Income Taxes



	Years Ended December 31,
	2016		2015			2014
U.S. income	$	8,943	$	5,594		$	1,683
Non-U.S. income (loss)	459		(70		)	469
Income before income taxes and equity income	$	9,402	$	5,524		$	2,152



	Years Ended December 31,
	2016			2015			2014
Current income tax expense (benefit)
U.S. federal	$	(126	)	$	5		$	(23	)
U.S. state and local	38			(5		)	154
Non-U.S.	618			860			671
Total current income tax expense	530			860			802
Deferred income tax expense (benefit)
U.S. federal	1,372			1,001			(581		)
U.S. state and local	223			199			(60		)
Non-U.S.	291			(3,957		)	67
Total deferred income tax expense (benefit)	1,886			(2,757		)	(574		)
Total income tax expense (benefit)	$	2,416		$	(1,897	)	$	228

Provisions are made for estimated U.S. and non-U.S. income taxes, less available tax credits and deductions, which may be incurred on the remittance of our basis differences in investments in foreign subsidiaries and corporate joint ventures not deemed to be indefinitely reinvested. Taxes have not been provided on basis differences in investments primarily as a result of earnings in foreign subsidiaries which are deemed indefinitely reinvested of $2.4 billion and $2.8 billion at December 31, 2016 and 2015. Additional basis differences related to investments in nonconsolidated China JVs exist of $4.1 billion at December 31, 2016 and 2015 as a result of fresh-start reporting. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable. The non-U.S. deferred income tax benefit in the year ended December 31, 2015 relates primarily to the release of valuation allowances in GME.



	Years Ended December 31,
	2016			2015			2014
Income tax expense at U.S. federal statutory income tax rate	$	3,291		$	1,933		$	753
State and local tax expense	144			115			73
Non-U.S. income taxed at other than 35%	(125		)	(28		)	(72		)
U.S. tax on Non-U.S. income	(1,026		)	(417		)	(8		)
Change in valuation allowances	(103		)	(3,666		)	(402		)
Change in tax laws	147			29			602
Research and manufacturing incentives	177			(367		)	(279		)
Goodwill impairment	—			—			41
Settlements of prior year tax matters	(46		)	—			(275		)
Realization of basis differences in affiliates	(94		)	—			(256		)
Foreign currency remeasurement	(2		)	209			124
Financial penalty under the DPA(a)	—			315			—
Other adjustments	53			(20		)	(73		)
Total income tax expense (benefit)	$	2,416		$	(1,897	)	$	228

_________


(a)	Refer to Note 15 for additional information on the DPA.

Deferred Income Tax Assets and Liabilities Deferred income tax assets and liabilities at December 31, 2016 and 2015 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the bases of such assets, liabilities and equity as measured based on tax laws, as well as tax loss and tax credit carryforwards. The following table summarizes the components of temporary differences and carryforwards that give rise to deferred tax assets and liabilities:



	December 31, 2016			December 31, 2015
Deferred tax assets
Postretirement benefits other than pensions	$	2,720		$	2,712
Pension and other employee benefit plans	5,701			6,502
Warranties, dealer and customer allowances, claims and discounts(a)	8,102			6,725
Property, plants and equipment	756			1,981
U.S. capitalized research expenditures	6,127			7,413
U.S. operating loss and tax credit carryforwards(b)	8,987			8,623
Non-U.S. operating loss and tax credit carryforwards(c)	5,621			5,826
Miscellaneous(a)	1,950			2,086
Total deferred tax assets before valuation allowances	39,964			41,868
Less: valuation allowances	(4,644		)	(5,021		)
Total deferred tax assets	35,320			36,847
Deferred tax liabilities
Intangible assets	732			590
Net deferred tax assets	$	34,588		$	36,257

_________


(a)	At December 31, 2015 deferred tax assets related to certain sales incentives were reclassified from Miscellaneous to Warranties, dealer and customer allowances, claims and discounts to conform to the current period presentation.


(b)	At December 31, 2016 U.S. operating loss and tax credit carryforwards of $8.7 billion expire by 2036 if not utilized and the remaining balance of $0.3 billion may be carried forward indefinitely.


(c)	At December 31, 2016 Non-U.S. operating loss and tax credit carryforwards of $1.3 billion expire by 2036 if not utilized and the remaining balance of $4.3 billion may be carried forward indefinitely.

Valuation Allowances At December 31, 2016 valuation allowances against deferred tax assets of $4.6 billion were comprised of cumulative losses and tax credits, primarily in GME, South Korea and certain U.S. states.

At December 31, 2015 as a result of business restructuring and improving profitability in certain European businesses evidenced by three years of adjusted cumulative earnings and the completion of our near- and medium-term business plans in the three months ended December 31, 2015 that forecast continuing improvement in profitability, we determined that it was more likely than not that our future earnings will be sufficient to realize the deferred tax assets in these European businesses. Accordingly we reversed $3.9 billion of GME's valuation allowances resulting in an income tax benefit.

Uncertain Tax Positions The following table summarizes activity of the total amounts of unrecognized tax benefits:



	Years Ended December 31,
	2016			2015			2014
Beginning balance	$	1,385		$	1,877		$	2,530
Additions to current year tax positions	49			54			184
Additions to prior years' tax positions	97			115			149
Reductions to prior years' tax positions	(193		)	(378		)	(603		)
Reductions in tax positions due to lapse of statutory limitations	(108		)	(201		)	(164		)
Settlements	(1		)	(3		)	(138		)
Other	(7		)	(79		)	(81		)
Ending balance	$	1,222		$	1,385		$	1,877

At December 31, 2016 and 2015 there were $712 million and $896 million of unrecognized tax benefits that if recognized would favorably affect our effective tax rate in the future. In the years ended December 31, 2016, 2015 and 2014 income tax related interest and penalties were insignificant. At December 31, 2016 and 2015 we had liabilities of $172 million and $183 million for income tax related interest and penalties.

At December 31, 2016 it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months.

Other Matters Income tax returns are filed in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. We have open tax years from 2006 to 2016 with various significant tax jurisdictions. Tax authorities may have the ability to review and adjust net operating loss or tax credit carryforwards that were generated prior to these periods if utilized in an open tax year. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. Given the global nature of our operations there is a risk that transfer pricing disputes may arise.

We have net operating loss carryforwards in Germany through November 30, 2009 that, as a result of reorganizations that took place in 2008 and 2009, were not recorded as deferred tax assets. Depending on the outcome of pending European court decisions these loss carryforwards may be available to reduce future taxable income in Germany.