6. Income Taxes

Income Tax Expense (Benefit)

Devon's income tax components are presented in the following table.


	Year Ended December 31,
	2011	2010	2009
	(In millions)
Current income tax (benefit) expense:
U.S. federal	$ (143)	$ 244	$ 45
Various states	20	16	18
Canada and various provinces	(20)	256	178
Total current tax (benefit) expense	(143)	516	241
Deferred income tax expense (benefit):
U.S. federal	1,986	781	(1,846)
Various states	95	21	(111)
Canada and various provinces	218	(83)	(57)
Total deferred tax expense (benefit)	2,299	719	(2,014)
Total income tax expense (benefit)	$ 2,156	$ 1,235	$ (1,773)

Total income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate to earnings (loss) from continuing operations before income taxes as a result of the following:


	Year Ended December 31,
	2011	2010	2009
	(In millions)
Expected income tax expense (benefit) based on U.S. statutory tax rate of 35%	$ 1,502	$ 1,249	$ (1,584)
Assumed repatriations.	725	144	55
State income taxes	70	31	(99)
Taxation on Canadian operations	(91)	(60)	(31)
Other	(50)	(129)	(114)
Total income tax expense (benefit)	$ 2,156	$ 1,235	$ (1,773)

During 2011, 2010 and 2009, pursuant to the completed and planned divestitures of our International assets located outside North America, a portion of Devon's foreign earnings were no longer deemed to be permanently reinvested. Accordingly, Devon recognized deferred income tax expense of $725 million, $144 million and $55 million during 2011, 2010 and 2009 respectively, related to assumed repatriations of earnings from its foreign subsidiaries.

Deferred Tax Assets and Liabilities

The tax effects of temporary differences that gave rise to Devon's deferred tax assets and liabilities are presented below:


	December 31,
	2011	2010
Deferred tax assets:	(In millions)
Net operating loss carryforwards	$ 222	$ 159
Asset retirement obligations	447	494
Pension benefit obligations	130	133
Other	117	171
Total deferred tax assets	916	957
Deferred tax liabilities:
Property and equipment	(4,475)	(3,130)
Fair value of financial instruments	(218)	(70)
Long-term debt	(185)	(198)
Taxes on unremitted foreign earnings (	(936)	(211)
Other	(27)	(20)
Total deferred tax liabilities	(5,841)	(3,629)
Net deferred tax liability	$ (4,925)	$ (2,672)

Devon has recognized $222 million of deferred tax assets related to various carryforwards available to offset future income taxes. The carryforwards consist of $829 million of Canadian net operating loss carryforwards, which expire between 2026 and 2031, and $206 million of state net operating loss carryforwards, which expire primarily between 2012 and 2031. Devon expects the tax benefits from the Canadian net operating loss carryforwards to be utilized between 2013 and 2017. Also, Devon expects the tax benefits from the state net operating loss carryforwards to be utilized between 2012 and 2016. Such expectations are based upon current estimates of taxable income during these periods, considering limitations on the annual utilization of these benefits as set forth by tax regulations. Significant changes in such estimates caused by variables such as future oil, gas and NGL prices or capital expenditures could alter the timing of the eventual utilization of such carryforwards. There can be no assurance that Devon will generate any specific level of continuing taxable earnings. However, management believes that Devon's future taxable income will more likely than not be sufficient to utilize substantially all its tax carryforwards prior to their expiration.

As of December 31, 2011, approximately $5.4 billion of Devon's unremitted earnings from its foreign subsidiaries were deemed to be permanently reinvested. As a result, Devon has not recognized a deferred tax liability for U.S. income taxes associated with such earnings. If such earnings were to be remitted to the U.S., Devon may be subject to U.S. income taxes and foreign withholding taxes. However, it is not practical to estimate the amount of additional taxes that may be payable due to the inter-relationship of the various factors involved in making such an estimate.

Unrecognized Tax Benefits

The following table presents changes in Devon's unrecognized tax benefits.


	December 31,
	2011	2010
	(In millions)
Balance at beginning of year	$ 194	$ 272
Tax positions taken in prior periods	(3)	40
Tax positions taken in current year	27	5
Accrual of interest related to tax positions taken	(7)	9
Lapse of statute of limitations	(41)	(5)
Settlements	(5)	(129)
Foreign currency translation	—	2
Balance at end of year	$ 165	$ 194

Devon's unrecognized tax benefit balance at December 31, 2011 and 2010, included $20 million and $27 million of interest and penalties, respectively. If recognized, all of Devon's unrecognized tax benefits as of December 31, 2011 would affect Devon's effective income tax rate. Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities.

Jurisdiction	Tax Years Open
U.S. federal	2008-2011
Various U.S. states	2007-2011
Canada federal	2003-2011
Various Canadian provinces	2003-2011

Certain statute of limitation expirations are scheduled to occur in the next twelve months. However, Devon is currently in various stages of the administrative review process for certain open tax years. In addition, Devon is currently subject to various income tax audits that have not reached the administrative review process. As a result, Devon cannot reasonably anticipate the extent that the liabilities for unrecognized tax benefits will increase or decrease within the next twelve months.