INCOME TAXES

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.

Income tax expense (benefit) consisted of the following (in thousands of dollars):



	For the Years Ended December 31,
	2015			2014			2013
Current provision:
Federal	$	412,545		$	437,648		$	398,593
State	49,894			47,199			42,526
Foreign	24,087			43,088			52,277
Total current	486,526			527,935			493,396
Deferred tax (benefit) provision	(20,995		)	(5,845		)	(13,546		)
Total provision	$	465,531		$	522,090		$	479,850

Earnings before income taxes by geographical area consisted of the following (in thousands of dollars):



	For the Years Ended December 31,
	2015		2014		2013
United States	$	1,203,880	$	1,299,523	$	1,167,558
Foreign	46,825		34,863		120,041
	$	1,250,705	$	1,334,386	$	1,287,599

The income tax effects of temporary differences that gave rise to the net deferred tax asset were (in thousands of dollars):



	As of December 31,
	2015			2014
Deferred tax assets:
Inventory	$	32,390		$	30,471
Accrued expenses	56,127			44,362
Accrued employment-related benefits	116,423			139,392
Foreign operating loss carryforwards	70,881			61,219
Other	12,962			12,748
Deferred tax assets	288,783			288,192
Less valuation allowance	(62,333		)	(56,876		)
Deferred tax assets, net of valuation allowance	$	226,450		$	231,316
Deferred tax liabilities:
Property, buildings and equipment	(42,249		)	(48,044		)
Intangibles	(134,784		)	(101,958		)
Software	(20,744		)	(21,975		)
Prepaids	(17,901		)	(16,673		)
Other	(17,277		)	(12,196		)
Deferred tax liabilities	(232,955		)	(200,846		)
Net deferred tax (liability) asset	$	(6,505	)	$	30,470

The net deferred tax (liability) asset is classified as follows:
Current assets	$	—		$	61,387
Noncurrent assets	83,996			16,718
Noncurrent liabilities (foreign)	(90,501		)	(47,635		)
Net deferred tax (liability) asset	$	(6,505	)	$	30,470

In 2015 the Company adopted ASU 2015-17, which simplifies the balance sheet presentation of deferred taxes that requires that deferred tax assets and liabilities be classified as noncurrent. The pronouncement is being applied prospectively. See Note 1 to the Consolidated Financial Statements.

At December 31, 2015, the Company had $268 million of operating loss carryforwards related primarily to foreign operations. Some of the operating loss carryforwards may expire at various dates through 2025. The Company has recorded a valuation allowance, which represents a provision for uncertainty as to the realization of the tax benefits of these carryforwards. In addition, the Company recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized. During 2015, the Company's valuation allowance increased by $5.5 million primarily due to the increase in foreign net operating losses.

A reconciliation of income tax expense with federal income taxes at the statutory rate follows (in thousands of dollars):



	For the Years Ended December 31,
	2015			2014			2013
Federal income tax at the 35% statutory rate	$	437,746		$	467,035		$	450,660
State income taxes, net of federal income tax benefit	29,507			31,263			27,430
Clean energy credit	(13,358		)	—			—
Other - net	11,636			23,792			1,760
Income tax expense	$	465,531		$	522,090		$	479,850
Effective tax rate	37.2		%	39.1		%	37.3		%

In the second quarter of 2015, the Company acquired a non-controlling interest in a limited liability company established to produce refined coal. The production and sale of refined coal that results in required emission reductions is eligible for renewable energy tax credits under Section 45 of the Internal Revenue Code. The Company receives tax credits in proportion to its equity interest. The income tax credits from the investment resulted in a 100 basis point reduction to the overall effective tax rate for 2015.

In 2014, Other-net rate reconciling items increased primarily due to Brazil closing costs with no tax benefit, foreign tax rates differential and foreign losses for which valuation allowances were provided.

Undistributed earnings of foreign subsidiaries at December 31, 2015, amounted to $468 million. No provision for deferred U.S. income taxes has been made for these subsidiaries because the Company intends to permanently reinvest such earnings in its foreign operations. If at some future date these earnings cease to be permanently invested, the Company may be subject to U.S. income taxes, foreign withholding and other taxes on such amounts, which cannot be reasonably estimated at this time.

The changes in the liability for tax uncertainties, excluding interest, are as follows (in thousands of dollars):



	2015			2014			2013
Balance at beginning of year	$	45,126		$	40,317		$	40,937
Additions for tax positions related to the current year	14,916			11,545			8,396
Additions for tax positions of prior years	2,653			5,318			2,308
Reductions for tax positions of prior years	(1,616		)	(4,109		)	(7,242		)
Reductions due to statute lapse	(402		)	(1,271		)	(18		)
Settlements, audit payments, refunds - net	(101		)	(6,674		)	(4,064		)
Balance at end of year	$	60,576		$	45,126		$	40,317

The Company includes the liability for tax uncertainties in Deferred income taxes and tax uncertainties in the Consolidated Financial Statements. Included in this amount are $17 million and $9 million at December 31, 2015 and 2014, respectively, of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Any changes in the timing of deductibility of these items would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authorities to an earlier period. The reduction for tax positions of prior years in 2015 related primarily to law changes, conclusion of audits and audit settlements.

The Company regularly undergoes examination of its federal income tax returns by the Internal Revenue Service (IRS). The Company's federal tax returns for 2009 - 2012 are currently under audit by the IRS, and the tax years 2013 through 2015 are open. The Company is also subject to audit by state, local and foreign taxing authorities. Tax years 2002 - 2013 remain subject to state and local audits and 2007 - 2015 remain subject to foreign audits. The amount of liability associated with the Company's uncertain tax positions may change within the next 12 months due to the pending audit activity, expiring statutes or tax payments. A reasonable estimate of such change cannot be made.

The Company recognizes interest expense in the provision for income taxes. During 2015, 2014 and 2013, the Company recognized an expense of $1 million, $2 million and $2 million, respectively. As of December 31, 2015, 2014 and 2013, the Company accrued approximately $5 million, $4 million and $4 million for interest, respectively.