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INCOME TAXES | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Geographic sources of losses before income taxes and equity in affiliated companies’ net earnings (losses) for the years ended December 31 consist of the following:
| 2016 |  | 2015 |  | 2014
U.S. | $ | (5,179 | ) |  | $ | (14,589 | ) |  | $ | (2,973 | )
Foreign | 1,707 |  |  | 461 |  |  | 2,173 |
Total | $ | (3,472 | ) |  | $ | (14,128 | ) |  | $ | (800 | )
Income taxes are provided on the earnings of FCX’s material foreign subsidiaries under the assumption that these earnings will be distributed. 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) benefit from income taxes for the years ended December 31 consists of the following:
| 2016 |  | 2015 |  | 2014 |
Current income taxes: |  |  |  |  |  |
Federal | $ | 164 |  |  | $ | 89 |  |  | $ | (269 | ) |
State | 17 |  |  | 2 |  |  | (34 | ) |
Foreign | (352 | ) |  | (160 | ) |  | (1,066 | ) |
Total current | (171 | ) |  | (69 | ) |  | (1,369 | ) |
Deferred income taxes: |  |  |  |  |  |
Federal | 137 |  |  | 3,403 |  |  | 616 |  |
State | 41 |  |  | 154 |  |  | 214 |  |
Foreign | (451 | ) |  | (163 | ) |  | (19 | ) |
Total deferred | (273 | ) |  | 3,394 |  |  | 811 |  |
Adjustments | 13 |  | a | (1,374 | ) | b | — |  |
Operating loss carryforwards | 60 |  | c | — |  |  | 333 |  | c
(Provision for) benefit from income taxes | $ | (371 | ) |  | $ | 1,951 |  |  | $ | (225 | ) |
a. | Benefit related to changes in Peruvian tax rules.
b. | Adjustments include net provisions of $1.2 billion associated with an increase in the beginning of the year valuation allowance related to the impairment of U.S. oil and gas properties and $0.2 billion resulting from the termination of PT-FI's Delaware domestication.
c. | Benefit from the use of operating loss carryforwards.
A reconciliation of the U.S. federal statutory tax rate to FCX’s effective income tax rate for the years ended December 31 follows:
| 2016 |  | 2015 |  | 2014
| Amount |  | Percent |  | Amount |  | Percent |  | Amount |  | Percent
U.S. federal statutory tax rate | $ | 1,215 |  |  | (35 | )% |  | $ | 4,945 |  |  | (35 | )% |  | $ | 280 |  |  | (35 | )%
Valuation allowance, net | (1,680 | ) | a | 48 |  |  | (2,955 | ) | a | 21 |  |  | — |  |  | — |
Foreign tax credit limitation | (598 | ) |  | 17 |  |  | (228 | ) |  | 2 |  |  | (136 | ) |  | 17 |
Impairment of oil and gas properties | 520 | b | (15 | ) |  | 0 |  | — |  |  | 0 |  | — |
Percentage depletion | 211 |  |  | (6 | ) |  | 186 |  |  | (1 | ) |  | 263 |  | c | (33 | )
Withholding and other impacts on |  |  |  |  |  |  |  |  |  |  |
foreign earnings | (93 | ) |  | 3 |  |  | (193 | ) |  | 1 |  |  | (161 | ) |  | 20 |
Effect of foreign rates different than the U.S. |  |  |  |  |  |  |  |  |  |  |
federal statutory rate | 45 |  |  | (1 | ) |  | 12 |  |  | — |  |  | 69 |  |  | (9 | )
Goodwill impairment | — |  |  | — |  |  | — |  |  | — |  |  | (601 | ) |  | 75 |
Goodwill transferred to full cost pool | — |  |  | — |  |  | — |  |  | — |  |  | (77 | ) |  | 10 |
State income taxes | 46 |  | a | (1 | ) |  | 105 |  | a | (1 | ) |  | 116 |  |  | (14 | )
Other items, net | (37 | ) |  | 1 |  |  | 79 |  |  | (1 | ) |  | 22 |  |  | (3 | )
(Provision for) benefit from income taxes | $ | (371 | ) | d | 11 | % |  | $ | 1,951 |  |  | (14 | )% |  | $ | (225 | ) | e,f | 28 | %
a. | Includes tax charges totaling $1.6 billion in 2016 and $3.3 billion in 2015 as a result of the impairment to U.S. oil and gas properties to establish valuation allowances against U.S. federal and state deferred tax assets that will not generate a future benefit.
b. | Reflects a loss under U.S. federal income tax law related to the impairment of investments in oil and gas properties.
c. | Includes a net tax charge of $16 million in 2014 related to a change in U.S. federal income tax law.
d. | Includes a net tax benefit related to changes in Peruvian tax rules of $13 million.
e. | Includes a net tax charge of $221 million related to the sale of the Candelaria and Ojos del Salado mines.
f. | Includes tax charges related to changes in Chilean and Peruvian tax rules of $54 million and $24 million, respectively.
FCX paid federal, state, local and foreign income taxes totaling $203 million in 2016 (including $27 million for discontinued operations), $893 million in 2015 (including $187 million for discontinued operations) and $1.5 billion in 2014 (including $11 million for discontinued operations). FCX received refunds of federal, state, local and foreign income taxes of $247 million in 2016, $334 million in 2015 and $257 million in 2014. The components of deferred taxes follow:
| December 31,
| 2016 |  | 2015
Deferred tax assets: |  |  |
Foreign tax credits | $ | 2,094 |  |  | $ | 1,552 |
Accrued expenses | 923 |  |  | 1,167 |
Oil and gas properties | 346 |  |  | 1,422 |
Minimum tax credits | 444 |  |  | 569 |
Net operating loss carryforwards | 2,898 |  |  | 621 |
Employee benefit plans | 403 |  |  | 442 |
Other | 485 |  |  | 478 |
Deferred tax assets | 7,593 |  |  | 6,251 |
Valuation allowances | (6,058 | ) |  | (4,183 | )
Net deferred tax assets | 1,535 |  |  | 2,068 |
Deferred tax liabilities: |  |  |
Property, plant, equipment and mine development costs | (4,326 | ) |  | (4,765 | )
Undistributed earnings | (779 | ) |  | (852 | )
Other | (195 | ) |  | (55 | )
Total deferred tax liabilities | (5,300 | ) |  | (5,672 | )
Net deferred tax liabilities | $ | (3,765 | ) |  | $ | (3,604 | )
Tax Attributes. At December 31, 2016, FCX had U.S. foreign tax credit carryforwards of $2.1 billion that will expire between 2017 and 2026, and U.S. minimum tax credit carryforwards of $444 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, 2016, FCX had (i) U.S. federal net operating loss carryforwards of $6.6 billion that expire in 2036, (ii) U.S. federal capital loss carryforwards of $119 million that expire in 2021, (iii) U.S. state net operating loss carryforwards of $10.0 billion that expire between 2017 and 2036 and (iv) Spanish net operating loss carryforwards of $518 million that can be carried forward indefinitely. In addition, as of December 31, 2016, FCX has offset $5.3 billion of foreign source income with U.S. source losses. Under existing U.S. tax law, FCX has the ability to re-characterize $5.3 billion of future U.S. source income into foreign source income. While utilization of U.S. foreign tax credits is dependent upon FCX generating future U.S. tax liabilities within the carryforward period, this re-sourcing may permit FCX to utilize up to $1.9 billion of the $2.1 billion foreign tax credit carryforwards that would otherwise expire unused. The ability to re-characterize US sourced income into foreign sourced income carries forward indefinitely until such time as the $5.3 billion has been fully utilized. Valuation Allowance. On the basis of available information at December 31, 2016, 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 $6.1 billion at December 31, 2016, and covered all of FCX's U.S. foreign tax credit carryforwards, U.S. federal net operating loss carryforwards, U.S. federal capital loss carryforwards, foreign net operating loss carryforwards, and substantially all of FCX's U.S. minimum tax credit carryforwards and U.S. state net operating loss carryforwards. Valuation allowances totaled $4.2 billion at December 31, 2015, and covered all of FCX's U.S. foreign tax credit carryforwards, U.S. minimum tax credit carryforwards, foreign net operating loss carryforwards, and substantially all of FCX's U.S. federal and state net operating loss carryforwards. The valuation allowance related to FCX’s U.S. foreign tax credits totaled $2.1 billion at December 31, 2016. FCX has operations in tax jurisdictions where statutory income taxes and withholding taxes combine to fully offset U.S. federal income tax liability 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. The valuation allowance related to FCX’s U.S. federal minimum tax credit carryforwards totaled $371 million at December 31, 2016. U.S. minimum tax credit carryforwards can be carried forward indefinitely, but can only be used to the extent that U.S. regular tax liability exceeds U.S. alternative minimum tax liability in any given year. FCX does not currently expect to generate U.S. regular tax liability in excess of U.S. alternative minimum tax liability. A valuation allowance has not been provided against $72 million of U.S. federal minimum tax credits that FCX estimate are refundable during the three year period ending December 31, 2019. The valuation allowance related to FCX’s U.S. federal, state and foreign net operating loss carryforwards totaled $2.9 billion at December 31, 2016. The valuation allowance related to FCX’s U.S. federal and state deferred tax assets totaled $574 million at December 31, 2016. Deferred tax assets represent future deductions for which a benefit will only be realized to the extent these deductions offset future income. FCX develops an estimate of which future tax deductions will be realized and provides a valuation allowance to the extent these deductions are not realized in future periods. Valuation allowances will continue to be carried on U.S. foreign tax credit carryforwards, U.S. federal minimum tax credit carryforwards and U.S. federal, state and foreign net operating losses until such time that (i) FCX generates taxable income against which any of the assets or carryforwards can be used, (ii) forecasts of future income provide sufficient positive evidence to support reversal of the valuation allowances or (iii) FCX identifies a prudent and feasible means of securing the benefit of the assets or carryforwards that can be implemented. The $1.9 billion net increase in the valuation allowances during 2016 primarily related to a $1.6 billion increase to valuation allowances associated with impairments of U.S. oil and gas properties. Recent Events. In December 2016, the Peruvian parliament passed tax legislation that, in part, modified the applicable tax rates established in its December 2014 tax legislation, which progressively decreased the corporate income tax rate from 30 percent in 2014 to 26 percent in 2019 and thereafter, and also increased the dividend tax rate on distributions from 4.1 percent in 2014 to 9.3 percent in 2019 and thereafter. Under the December 2016 tax legislation, effective January 1, 2017, the corporate income tax rate is 29.5 percent, and the dividend tax rate on distributions of earnings is 5 percent. 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. During 2015, PT-FI's Delaware domestication was terminated. As a result, PT-FI is no longer a U.S. income tax filer, and tax attributes related to PT-FI, which were fully reserved with a related valuation allowance, are no longer available for use in FCX's U.S. federal consolidated income tax return. There was no resulting net impact to FCX's consolidated statement of operations. PT-FI remains a limited liability company organized under Indonesian law. In September 2014, the Chilean legislature approved a tax reform package that implemented a dual tax system, which was amended in January 2016. Under 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 amended tax reform package, FCX's Chilean operation is subject to the "Partially-Integrated System," resulting in FCX’s share of income from El Abra being subject to progressively increasing effective tax rates of 35 percent through 2019 and 44.5 percent in 2020 and thereafter. 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 mine are 4 percent 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). Uncertain Tax Positions. 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 for the years ended December 31 follows:
| 2016 |  | 2015 |  | 2014
Balance at beginning of year | $ | 110 |  |  | $ | 104 |  |  | $ | 110 |
Additions: |  |  |  |  |
Prior year tax positions | 5 |  |  | 7 |  |  | 4 |
Current year tax positions | 28 |  |  | 11 |  |  | 11 |
Decreases: |  |  |  |  |
Prior year tax positions | (3 | ) |  | (6 | ) |  | (12 | )
Settlements with taxing authorities | — |  |  | — |  |  | (9 | )
Lapse of statute of limitations | (39 | ) |  | (6 | ) |  | — |
Balance at end of year | $ | 101 |  |  | $ | 110 |  |  | $ | 104 |
The total amount of accrued interest associated with unrecognized tax benefits included in the consolidated balance sheets was $19 million at December 31, 2016, $16 million at December 31, 2015 and $15 million at December 31, 2014. There were no penalties associated with unrecognized tax benefits for the three years ended December 31, 2016. The reserve for unrecognized tax benefits of $101 million at December 31, 2016, included $95 million ($68 million net of income tax benefits and valuation allowances) 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, benefits available from net operating losses and tax treatment of social welfare and debt 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 social welfare payments. Changes to the reserve for unrecognized tax benefits associated with the lapse of statute of limitations were primarily related to cost recovery methods. There continues to be uncertainty related to the timing of settlements with taxing authorities, but if additional settlements are agreed upon during the year 2017, 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 |  | 2013 |  | 2014-2016
Indonesia |  | 2008, 2011, 2012, 2014, 2015 |  | 2013, 2016
Peru |  | 2011 |  | 2012-2016
Chile |  | 2013-2015 |  | 2016

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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 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 2: 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=65882285&loc=d3e32559-109319 Reference 3: 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=65882285&loc=d3e32718-109319 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=65882285&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=65882285&loc=d3e32537-109319 + Details
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