19.	Income Taxes

We and our principal domestic subsidiaries are included in a consolidated U.S. federal income tax return. Our international subsidiaries file various income tax returns in their jurisdictions. Earnings before income taxes in the table below include the impact of intercompany interest expense between domestic and foreign legal entities. Domestic intercompany interest income and offsetting foreign intercompany interest expense were $

40.1

million in 2019, $

65.8

million in 2018 and $

64.2

million in 2017. Significant components of earnings before income taxes and the provision for income taxes are as follows (in millions):


	Year Ended December 31,
	2019			2018			2017
Earnings before income taxes:
United States	$	388.4		$	337.6		$	274.1
Foreign, principally Australia, Canada, New Zealand and the U.K.		237.7			141.8			85.7

Total earnings before income taxes	$	626.1		$	479.4		$	359.8

Provision (benefit) for income taxes:
Federal:
Current	$	3.8		$	—		$	7.1
Deferred		(142.5	)		(214.0	)		(183.5	)

		(138.7	)		(214.0	)		(176.4	)

State and local:
Current		11.1			15.4			11.6
Deferred		(6.0	)		(29.0	)		(3.9	)

		5.1			(13.6	)		7.7

Foreign:
Current		66.6			60.7			25.9
Deferred		(22.7	)		(29.6	)		(14.3	)

		43.9			31.1			11.6

Total benefit for income taxes	$	(89.7	)	$	(196.5	)	$	(157.1	)

A reconciliation of the provision for income taxes with the U.S. federal statutory income tax rate is as follows (in millions, except percentages):


	Year Ended December 31,
	2019						2018						2017
	Amount			% of Pretax Earnings			Amount			% of Pretax Earnings			Amount			% of Pretax Earnings
Federal statutory rate	$	131.5			21.0		$	100.7			21.0		$	126.0			35.0
State income taxes - net of
Federal benefit		4.4			0.7			8.5			1.8			5.0			1.4
Differences related to non U.S. operations		(10.1	)		(1.6	)		(14.8	)		(3.1	)		(46.9	)		(13.0	)
Alternative energy and other tax credits		(196.1	)		(31.3	)		(252.9	)		(52.8	)		(230.1	)		(64.0	)
Other permanent differences		(7.6	)		(1.2	)		0.9			0.2			(10.6	)		(2.9	)
U.S. repatriation tax		—			—			(1.8	)		(0.4	)		36.8			10.2
Stock-based compensation		(16.2	)		(2.6	)		(15.0	)		(3.1	)		(15.1	)		(4.2	)
Changes in unrecognized tax benefits		0.8			0.1			(0.2	)		—			(0.9	)		(0.3	)
Change in valuation allowance		7.5			1.2			(22.0	)		(4.6	)		12.3			3.4
Change in tax rates		(3.7	)		(0.6	)		—			—			(33.2	)		(9.2	)
Other		(0.2	)		—			0.1			—			(0.4	)		(0.1	)

Benefit for income taxes	$	(89.7	)		(14.3	)	$	(196.5	)		(41.0	)	$	(157.1	)		(43.7	)

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in millions):


	December 31,
	2019			2018
Gross unrecognized tax benefits at January 1	$	10.7		$	10.9
Increases in tax positions for current year		2.1			1.7
Settlements		(0.4	)		—
Lapse in statute of limitations		(1.1	)		(1.4	)
Increases in tax positions for prior years		0.6			0.4
Decreases in tax positions for prior years		(0.4	)		(0.9	)

Gross unrecognized tax benefits at December 31	$	11.5		$	10.7

The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $

9.4

million, and $

8.8

million at December 31, 2019 and 2018, respectively. We accrue interest and penalties related to unrecognized tax benefits in our provision for income taxes. At December 31, 2019 and 2018, we had accrued interest and penalties related to unrecognized tax benefits of $

3.1

million and $

2.9

million, respectively.We file income tax returns in the U.S. and in various state, local and foreign jurisdictions. We are routinely examined by tax authorities in these jurisdictions. At December 31, 2019, our corporate returns had been examined by the IRS through calendar year 2010. The IRS is currently conducting various examinations of calendar years

2011 and 2012

. In addition, a number of foreign, state, local and partnership examinations are currently ongoing. It is reasonably possible that our gross unrecognized tax benefits may change within the next twelve months. However, we believe any changes in the recorded balance would not have a significant impact on our consolidated financial statements.

Deferred income taxes reflect the net 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. Significant components of our deferred tax assets and liabilities are as follows (in millions):


	December 31,
	2019			2018
Deferred tax assets:
Alternative minimum tax and other credit carryforwards	$	962.1		$	856.9
Accrued and unfunded compensation and employee benefits		156.0			158.8
Amortizable intangible assets		54.3			48.8
Compensation expense related to stock options		11.3			12.2
Accrued liabilities		63.9			63.8
Accrued pension liability		9.9			11.5
Investments		0.9			1.5
Net operating loss carryforwards		37.2			36.8
Capital loss carryforwards		12.6			12.2
Lease liabilities		65.3			4.2
Hedging instruments		11.7			1.9
Other		4.3			3.4

Total deferred tax assets		1,389.5			1,212.0
Valuation allowance for deferred tax assets		(80.5	)		(67.4	)

Deferred tax assets		1,309.0			1,144.6

Deferred tax liabilities:
Nondeductible amortizable intangible assets		322.4			297.6
Investment-related partnerships		9.1			13.6
Depreciable fixed assets		22.4			25.4
Right-of-use assets		62.6			—
Revenue recognition		63.7			98.1
Other prepaid items		10.6			10.6

Total deferred tax liabilities		490.8			445.3

Net deferred tax assets	$	818.2		$	699.3

At December 31, 2019 and 2018, $

127.5

million and $

106.9

million, respectively, have been included in noncurrent liabilities in the accompanying consolidated balance sheet. Alternative minimum tax credits of $

14.3

million have an indefinite life and will be utilized or refunded in 2020, according to a specific formula, general business tax credits of $

937.2

million begin to expire, if not utilized, i

2034

and state credits, net of federal benefit, of $

10.6

million expire, if not used, by

2023

. We expect the historically favorable trend in earnings before income taxes to continue in the foreseeable future. Accordingly, we expect to make full use of the net deferred tax assets. Valuation allowances have been established for certain foreign intangible assets and various net operating loss carryforwards that may not be utilized in the future.

We have not provided for state or withholding income taxes on the undistributed earnings of $

574.0

million and $

631.0

million at December 31, 2019 and 2018, respectively, of foreign subsidiaries which are considered permanently invested outside of the U.S. The amount of unrecognized deferred tax liability on these undistributed earnings is not expected to be material at December 31, 2019 and 2018. There are only select jurisdictions for which the company regards the undistributed earnings as no longer permanently reinvested. We have recognized the deferred tax liability associated with these undistributed earnings during 2019, however, such liability was also not material. For U.S. federal income tax purposes, we now recognize current income tax expense on undistributed earnings of foreign subsidiaries in accordance with the provisions of the Tax

Act

On December 22, 2017, the U.S. enacted tax legislation commonly referred to as the Tax Act, which significantly revises the U.S. tax code by, among other things, lowering the corporate income tax rate from 35.0% to 21.0%, limiting the deductibility of interest expense; implementing a territorial tax system, and imposing a repatriation tax on earnings of foreign subsidiaries. See discussion of the various impacts of the Tax Act below.

SAB 118 describes three scenarios associated with a company’s status of accounting for income tax reform. Under the SAB 118 guidance, we made reasonable estimates for certain effects of tax reform in our 2017 consolidated financial statements. We recognized provisional amounts for our deferred income taxes and repatriation tax based on reasonable estimates. We finalized our estimates under SAB 118 which were recorded as discrete items in 2018. We completed our analysis with respect to the income tax implications of the Tax Act, which was reflected in our 2018 consolidated financial statements.

Deferred Income Taxes -

For the year ended December 31, 2017, we have determined that our net deferred tax asset required revaluation as a result of the Tax Act. At that time, we recognized a provisional $

1.0

million net benefit to the provision for income taxes as a result of the restatement of our net deferred tax assets. In the 2018 consolidated financial statements, we finalized the revaluation of our net deferred tax asset by recognizing an additional $

2.9

million net benefit to the provision for income taxes.

Repatriation Tax

- All U.S. shareholders that own at least

% of foreign corporations must include in their income a

one-time

inclusion of all accumulated post 1986 undistributed foreign earnings as of December 31, 2017. We previously recognized a provisional income tax expense of $

40.0

million as a result of this repatriation tax. In the 2018 consolidated financial statements, we finalized the repatriation tax by recognizing a benefit of $

2.9

million to the provision for income taxes.

Cost Recovery

- We previously recorded an immaterial provisional benefit based on our intent to fully expense all qualifying expenditures as of December 31, 2017. This resulted in a decrease to our current income taxes payable and a corresponding increase in our deferred tax liability. In our 2018 consolidated financial statements, we finalized the cost recovery analysis with no change to the provision for income taxes.

We also completed our analysis of the broader tax effects of the Tax Act which were reflected in our 2018 consolidated financial statements.