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INCOME TAXES | 12 Months Ended
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Dec. 31, 2013
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Geographic sources of income before income taxes and equity in affiliated companies’ net earnings for the years ended December 31 consist of the following:
| 2013 |  | 2012 |  | 2011
United States | $ | 1,104 |  |  | $ | 1,539 |  |  | $ | 2,112 |
Foreign | 3,809 |  |  | 3,948 |  |  | 6,706 |
Total | $ | 4,913 |  |  | $ | 5,487 |  |  | $ | 8,818 |
FCX’s provision for income taxes for the years ended December 31 consists of the following:
| 2013 |  | 2012 |  | 2011 |
Current income taxes: |  |  |  |  |  |
Federal | $ | 203 |  |  | $ | 238 |  |  | $ | 394 |  |
State | 9 |  |  | 7 |  |  | 21 |  |
Foreign | 1,081 |  |  | 1,002 |  |  | 1,934 |  |
Total current | 1,293 |  |  | 1,247 |  |  | 2,349 |  |
Deferred income taxes (benefits): |  |  |  |  |  |
Federal | 234 |  |  | 87 |  |  | 82 |  |
State | (35 | ) |  | 18 |  |  | (19 | ) |
Foreign | 346 |  |  | 363 |  |  | 622 |  |
Total deferred | 545 |  |  | 468 |  |  | 685 |  |
Adjustments | (199 | ) | a | (205 | ) | b,c | 53 |  | d
Federal operating loss carryforwards | (164 | ) | e | — |  |  | — |  |
Provision for income taxes | $ | 1,475 |  |  | $ | 1,510 |  |  | $ | 3,087 |  |
a. | As a result of the oil and gas acquisitions, FCX recognized a net tax benefit of $199 million consisting of income tax benefits of $190 million associated with net reductions in FCX's valuation allowances, $69 million related to the release of the deferred tax liability on PXP's investment in MMR common stock and $16 million associated with the revaluation of state deferred tax liabilities, partially offset by income tax expense of $76 million associated with the write off of deferred tax assets related to environmental liabilities.
b. | In 2012, Sociedad Minera Cerro Verde S.A.A. (Cerro Verde) signed a new 15-year mining stability agreement with the Peruvian government, which became effective January 1, 2014. In connection with the new mining stability agreement, Cerro Verde's income tax rate increased from 30 percent to 32 percent, and FCX recognized additional deferred tax expense of $29 million.
c. | With the exception of TFM, FCX has not elected to permanently reinvest earnings from its foreign subsidiaries and has recorded deferred tax liabilities for foreign earnings that are available to be repatriated to the U.S. Cerro Verde previously recorded deferred Peruvian income tax liabilities for income taxes that would become payable if the reinvested profits used to fund the initial Cerro Verde sulfide expansion were distributed prior to the expiration of Cerro Verde's 1998 stability agreement on December 31, 2013. Because reinvested profits at Cerro Verde were not expected to be distributed prior to December 31, 2013, a net deferred income tax liability of $234 million was reversed and recognized as an income tax benefit in 2012.
d. | In September 2011, Peru enacted a new mining tax and royalty regime and also created a special mining burden that companies with stability agreements could elect to pay. Cerro Verde elected to pay this special mining burden during the remaining term of its 1998 stability agreement, which expired on December 31, 2013. As a result, Cerro Verde recognized additional tax expense of $53 million in 2011.
e. | Benefit from the use of federal operating loss carryforwards acquired as part of the oil and gas acquisitions.
A reconciliation of the U.S. federal statutory tax rate to FCX’s effective income tax rate for the years ended December 31 follows:
| 2013 |  | 2012 |  | 2011
| Amount |  | Percent |  | Amount |  | Percent |  | Amount |  | Percent
U.S. federal statutory tax rate | $ | 1,720 |  |  | 35 | % |  | $ | 1,920 |  |  | 35 | % |  | $ | 3,086 |  |  | 35 | %
Foreign tax credit limitation | 117 |  |  | 2 |  |  | 110 |  |  | 2 |  |  | 163 |  |  | 2 |
Percentage depletion | (223 | ) |  | (5 | ) |  | (263 | ) |  | (5 | ) |  | (283 | ) |  | (3 | )
Withholding and other impacts on |  |  |  |  |  |  |  |  |  |  |
foreign earnings | 83 |  |  | 2 |  |  | (221 | ) | b | (4 | ) |  | 170 |  |  | 2 |
Valuation allowance on minimum |  |  |  |  |  |  |  |  |  |  |
tax credits | (190 | ) | a | (4 | ) |  | (9 | ) |  | — |  |  | (47 | ) |  | (1 | )
State income taxes | (43 | ) |  | — |  |  | 17 |  |  | — |  |  | — |  |  | — |
Other items, net | 11 |  | a | — |  |  | (44 | ) |  | — |  |  | (2 | ) |  | — |
Provision for income taxes | $ | 1,475 |  |  | 30 | % |  | $ | 1,510 |  |  | 28 | % |  | $ | 3,087 |  |  | 35 | %
a. | Included a net tax benefit of $199 million as a result of the oil and gas acquisitions.
b. | Included the reversal of Cerro Verde's deferred income tax liability of $234 million.
FCX paid federal, state, local and foreign income taxes totaling $1.3 billion in 2013, $1.8 billion in 2012 and $3.4 billion in 2011. FCX received refunds of federal, state, local and foreign income taxes of $270 million in 2013, $69 million in 2012 and $15 million in 2011. The components of deferred taxes follow:
| December 31,
| 2013 |  | 2012
Deferred tax assets: |  |  |
Foreign tax credits | $ | 2,144 |  |  | $ | 2,022 |
Accrued expenses | 1,098 |  |  | 819 |
Minimum tax credits | 603 |  |  | 474 |
Net operating loss carryforwards | 925 |  |  | 343 |
Employee benefit plans | 443 |  |  | 315 |
Other | 557 |  |  | 374 |
Deferred tax assets | 5,770 |  |  | 4,347 |
Valuation allowances | (2,487 | ) |  | (2,443 | )
Net deferred tax assets | 3,283 |  |  | 1,904 |
Deferred tax liabilities: |  |  |
Property, plant, equipment and mining development costs | (4,887 | ) |  | (4,462 | )
Oil and gas properties | (4,708 | ) |  | — |
Undistributed earnings | (936 | ) |  | (884 | )
Other | (34 | ) |  | (70 | )
Total deferred tax liabilities | (10,565 | ) |  | (5,416 | )
Net deferred tax liabilities | $ | (7,282 | ) |  | $ | (3,512 | )
At December 31, 2013, FCX had U.S. foreign tax credit carryforwards of $2.1 billion that will expire between 2014 and 2023, and U.S. minimum tax credit carryforwards of $603 million that can be carried forward indefinitely, but may be used only to the extent that regular tax exceeds the alternative minimum tax in any given year. At December 31, 2013, FCX had (i) DRC net operating loss carryforwards of $70 million that can be carried forward indefinitely, (ii) U.S. state net operating loss carryforwards of $2.3 billion that expire between 2014 and 2033, (iii) Spanish net operating loss carryforwards of $629 million that expire between 2015 and 2030, and (iv) U.S. federal net operating loss carryforwards of $1.7 billion that expire between 2022 and 2033. On the basis of available information at December 31, 2013, including positive and negative evidence, FCX has provided valuation allowances for certain of its deferred tax assets where it believes it is more likely than not that some portion or all of such assets will not be realized. Valuation allowances totaled $2.5 billion at December 31, 2013, and $2.4 billion at December 31, 2012, and covered all of FCX’s U.S. foreign tax credit carryforwards, and a portion of its foreign net operating loss carryforwards, U.S. state net operating loss carryforwards, U.S. state deferred tax assets and U.S. capital loss carryforwards. In addition, the valuation allowance at December 31, 2012, covered a portion of U.S. minimum tax credit carryforwards. The $2.5 billion valuation allowance at December 31, 2013, is primarily related to FCX’s U.S. foreign tax credits. FCX has operations in tax jurisdictions where statutory income taxes and withholding taxes combine to create effective tax rates in excess of the U.S. federal income tax liability that would be due upon repatriation of foreign earnings into the U.S. As a result, FCX continues to generate foreign tax credits for which no benefit will be realized. A full valuation allowance will continue to be carried on U.S. foreign tax credit carryforwards until such time that FCX believes it will generate a U.S. income tax liability from foreign source income in excess of foreign taxes paid on such income, or a prudent and feasible means of securing the benefit of U.S. foreign tax credit carryforwards can be implemented. The $44 million increase in the valuation allowance during 2013 was primarily a result of an increase in FCX's U.S. foreign tax credit carryforwards, U.S. state deferred tax assets, U.S. capital loss carryforwards and U.S. state net operating loss carryforwards, partially offset by a release of a valuation allowance on U.S. federal minimum tax credit carryforwards. The release of the valuation allowance on minimum tax credit carryforwards occurred as a result of the oil and gas acquisitions. Deferred income tax liabilities assumed in these acquisitions provided sufficient evidence that FCX would more likely than not realize a future benefit from its current U.S. minimum tax credit carryforwards. The reduction in the valuation allowance was allocated to income from continuing operations. In 2010, the Chilean legislature approved an increase in mining royalty taxes to help fund earthquake reconstruction activities, education and health programs. Mining royalty taxes at FCX’s El Abra and Candelaria mines were stabilized through 2017 at a rate of 4 percent. However, under the legislation, FCX opted to transfer from its stabilized rate to the sliding scale of 4 to 9 percent for the years 2011 and 2012 and returned to its 4 percent rate for the years 2013 through 2017. Beginning in 2018 and through 2023, rates will move to a sliding scale of 5 to 14 percent (depending on a defined operational margin). In December 2011, the U.S. Treasury Department issued temporary and proposed regulations on the treatment of amounts paid for repair and maintenance costs of fixed assets. These regulations generally apply to tax years beginning on or after January 1, 2014. Transitional rules providing procedural guidance were published in March 2012, and the regulations were finalized in September 2013. Additional transitional guidance was published in January 2014. Neither the regulations nor the additional procedural guidance are expected to have a material impact on FCX's results of operations or financial condition. A summary of the activities associated with FCX’s reserve for unrecognized tax benefits, interest and penalties follows:
| Unrecognized Tax Benefits |  | Interest |  | Penalties
Balance at January 1, 2012 | $ | 146 |  |  | $ | 34 |  |  | $ | — |
Additions: |  |  |  |  |
Prior year tax positions | 17 |  |  | * |  |  | * |
Current year tax positions | 24 |  |  | * |  |  | * |
Interest and penalties | — |  |  | 3 |  |  | — |
Decreases: |  |  |  |  |
Prior year tax positions | (37 | ) |  | * |  |  | * |
Current year tax positions | — |  |  | * |  |  | * |
Settlements with tax authorities | (11 | ) |  | * |  |  | * |
Lapse of statute of limitations | (1 | ) |  | * |  |  | * |
Interest and penalties | — |  |  | (6 | ) |  | — |
Balance at December 31, 2012 | 138 |  |  | 31 |  |  | — |
Additions: |  |  |  |  |
Prior year tax positions | 18 |  |  | * |  |  | * |
Current year tax positions | 14 |  |  | * |  |  | * |
Acquisition of PXP | 5 |  |  | * |  |  | * |
Interest and penalties | — |  |  | 7 |  |  | — |
Decreases: |  |  |  |  |
Prior year tax positions | (37 | ) |  | * |  |  | * |
Current year tax positions | — |  |  | * |  |  | * |
Settlements with tax authorities | — |  |  | * |  |  | * |
Lapse of statute of limitations | (28 | ) |  | * |  |  | * |
Interest and penalties | — |  |  | (17 | ) |  | — |
Balance at December 31, 2013 | $ | 110 |  |  | $ | 21 |  |  | $ | — |
* Amounts not allocated. The reserve for unrecognized tax benefits of $110 million at December 31, 2013, included $97 million ($49 million net of income tax benefits) that, if recognized, would reduce FCX’s provision for income taxes. Changes to the reserve for unrecognized tax benefits associated with current year tax positions were primarily related to uncertainties associated with FCX's cost recovery methods and deductibility of contributions. Changes in the reserve for unrecognized tax benefits associated with prior year tax positions were primarily related to uncertainties associated with cost recovery methods, U.S. state filing combinations and benefits received from stock based compensation. Changes to the reserve for unrecognized tax benefits associated with the lapse of statute of limitations were primarily related to U.S. state filing combinations and characterization of non-recurring income items. There continues to be uncertainty related to the timing of settlements with taxing authorities, but if additional settlements are agreed upon during the year 2014, FCX could experience a change in its reserve for unrecognized tax benefits. FCX or its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The tax years for FCX's major tax jurisdictions that remain subject to examination are as follows:
Jurisdiction |  | Years Subject to Examination |  | Additional Open Years
U.S. Federal |  | 2007-2012 |  | 2013
Indonesia |  | 2005-2008, 2011-2012 |  | 2009-2010, 2013
Peru |  | 2009-2010 |  | 2011-2013
Chile |  | 2011-2012 |  | 2013
Africa |  | 2010-2012 |  | 2013

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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