			65.5
Inventory	5.1			8.9
Accrued liabilities and other	9.7			9.1
Lease liabilities	10.0			—
Total deferred tax assets	307.5			131.3
Net deferred tax liabilities before valuation allowances	760.6			718.8
Valuation allowances	19.5			15.1
Net deferred tax liabilities before reserve for uncertain tax positions	780.1			733.9
Deferred tax assets included in reserve for uncertain tax positions	(1.0		)	(2.3		)
Adjusted net deferred tax liabilities	$	779.1		$	731.6

At December 31, 2019, we had $940.5 million of federal consolidated net operating loss carryforwards and $13.2 million of tax-effected state loss carryforwards remaining. $18.9 million of the federal net operating loss carryforwards was acquired as part of an acquisition of a company in 2010 and is subject to limitations on the amount that can be utilized in any one tax year. The acquired federal net operating loss carryforwards are due to expire in 2028 and 2029. The federal net operating loss generated in the current year can be carried forward indefinitely. 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

We have settled our 2015 and 2016 tax years and received partial acceptance of our 2017 and 2018 tax years, pending final review of items related to the spin-off of Arcosa. The 2014-2019 tax years remain open. Our subsidiaries in Mexico file separate tax returns and are subject to examination by taxing authorities at different times. The entities statutes of limitations are open for their 2014 tax years and forward.

Unrecognized tax benefits

The change in unrecognized tax benefits for the years ended December 31, 2019, 2018, and 2017 was as follows:



	Year Ended December 31,
	2019			2018			2017
	(in millions)
Beginning balance	$	8.1		$	7.0		$	20.7
Additions for tax positions of prior years	—			3.0			4.5
Reductions for tax positions of prior years	—			(0.3		)	—
Settlements	(5.8		)	(1.5		)	(17.2		)
Expiration of statute of limitations	—			(0.1		)	(1.0		)
Ending balance	$	2.3		$	8.1		$	7.0

Settlements during the years ended December 31, 2019 and 2018 were due to the resolution of state audits. Settlements for the year ended December 31, 2017 were due to the Internal Revenue Service's ("IRS") resolution of our 2006-2009 tax years. Expiration of statutes of limitations during the years ended December 31, 2018 and 2017 relate to the 2013 and 2012 federal tax return, respectively, as well as some state statutes.

The total amount of unrecognized tax benefits including interest and penalties at December 31, 2019 and 2018, that would affect our effective tax rate if recognized, was $4.0 million and $9.4 million, respectively.

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 from continuing operations as of December 31, 2019 and 2018 was $2.7 million and $3.7 million, respectively. Income tax expense for the years ended December 31, 2019, 2018, and 2017 included a decrease of $1.0 million, an increase of $0.5 million, and a decrease of $3.3 million, respectively, with regard to interest expense and penalties related to uncertain tax positions.