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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
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:
| 2019 |  | 2018 |  | 2017
U.S. | $ | (287 | ) |  | $ | 390 |  |  | $ | 20 |
Foreign | 593 |  |  | 3,502 |  |  | 2,882 |
Total | $ | 306 |  |  | $ | 3,892 |  |  | $ | 2,902 |
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 consist of the following:
| 2019 |  | 2018 |  | 2017 |
Current income taxes: |  |  |  |  |  |
Federal | $ | (23 | ) | a,b | $ | 46 |  | a,c | $ | (3 | ) |
State | 3 |  |  | 1 |  |  | (10 | ) |
Foreign | (462 | ) |  | (1,445 | ) | c | (1,426 | ) |
Total current | (482 | ) |  | (1,398 | ) |  | (1,439 | ) |
Deferred income taxes: |  |  |  |  |  |
Federal | 48 |  |  | (106 | ) |  | 64 |  |
State | 8 |  |  | (8 | ) |  | 10 |  |
Foreign | (101 | ) |  | (102 | ) |  | 89 |  |
Total deferred | (45 | ) |  | (216 | ) |  | 163 |  |
Adjustments | 12 |  |  | 504 |  | d | 393 |  | e
Operating loss carryforwards | 5 |  |  | 119 |  |  | — |  |
Provision for income taxes | $ | (510 | ) |  | $ | (991 | ) |  | $ | (883 | ) |
a. | As a result of the 2017 Tax Cuts and Jobs Act (the Act) guidance regarding a transition tax issued in 2018, FCX recognized a $29 million tax charge in 2018. Additional guidance released in 2019 resulted in a $29 million tax credit in 2019.
b. | Includes a tax charge of $53 million associated with the sale of FCX’s interest in the lower zone of the Timok exploration project in Serbia.
c. | In 2018, FCX completed its analysis of the Act and recognized benefits totaling $123 million ($76 million to the U.S. tax provision and $47 million to PT-FI’s tax provision) associated with alternative minimum tax (AMT) credit refunds.
d. | Represents net tax credits resulting from the reduction in PT-FI's statutory tax rates in accordance with its new special mining license (IUPK).
e. | Represents net tax credits associated with the Act, including $272 million for the reversal of valuation allowances associated with AMT credit refunds and $121 million for a decrease in corporate income tax rates.
A reconciliation of the U.S. federal statutory tax rate to FCX’s effective income tax rate for the years ended December 31 follows:
| 2019 |  | 2018 |  | 2017
| Amount |  | Percent |  | Amount |  | Percent |  | Amount |  | Percent
U.S. federal statutory tax rate | $ | (64 | ) |  | (21 | )% |  | $ | (817 | ) |  | (21 | )% |  | $ | (1,016 | ) |  | (35 | )%
Valuation allowance | (149 | ) | a | (49 | ) |  | 129 |  | a | 3 |  |  | 28 |  |  | 1 |
PT-FI historical contested tax disputes | (145 | ) |  | (47 | ) |  | — |  |  | — |  |  | — |  |  | — |
Percentage depletion | 118 |  |  | 39 |  |  | 141 |  |  | 4 |  |  | 227 |  |  | 8 |
Effect of foreign rates different than the U.S. |  |  |  |  |  |  |  |  |  |  |
federal statutory rate | (64 | ) |  | (21 | ) |  | (494 | ) |  | (13 | ) |  | 17 |  |  | 1 |
Withholding and other impacts on |  |  |  |  |  |  |  |  |  |  |
foreign earnings | (55 | ) |  | (18 | ) |  | (232 | ) |  | (6 | ) |  | (216 | ) |  | (7 | )
Adjustment to deferred taxes | (49 | ) | b | (16 | ) |  | — |  |  | — |  |  | — |  |  | — |
Non-deductible permanent differences | (47 | ) |  | (15 | ) |  | (25 | ) |  | (1 | ) |  | (31 | ) |  | (1 | )
Uncertain tax positions | (47 | ) |  | (15 | ) |  | (7 | ) |  | — |  |  | (20 | ) |  | (1 | )
U.S. tax reform | 29 |  | c | 9 |  |  | 94 |  | c,d | 2 |  |  | 393 |  | e | 14 |
Foreign tax credit limitation | (16 | ) |  | (5 | ) |  | (195 | ) |  | (5 | ) |  | (159 | ) |  | (5 | )
State income taxes | 16 |  |  | 6 |  |  | 7 |  |  | 1 |  |  | (5 | ) |  | (1 | )
Cerro Verde royalty dispute f | 2 |  |  | 1 |  |  | (55 | ) |  | (1 | ) |  | (129 | ) |  | (5 | )
Change in PT-FI tax rates | — |  |  | — |  |  | 504 |  |  | 13 |  |  | — |  |  | — |
Timok exploration project sale | (15 | ) |  | (5 | ) |  | — |  |  | — |  |  | — |  |  | — |
Other items, net | (24 | ) |  | (9 | ) |  | (41 | ) |  | (1 | ) |  | 28 |  |  | 1 |
Provision for income taxes | $ | (510 | ) |  | (166 | )% |  | $ | (991 | ) |  | (25 | )% |  | $ | (883 | ) |  | (30 | )%
a. | Refer to “Valuation Allowance” below for discussion of changes.
b. | Represents net tax charges primarily to adjust deferred taxes on historical balance sheet items in accordance with tax accounting principles.
c. | As a result of the Act guidance regarding a transition tax issued in 2018, FCX recognized a $29 million tax charge in 2018. Additional guidance released in 2019 resulted in a $29 million tax credit in 2019.
d. | In 2018, FCX completed its analysis of the Act and recognized benefits totaling $123 million ($76 million to the U.S. tax provisions and $47 million to PT-FI’s tax provision) associated with AMT credit refunds.
e. | Represents net tax credits associated with the Act, including $272 million for the reversal of valuation allowances associated with AMT credit refunds and $121 million for a decrease in corporate income tax rates.
f. | Refer to Note 12 for further discussion of the Cerro Verde royalty dispute.
FCX paid federal, state and foreign income taxes totaling $610 million in 2019, $2.0 billion in 2018 and $702 million in 2017. FCX received refunds of federal, state and foreign income taxes of $306 million in 2019, $108 million in 2018 and $329 million in 2017. The components of deferred taxes follow:
| December 31,
| 2019 |  | 2018
Deferred tax assets: |  |  |
Foreign tax credits | $ | 1,716 |  |  | $ | 1,814 |
Accrued expenses | 1,108 |  |  | 1,069 |
Net operating losses | 2,249 |  |  | 2,235 |
Employee benefit plans | 198 |  |  | 204 |
Other | 267 |  |  | 270 |
Deferred tax assets | 5,538 |  |  | 5,592 |
Valuation allowances | (4,576 | ) |  | (4,507 | )
Net deferred tax assets | 962 |  |  | 1,085 |
Deferred tax liabilities: |  |  |
Property, plant, equipment and mine development costs | (4,372 | ) |  | (4,405 | )
Undistributed earnings | (639 | ) |  | (601 | )
Other | (157 | ) |  | (107 | )
Total deferred tax liabilities | (5,168 | ) |  | (5,113 | )
Net deferred tax liabilities | $ | (4,206 | ) |  | $ | (4,028 | )
Tax Attributes. At December 31, 2019, FCX had (i) U.S. foreign tax credits of $1.7 billion that will expire between 2020 and 2027, (ii) U.S. federal net operating losses of $5.9 billion that primarily expire between 2036 and 2037, (iii) U.S. state net operating losses of $10.8 billion that primarily expire between 2020 and 2039, (iv) Spanish net operating losses of $516 million that can be carried forward indefinitely and (v) Indonesia net operating losses of $1.2 billion that expire between 2020 and 2027. Valuation Allowance. On the basis of available information at December 31, 2019, 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 $4.6 billion at December 31, 2019, and $4.5 billion at December 31, 2018, and covered all of FCX’s U.S. foreign tax credits, U.S. federal net operating losses, foreign net operating losses and substantially all of its U.S. state net operating losses. The valuation allowance related to FCX’s U.S. foreign tax credits totaled $1.7 billion at December 31, 2019. FCX has operations in tax jurisdictions where statutory income taxes and withholding taxes are in excess of the U.S. federal income tax rate. Valuation allowances are recognized on foreign tax credits for which no benefit is expected to be realized. The valuation allowance related to FCX’s U.S. federal, state and foreign net operating losses totaled $2.2 billion and foreign deferred tax assets totaled $671 million at December 31, 2019. Net operating losses and 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 recognizes a valuation allowance to the extent these deductions are not expected to be realized in future periods. Valuation allowances will continue to be carried on U.S. foreign tax credits, U.S. federal, state and foreign net operating losses and U.S. federal, state and foreign deferred tax assets, until such time that (i) FCX generates taxable income against which any of the assets, credits or net operating losses 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, credits or net operating losses that can be implemented. The $69 million net increase in the valuation allowances during 2019 primarily related to increases totaling $208 million in U.S. federal deferred tax assets for which no benefit is expected to be realized, partly offset by a $98 million decrease in U.S. foreign tax credits associated with expirations and prior year adjustments, and a $44 million decrease in U.S. federal and state net operating loss carryforwards. Other Events. On December 21, 2018, FCX completed the transaction with the Indonesia government regarding PT-FI’s long-term mining rights and share ownership. Concurrent with closing the transaction, the Indonesia government granted PT-FI an IUPK to replace its former COW. Under the terms of the IUPK, PT-FI is subject to a 25 percent corporate income tax rate and a 10 percent profits tax on net income beginning in 2019. As a result of the change in statutory tax rate applicable to deferred income tax liabilities, during fourth-quarter 2018, FCX recognized a tax credit of $504 million. In 2018, PT-FI received unfavorable Indonesia Tax Court decisions with respect to its appeal of capitalized mine development costs on its 2012 and 2014 corporate income tax returns. PT-FI appealed those decisions to the Indonesia Supreme Court. On October 31, 2019, the Indonesia Supreme Court communicated an unfavorable ruling regarding the treatment of mine development costs on PT-FI’s 2014 tax return. During the fourth quarter of 2019, PT-FI met with the Indonesia Tax Office and developed a framework for resolution of the disputed matters. On December 30, 2019, PT-FI made a payment of $250 million based on its understanding of the framework for resolution of disputes arising from the audits of the tax years 2012 through 2016, as well as tax years 2017 (for which a tax audit is not complete) and 2018 (for which a tax audit has not begun). Additional administrative steps will need to be completed by both PT-FI and the Indonesia Tax Office in order to implement the resolution. In conjunction with the framework for resolution above, PT-FI recorded total net charges of $304 million, including $123 million for non-deductible penalties recorded to other (expense) income, $78 million for non-deductible interest recorded to interest expense and $103 million to provision for income tax expense, primarily for the impact of a reduction in the statutory rate on PT-FI’s deferred tax assets. SUNAT, the Peru national tax authority, has assessed mining royalties on ore processed by the Cerro Verde concentrator for the period December 2006 to December 2013, which Cerro Verde has contested on the basis that its 1998 stability agreement exempts from royalties all minerals extracted from its mining concessions, irrespective of the method used for processing those minerals. Refer to Note 12 for further discussion of the Cerro Verde royalty dispute and net charges recorded in 2019, 2018 and 2017. In December 2016, the Peru 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 tax legislation, which was effective January 1, 2017, the corporate income tax rate was 29.5 percent, and the dividend tax rate on distributions of earnings was 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. In September 2014, the Chile 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 Chile 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 Chile 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 November 2017, the progression of increasing tax rates was delayed by the Chile legislature so that the 35 percent rate continues through 2021 increasing to 44.5 percent in 2022 and thereafter. In January 2020, the Chile legislature approved a tax reform package that would further delay the 44.5 percent rate until 2027 and thereafter. FCX does not expect a material impact from the 2020 legislation. In 2010, the Chile 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 were 4 percent for the years 2013 through 2017. Beginning in 2018, and through 2023, rates moved 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 (expense) income 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:
| 2019 |  | 2018 |  | 2017
Balance at beginning of year | $ | 404 |  |  | $ | 390 |  |  | $ | 101 |
Additions: |  |  |  |  |
Prior year tax positions | 73 |  |  | 100 |  |  | 302 |
Current year tax positions | 11 |  |  | 14 |  |  | 6 |
Decreases: |  |  |  |  |
Prior year tax positions | (75 | ) |  | (86 | ) |  | (1 | )
Settlements with taxing authorities | (37 | ) |  | (9 | ) |  | (17 | )
Lapse of statute of limitations | — |  |  | (5 | ) |  | (1 | )
Balance at end of year | $ | 376 |  |  | $ | 404 |  |  | $ | 390 |
The total amount of accrued interest and penalties associated with unrecognized tax benefits included in the consolidated balance sheets was $231 million at December 31, 2019, primarily relating to unrecognized tax benefits associated with royalties and other related mining taxes, and $186 million at December 31, 2018, and $22 million at December 31, 2017. The reserve for unrecognized tax benefits of $376 million at December 31, 2019, included $282 million ($150 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 tax treatment of social welfare payments and cost recovery methods. Changes in the reserve for unrecognized tax benefits associated with prior year tax positions were primarily related to uncertainties associated with royalties and other related mining taxes and cost recovery methods. There continues to be uncertainty related to the timing of settlements with taxing authorities. In January 2020, PT-FI noted an unfavorable ruling related to its 2012 tax return on the Indonesia Supreme Court’s website. Once PT-FI receives the written ruling it will determine the amount of any required accruals, which are not expected to be material. If additional settlements are agreed upon during the year 2020, FCX could experience an additional 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 |  | N/A |  | 2014-2019
Indonesia |  | 2008, 2011-2017 |  | 2018-2019
Peru |  | 2013-2015 |  | 2016-2019
Chile |  | 2017-2018 |  | 2019

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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