8. INCOME TAXES

The provision for income taxes by taxing jurisdiction and by significant component consisted of the following in millions of dollars:


	2016		2015		2014
Current:
U.S.:
Federal	$	51	$	377	$	1,217
State		26		32		126
Foreign		340		449		564
Total current		417		858		1,907
Deferred:
U.S.:
Federal		297		21		(189)
State		11		4		(11)
Foreign		(25)		(43)		(80)
Total deferred		283		(18)		(280)
Provision for income taxes	$	700	$	840	$	1,627

Based upon the location of the company’s operations, the consolidated income before income taxes in the U.S. in 2016, 2015 and 2014 was $967 million, $1,838 million and $3,219 million, respectively, and in foreign countries was $1,257 million, $942 million and $1,578 million, respectively. Certain foreign operations are branches of Deere & Company and are subject to U.S. as well as foreign income tax regulations. The pretax income by location and the preceding analysis of the income tax provision by taxing jurisdiction are not directly related.

A comparison of the statutory and effective income tax provision and reasons for related differences in millions of dollars follow:


	2016		2015		2014
U.S. federal income tax provision at a statutory rate of 35 percent	$	778	$	973	$	1,679
Increase (decrease) resulting from:
State and local income taxes, net of federal income tax benefit		26		23		75
Differences in taxability of foreign (earnings) losses		(107)		(449)		(305)
Nondeductible impairment charges		4				32
Research and business tax credits		(57)		(76)		(99)
Tax rates on foreign earnings		(27)		(36)		(71)
Valuation allowance on deferred taxes		79		384		454
Other-net		4		21		(138)
Provision for income taxes	$	700	$	840	$	1,627

At October 31, 2016, accumulated earnings in certain subsidiaries outside the U.S. totaled $5,787 million for which no provision for U.S. income taxes or foreign withholding taxes has been made, because it is expected that such earnings will be reinvested outside the U.S. indefinitely. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable. At October 31, 2016, the amount of cash and cash equivalents and marketable securities held by these foreign subsidiaries was $2,301 million.

Deferred income taxes arise because there are certain items that are treated differently for financial accounting than for income tax reporting purposes. An analysis of the deferred income tax assets and liabilities at October 31 in millions of dollars follows:


	2016				2015
	Deferred		Deferred		Deferred		Deferred
	Tax		Tax		Tax		Tax
	Assets		Liabilities		Assets		Liabilities
Other postretirement benefit liabilities	$	2,191			$	1,972
Tax over book depreciation			$	578			$	574
Accrual for sales allowances		592				618
Lease transactions				817				528
Tax loss and tax credit carryforwards		661				604
Foreign unrealized losses		472				458
Pension liability - net		706				315
Accrual for employee benefits		133				172
Share-based compensation		152				141
Goodwill and other intangible assets				89				80
Allowance for credit losses		88				72
Deferred gains on distributed foreign earnings		32				33
Deferred compensation		50				51
Undistributed foreign earnings				30				25
Other items		439		175		436		119
Less valuation allowances		(1,029)				(940)
Deferred income tax assets and liabilities	$	4,487	$	1,689	$	3,932	$	1,326

Deere & Company files a consolidated federal income tax return in the U.S., which includes the wholly-owned financial services subsidiaries. These subsidiaries account for income taxes generally as if they filed separate income tax returns.

At October 31, 2016, certain tax loss and tax credit carryforwards of $661 million, of which $60 million are capital losses, were available with $178 million expiring from 2017 through 2036 and $483 million with an indefinite carryforward period.

A reconciliation of the total amounts of unrecognized tax benefits at October 31 in millions of dollars follows:


	2016		2015		2014
Beginning of year balance	$	229	$	213	$	272
Increases to tax positions taken during the current year		14		32		28
Increases to tax positions taken during prior years		11		29		20
Decreases to tax positions taken during prior years		(36)		(15)		(84)
Decreases due to lapse of statute of limitations		(7)		(11)		(4)
Settlements		(5)		(6)
Foreign exchange		(8)		(13)		(19)
End of year balance	$	198	$	229	$	213

The amount of unrecognized tax benefits at October 31, 2016 and 2015 that would affect the effective tax rate if the tax benefits were recognized was $81 million and $79 million, respectively. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next twelve months would not be significant.

The company files its tax returns according to the tax laws of the jurisdictions in which it operates, which includes the U.S. federal jurisdiction, and various state and foreign jurisdictions. The U.S. Internal Revenue Service has completed the examination of the company’s federal income tax returns for periods prior to 2009. The years 2009 through 2014 federal income tax returns are currently under examination. Various state and foreign income tax returns, including major tax jurisdictions in Canada and Germany, also remain subject to examination by taxing authorities.

The company’s policy is to recognize interest related to income taxes in interest expense and interest income, and recognize penalties in selling, administrative and general expenses. During 2016, 2015 and 2014, the total amount of expense from interest and penalties was none, $23 million and $11 million and the interest income was none, $3 million and $4 million, respectively. At October 31, 2016 and 2015, the liability for accrued interest and penalties totaled $68 million and $69 million and the receivable for interest was none and $2 million, respectively.