In December 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Reform Act. As a result of the Tax Reform Act, Altria recorded net tax benefits of approximately $3.4 billion in the fourth quarter of 2017 as discussed below. The main provisions of the Tax Reform Act that impacted Altria included: (i) a reduction in the U.S. federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018, and (ii) changes in the treatment of foreign-source income, commonly referred to as a modified territorial tax system.

The transition to a modified territorial tax system required Altria to record a deemed repatriation tax and an associated tax basis benefit in 2017. Substantially all of the deemed repatriation tax was related to Altria’s share of ABI’s accumulated earnings. Dividends received from ABI beginning in 2017, to the extent that such dividends represent previously taxed income attributable to the deemed repatriation tax, result in an associated tax basis expense, which reverses the tax basis benefit recorded in 2017.



(in millions)	2019			2018			2017
Earnings (losses) before income taxes:
United States	$	266		$	9,441		$	9,809
Outside United States	500			(100		)	19
Total	$	766		$	9,341		$	9,828
Provision (benefit) for income taxes:
Current:
Federal	$	1,686		$	1,911		$	2,346
State and local	470			519			366
Outside United States	3			1			15
	2,159			2,431			2,727
Deferred:
Federal	(78		)	(18		)	(3,213		)
State and local	(19		)	(42		)	86
Outside United States	2			3			1
	(95		)	(57		)	(3,126		)
Total provision (benefit) for income taxes	$	2,064		$	2,374		$	(399	)

Altria’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The U.S. federal income tax statute of limitations remains open for the year 2016 and forward, with years 2016 through 2018 currently under examination by the Internal Revenue Service (“IRS”) as part of an audit conducted in the ordinary course of business. With the exception of corresponding federal audit adjustments, state statutes of limitations generally remain open for the year 2015 and forward. Certain of Altria’s state tax returns are currently under examination by various states as part of routine audits conducted in the ordinary course of business.



(in millions)	2019			2018			2017
Balance at beginning of year	$	85		$	66		$	169
Additions based on tax positions related to the current year	—			—			—
Additions for tax positions of prior years	32			22			129
Reductions for tax positions due to lapse of statutes of limitations	—			—			(4		)
Reductions for tax positions of prior years	(16		)	(1		)	(208		)
Tax settlements	(37		)	(2		)	(20		)
Balance at end of year	$	64		$	85		$	66



(in millions)	2019			2018
Unrecognized tax benefits	$	64		$	85
Accrued interest and penalties	11			13
Tax credits and other indirect benefits	(1		)	(1		)
Liability for tax contingencies	$	74		$	97

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2019 was $40 million, along with $24 million affecting deferred taxes. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2018 was $59 million, along with $26 million affecting deferred taxes.

For the years ended December 31, 2019, 2018 and 2017, Altria recognized in its consolidated statements of earnings (losses) $6 million, $5 million and $(13) million, respectively, of gross interest expense (income) associated with uncertain tax positions.

Altria is subject to income taxation in many jurisdictions. Unrecognized tax benefits reflect the difference between tax positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. Resolution of the related tax positions with the relevant tax authorities may take many years to complete, and such timing is not entirely within the control of Altria. It is reasonably possible that within the next 12 months certain examinations will be resolved, which could result in a decrease in unrecognized tax benefits of approximately $28 million.

A reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to earnings (losses) before income taxes for the years ended December 31, 2019, 2018 and 2017 is as follows:



	2019					2018					2017
(dollars in millions)	$			%		$			%		$			%
U.S. federal statutory rate	$	161		21.0	%	$	1,962		21.0	%	$	3,440		35.0	%
Increase (decrease) resulting from:
State and local income taxes, net of federal tax benefit	356			46.5		377			4.0		345			3.5
Re-measurement of net deferred tax liabilities	—			—		—			—		(3,063		)	(31.2	)
Tax basis in foreign investments	84			11.0		140			1.5		(763		)	(7.8	)
Deemed repatriation tax	—			—		14			0.1		413			4.2
Uncertain tax positions	(40		)	(5.2	)	8			0.1		(89		)	(0.9	)
Investment in ABI	(210		)	(27.4	)	(104		)	(1.1	)	(580		)	(5.9	)
Investment in JUUL	1,808			236.0		15			0.2		—			—
Investment in Cronos	(66		)	(8.6	)	—			—		—			—
Domestic manufacturing deduction	—			—		—			—		(181		)	(1.8	)
Other ⁽¹⁾	(29		)	(3.8	)	(38		)	(0.4	)	79			0.8
Effective tax rate	$	2,064		269.5	%	$	2,374		25.4	%	$	(399	)	(4.1	)%

The tax provision in 2019 included tax expense of $2,024 million for a valuation allowance on a deferred tax asset related to Altria’s impairment of its investment in JUUL equity securities, tax expense of $84 million resulting from a partial reversal of the tax basis benefit associated with the deemed repatriation tax recorded in 2017 and tax expense of $38 million for a valuation allowance against foreign tax

credits not realizable. These amounts were partially offset by a tax benefit of $105 million for amended tax returns and audit adjustments relating to a prior year, a tax benefit of $100 million for accruals no longer required and a net tax benefit of $79 million related to Altria’s equity investment in Cronos, including a valuation allowance release on a deferred tax asset.

The tax provision in 2018 included tax expense of $188 million related to the Tax Reform Act as follows: (i) tax expense of $140 million resulting from a partial reversal of the tax basis benefit associated with the deemed repatriation tax recorded in 2017; (ii) tax expense of $34 million for a valuation allowance on foreign tax credit carryforwards that are not realizable as a result of updates to the provisional estimates recorded in 2017; and (iii) tax expense of $14 million for an adjustment to the provisional estimates for the repatriation tax recorded in 2017.

Substantially all of the 2018 amounts related to the tax basis adjustment, valuation allowance on foreign tax credits and repatriation tax relate to Altria’s share of ABI’s accumulated earnings and associated taxes. The adjustments recorded in 2018 to the provisional estimates recorded in 2017 were based on (i) additional guidance related to, or interpretation of, the Tax Reform Act and associated tax laws and (ii) additional information received from ABI, including information regarding ABI’s accumulated earnings and associated taxes for the 2016 and 2017 tax years. The accounting for the repatriation tax is complete; therefore, no further adjustments to the provisional estimates are required.

The tax benefit in 2017 included net tax benefits of $3,367 million related to the Tax Reform Act recorded in the fourth quarter of 2017 as follows: (i) a tax benefit of $3,017 million to re-measure Altria and its consolidated subsidiaries’ net deferred tax liabilities based on the new U.S. federal statutory rate and (ii) a net tax benefit of $763 million for a tax basis adjustment associated with the deemed repatriation tax, partially offset by tax expense of $413 million for the deemed repatriation tax.

The 2017 amounts related to the tax basis adjustment and the deemed repatriation tax were based on provisional estimates, substantially all of which were related to Altria’s share of ABI’s accumulated earnings and associated taxes.

The tax benefit in 2017 also included tax benefits of $232 million for the release of a valuation allowance in the third quarter of 2017 related to deferred income tax assets for foreign tax credit carryforwards, which is included in investment in ABI in the table above; and tax benefits of $152 million related primarily to the effective settlement in the second quarter of 2017 of the IRS audit of Altria and its consolidated subsidiaries’ 2010-2013 tax years, partially offset by tax expense of $114 million in the third quarter of 2017 for tax reserves related to the calculation of certain foreign tax credits.



(in millions)	2019			2018
Deferred income tax assets:
Accrued postretirement and postemployment benefits	$	491		$	500
Settlement charges	833			864
Accrued pension costs	131			155
Investment in JUUL	2,047			—
Investment in Cronos	197			—
Net operating losses and tax credit carryforwards	92			57
Total deferred income tax assets	3,791			1,576
Deferred income tax liabilities:
Property, plant and equipment	(255		)	(251		)
Intangible assets	(2,758		)	(2,689		)
Investment in ABI	(3,115		)	(3,038		)
Finance assets, net	(204		)	(313		)
Other	(158		)	(115		)
Total deferred income tax liabilities	(6,490		)	(6,406		)
Valuation allowances	(2,324		)	(71		)
Net deferred income tax liabilities	$	(5,023	)	$	(4,901	)



(in millions)	2019			2018		2017
Balance at beginning of year	$	71		$	—	$	240
Additions to valuation allowance related to Altria’s initial investment in Cronos	352			—		—
Additions to valuation allowance charged to income tax expense	2,063			71		—
Reductions to valuation allowance credited to income tax benefit	(159		)	—		(240		)
Foreign currency translation	(3		)	—		—
Balance at end of year	$	2,324		$	71	$	—

The 2019 valuation allowance was primarily attributable to the deferred tax asset recorded in connection with the impairment of Altria’s investment in JUUL equity securities. Altria determined, based on the weight of available evidence, that it is more-likely-than-not that the deferred tax asset related to the impairment of its investment in JUUL equity securities will not be realized; therefore, Altria recorded a full valuation allowance of $2,024 million against this deferred tax asset. In reaching this determination, Altria considered all available positive and negative evidence, including the character of the loss, carryback and carryforward considerations, future reversals of temporary differences and available tax planning strategies. For a discussion regarding the impairment of Altria’s investment in JUUL equity securities, see Note 7. Investments in Equity Securities.