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INCOME TAXES | 12 Months Ended
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Dec. 31, 2014
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Geographic sources of (losses) income before income taxes and equity in affiliated companies’ net earnings for the years ended December 31 consist of the following:
| 2014 |  | 2013 |  | 2012
United States | $ | (2,997 | ) |  | $ | 1,104 |  |  | $ | 1,539 |
Foreign | 2,573 |  |  | 3,809 |  |  | 3,948 |
Total | $ | (424 | ) |  | $ | 4,913 |  |  | $ | 5,487 |
With the exception of TFM, income taxes are provided on the earnings of FCX’s material foreign subsidiaries under the assumption that these earnings will be distributed. FCX has determined that TFM's undistributed earnings are reinvested indefinitely and have been allocated toward specifically identifiable needs of the local operations, including, but not limited to, existing liabilities and potential expansions of production capacity. FCX has not provided deferred income taxes for other differences between the book and tax carrying amounts of its investments in material foreign subsidiaries as FCX considers its ownership positions to be permanent in duration, and quantification of the related deferred tax liability is not practicable. FCX’s provision for income taxes for the years ended December 31 consists of the following:
| 2014 |  | 2013 |  | 2012 |
Current income taxes: |  |  |  |  |  |
Federal | $ | 281 |  |  | $ | 203 |  |  | $ | 238 |  |
State | 35 |  |  | 9 |  |  | 7 |  |
Foreign | 1,128 |  |  | 1,081 |  |  | 1,002 |  |
Total current | 1,444 |  |  | 1,293 |  |  | 1,247 |  |
Deferred income taxes (benefits): |  |  |  |  |  |
Federal | (606 | ) |  | 234 |  |  | 87 |  |
State | (214 | ) |  | (35 | ) |  | 18 |  |
Foreign | 33 |  |  | 346 |  |  | 363 |  |
Total deferred | (787 | ) |  | 545 |  |  | 468 |  |
Adjustments | — |  |  | (199 | ) | a | (205 | ) | b,c
Federal operating loss carryforwards | (333 | ) | d | (164 | ) | d | — |  |
Provision for income taxes | $ | 324 |  |  | $ | 1,475 |  |  | $ | 1,510 |  |
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, 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. | 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. | 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:
| 2014 |  | 2013 |  | 2012
| Amount |  | Percent |  | Amount |  | Percent |  | Amount |  | Percent
U.S. federal statutory tax rate | $ | (149 | ) |  | 35 | % |  | $ | 1,720 |  |  | 35 | % |  | $ | 1,920 |  |  | 35 | %
Foreign tax credit limitation | 167 |  |  | (39 | ) |  | 117 |  |  | 2 |  |  | 110 |  |  | 2 |
Percentage depletion | (263 | ) | a | 62 |  |  | (223 | ) |  | (5 | ) |  | (263 | ) |  | (5 | )
Withholding and other impacts on |  |  |  |  |  |  |  |  |  |  |
foreign earnings | 161 |  |  | (38 | ) |  | 306 |  |  | 7 |  |  | (17 | ) |  | — |
Effect of foreign rates different than the U.S. |  |  |  |  |  |  |  |  |  |  |
federal statutory rate | (135 | ) |  | 32 |  |  | (223 | ) |  | (5 | ) |  | (204 | ) |  | (4 | )
Valuation allowance on minimum |  |  |  |  |  |  |  |  |  |  |  |
tax credits | — |  |  | — |  |  | (190 | ) |  | (4 | ) |  | (9 | ) |  | — |
Goodwill impairment | 601 |  |  | (142 | ) |  | — |  |  | — |  |  | — |  |  | — |
Goodwill transferred to full cost pool | 77 |  |  | (18 | ) |  | — |  |  | — |  |  | — |  |  | — |
State income taxes | (115 | ) |  | 27 |  |  | (43 | ) |  | — |  |  | 17 |  |  | — |
Other items, net | (20 | ) |  | 5 |  |  | 11 |  |  | — |  |  | (44 | ) |  | — |
Provision for income taxes | $ | 324 |  | b,c | (76 | )% |  | $ | 1,475 |  | d | 30 | % |  | $ | 1,510 |  | e | 28 | %
a. | Includes a net charge of $16 million related to a change in U.S. federal income tax law.
b. | Includes charges related to changes in Chilean and Peruvian tax rules of $54 million and $24 million, respectively.
c. | Includes a net charge of $221 million related to the sale of Candelaria/Ojos.
d. | Includes a net tax benefit of $199 million as a result of the oil and gas acquisitions.
e. | Includes the reversal of Cerro Verde's deferred income tax liability of $234 million.
FCX paid federal, state, local and foreign income taxes totaling $1.5 billion in 2014, $1.3 billion in 2013 and $1.8 billion in 2012. FCX received refunds of federal, state, local and foreign income taxes of $257 million in 2014, $270 million in 2013 and $69 million in 2012. The components of deferred taxes follow:
| December 31,
| 2014 |  | 2013
Deferred tax assets: |  |  |
Foreign tax credits | $ | 2,306 |  |  | $ | 2,144 |
Accrued expenses | 1,047 |  |  | 1,098 |
Minimum tax credits | 737 |  |  | 603 |
Net operating loss carryforwards | 590 |  |  | 925 |
Employee benefit plans | 422 |  |  | 443 |
Other | 734 |  |  | 557 |
Deferred tax assets | 5,836 |  |  | 5,770 |
Valuation allowances | (2,434 | ) |  | (2,487 | )
Net deferred tax assets | 3,402 |  |  | 3,283 |
Deferred tax liabilities: |  |  |
Property, plant, equipment and mining development costs | (5,331 | ) |  | (4,887 | )
Oil and gas properties | (3,392 | ) |  | (4,708 | )
Undistributed earnings | (807 | ) |  | (936 | )
Other | (185 | ) |  | (34 | )
Total deferred tax liabilities | (9,715 | ) |  | (10,565 | )
Net deferred tax liabilities | $ | (6,313 | ) |  | $ | (7,282 | )
At December 31, 2014, FCX had U.S. foreign tax credit carryforwards of $2.3 billion that will expire between 2015 and 2024, and U.S. minimum tax credit carryforwards of $737 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, 2014, FCX had (i) U.S. state net operating loss carryforwards of $2.4 billion that expire between 2015 and 2034, (ii) Spanish net operating loss carryforwards of $623 million that expire between 2015 and 2032, and (iii) U.S. federal net operating loss carryforwards of $800 million that expire between 2030 and 2034. On the basis of available information at December 31, 2014, 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 $2.4 billion at December 31, 2014, and covered a portion of FCX's U.S. foreign tax credit carryforwards, foreign net operating loss carryforwards, U.S. state net operating loss carryforwards and U.S. state deferred tax assets. Valuation allowances totaled $2.5 billion at December 31, 2013, 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. The $2.4 billion valuation allowance at December 31, 2014, 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 is due upon repatriation of foreign earnings. As a result, FCX continues to generate foreign tax credits for which no benefit is expected to be realized. In addition, any foreign income taxes currently accrued or paid on unremitted foreign earnings may result in additional future foreign tax credits for which no benefit is expected to be realized upon repatriation of the related earnings. A full valuation allowance will continue to be carried on these excess U.S. foreign tax credit carryforwards until such time that FCX believes it has a prudent and feasible means of securing the benefit of U.S. foreign tax credit carryforwards that can be implemented. The $53 million net decrease in the valuation allowance during 2014 relates primarily to increased utilization of U.S. capital loss carryforwards in the current year, and U.S. foreign tax credits and U.S. state net operating losses during the carryforward period. World market prices for commodities have fluctuated historically. At December 31, 2014, market prices for copper, gold, molybdenum and oil were below their twelve-month averages. Future market prices at or below 2014 year-end prices may result in valuation allowances provided on additional deferred tax assets, including U.S. alternative minimum tax credits and net operating loss carryforwards. 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 September 2014, the Chilean legislature approved a tax reform package implementing a dual tax system. As currently applied, FCX will be subject to the "Partially-Integrated System." Under the previous rules, FCX’s share of income from Chilean operations was subject to an effective 35 percent tax rate allocated between income taxes and dividend withholding taxes. Under the new Partially-Integrated System, FCX’s share of income from Chilean operations will be subject to progressively increasing effective tax rates of 35 percent in 2014 through 2016, 44 percent in 2017 and 44.5 percent in 2018 and thereafter. In December 2014, the Peruvian parliament passed tax legislation intended to stimulate the economy. Under the legislation, the corporate income tax rate will progressively decrease from 30 percent in 2014 to 26 percent in 2019 and thereafter. In addition, the dividend tax rate on distributions will progressively increase from 4.1 percent in 2014 to 9.3 percent in 2019 and thereafter. Cerro Verde's current mining stability agreement subjects FCX to a stable income tax rate of 32 percent through the expiration of the agreement on December 31, 2028. The tax rate on dividend distributions is not stabilized by the agreement. FCX accounts for uncertain income tax positions using a threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FCX’s policy associated with uncertain tax positions is to record accrued interest in interest expense and accrued penalties in other income and expenses rather than in the provision for income taxes. 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, 2013 | $ | 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 |  |  | — |
Additions: |  |  |  |  |
Prior year tax positions | 4 |  |  | * |  |  | * |
Current year tax positions | 11 |  |  | * |  |  | * |
Interest and penalties | — |  |  | 1 |  |  | — |
Decreases: |  |  |  |  |
Prior year tax positions | (12 | ) |  | * |  |  | * |
Current year tax positions | — |  |  | * |  |  | * |
Settlements with tax authorities | (9 | ) |  | * |  |  | * |
Lapse of statute of limitations | — |  |  | * |  |  | * |
Interest and penalties | — |  |  | (7 | ) |  | — |
Balance at December 31, 2014 | $ | 104 |  |  | $ | 15 |  |  | $ | — |
* Amounts not allocated. The reserve for unrecognized tax benefits of $104 million at December 31, 2014, included $97 million ($55 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 social welfare payments. Changes in the reserve for unrecognized tax benefits associated with prior year tax positions were primarily related to uncertainties associated with cost recovery methods and deductibility of costs allocated to foreign operations. Changes to the reserve for unrecognized tax benefits associated with the lapse of statute of limitations were primarily related to benefits received from stock-based compensation. There continues to be uncertainty related to the timing of settlements with taxing authorities, but if additional settlements are agreed upon during the year 2015, 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 |  | 2013-2014
Indonesia |  | 2006-2008, 2011-2012 |  | 2010, 2013-2014
Peru |  | 2010 |  | 2011-2014
Chile |  | 2012-2013 |  | 2014
DRC |  | 2013 |  | 2012, 2014

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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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