Income Taxes

Income before provision for income taxes, classified by source of income, was as follows:



In millions	2015		2014		2013
U.S.	$	2,597.8	$	2,681.9	$	2,912.7
Outside the U.S.	3,957.9		4,690.1		5,291.8
Income before provision for income taxes	$	6,555.7	$	7,372.0	$	8,204.5

The provision for income taxes, classified by the timing and location of payment, was as follows:



In millions	2015			2014			2013
U.S. federal	$	1,072.3		$	1,124.8		$	1,238.2
U.S. state	139.5			148.4			175.0
Outside the U.S.	816.0			1,431.7			1,180.2
Current tax provision	2,027.8			2,704.9			2,593.4
U.S. federal	6.8			(81.8		)	46.2
U.S. state	(3.9		)	(6.2		)	(6.7		)
Outside the U.S.	(4.3		)	(2.7		)	(14.3		)
Deferred tax provision	(1.4		)	(90.7		)	25.2
Provision for income taxes	$	2,026.4		$	2,614.2		$	2,618.6

Net deferred tax liabilities consisted of:



In millions	December 31, 2015				2014
Property and equipment		$	1,751.7		$	1,754.6
Intangibles and other		1,188.8			907.0
Total deferred tax liabilities		2,940.5			2,661.6
Property and equipment		(472.7		)	(394.4		)
Employee benefit plans		(390.1		)	(400.3		)
Intangible assets		(222.6		)	(252.2		)
Deferred foreign tax credits		(289.2		)	(272.9		)
Operating loss carryforwards		(419.8		)	(286.5		)
Other		(297.0		)	(331.2		)
Total deferred tax assets before valuation allowance		(2,091.4		)	(1,937.5		)
Valuation allowance		322.4			287.9
Net deferred tax liabilities		$	1,171.5		$	1,012.0
Balance sheet presentation:
Deferred income taxes		$	1,704.3		$	1,624.5
Other assets-miscellaneous		(532.8		)	(591.2		)
Current assets-prepaid expenses and other current assets		0.0			(21.3		)
Net deferred tax liabilities		$	1,171.5		$	1,012.0

At December 31, 2015, the Company had net operating loss carryforwards of $1.5 billion, of which $1.2 billion has an indefinite carryforward. The remainder will expire at various dates from 2016 to 2031.

The Company's effective income tax rate is typically lower than the U.S. statutory tax rate primarily because non-U.S. income is generally subject to local statutory country tax rates that are below the 35% U.S. statutory tax rate and reflect the impact of global transfer pricing.

The statutory U.S. federal income tax rate reconciles to the effective income tax rates as follows:



	2015		2014		2013
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of related federal income tax benefit	1.6		1.6		1.3
Foreign income taxed at different rates	(4.9	)	(4.8	)	(5.1	)
Taxes related to unfavorable lower tax court ruling and audit progression in foreign tax jurisdictions	0.0		4.1		0.0
Cash repatriation	(2.3	)	(1.2	)	(0.5	)
Other, net	1.5		0.8		1.2
Effective income tax rates	30.9	%	35.5	%	31.9	%

As of December 31, 2015 and 2014, the Company’s gross unrecognized tax benefits totaled $781.2 million and $988.1 million, respectively. After considering the deferred tax accounting impact, it is expected that about $470 million of the total as of December 31, 2015 would favorably affect the effective tax rate if resolved in the Company’s favor.

The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:



In millions	2015			2014
Balance at January 1	$	988.1		$	512.7
Decreases for positions taken in prior years	(49.9		)	(19.5		)
Increases for positions taken in prior years	30.5			504.7
Increases for positions related to the current year	83.7			80.7
Settlements with taxing authorities	(258.0		)	(78.0		)
Lapsing of statutes of limitations	(13.2		)	(12.5		)
Balance at December 31⁽¹⁾	$	781.2		$	988.1


(1)	Of this amount, $704.0 million and $909.0 million are included in Other long-term liabilities for 2015 and 2014, respectively, and $21.9 million and $19.5 million are included in Current liabilities - income taxes for 2015 and 2014, respectively, on the Consolidated balance sheet. The remainder is included in Deferred income taxes on the Consolidated balance sheet.

In 2014, the Internal Revenue Service ("IRS") concluded its field examination of the Company's 2009 and 2010 U.S. federal income tax returns. In connection with this examination, the Company agreed to certain adjustments that had been proposed by the IRS and appropriately accounted for these adjustments in accordance with ASC 740. In early 2015, the IRS issued a Revenue Agent Report for these agreed adjustments,and the balance of unrecognized tax benefits was reduced accordingly. Also in connection with this examination, in 2014 the Company received notices of proposed adjustments ("NOPAs") related to certain transfer pricing matters. The Company disagrees with the IRS' proposed adjustments and filed a protest with the IRS Appeals Office in 2015. The Company is also under audit in multiple foreign tax jurisdictions for matters primarily related to transfer pricing. In addition, the Company is under audit in multiple state tax jurisdictions. It is reasonably possible that the total amount of unrecognized tax benefits could decrease up to $250 million within the next 12 months, of which up to $50 million could favorably affect the effective tax rate. This would be due to the possible settlement of the 2009 and 2010 IRS protest, completion of the aforementioned foreign and state tax audits and the expiration of the statute of limitations in multiple tax jurisdictions.

In addition, it is reasonably possible that, as a result of audit progression in both the U.S. and foreign tax audits within the next 12 months, there may be new information that causes the Company to reassess the total amount of unrecognized tax benefits recorded. While the Company cannot estimate the impact that new information may have on our unrecognized tax benefit balance, we believe that the liabilities recorded are appropriate and adequate as determined under ASC 740.

The Company operates within multiple tax jurisdictions and is subject to audit in these jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2009.

The Company had $83.6 million and $119.0 million accrued for interest and penalties at December 31, 2015 and 2014, respectively. The Company recognized interest and penalties related to tax matters of $21.1 million in 2015, $87.9 million in 2014, and $14.4 million in 2013, which are included in the provision for income taxes.

Deferred U.S. income taxes have not been recorded for temporary differences related to investments in certain foreign subsidiaries and corporate joint ventures. These temporary differences were approximately $14.9 billion at December 31, 2015 and consisted primarily of undistributed earnings considered permanently invested in operations outside the U.S. Determination of the deferred income tax liability on these unremitted earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.