INCOME TAXES

Detail of the provision for income taxes from continuing operations consists of the following:



							in millions
	2014			2013			2012
Federal	$	325		$	341		$	310
State	67			38			22
Foreign	4			30			19
	$	396		$	409		$	351

Current	$	501		$	421		$	211
Deferred	(105		)	(12		)	140
	$	396		$	409		$	351

The reasons for the difference between the statutory federal income tax rate and our effective income tax rate from continuing operations are as follows:



	2014		2013		2012
Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes	2.8		2.4		1.5
Unrecognized tax benefits, net	(4.7	)	(0.2	)	0.6
Domestic production deduction	(4.0	)	(3.2	)	(1.8	)
Foreign rate differences and valuation allowances	2.8		0.3		1.8
Other	(0.3	)	(1.7	)	(0.7	)
	31.6	%	32.6	%	36.4	%

During fiscal 2014, the domestic production deduction and the decrease in unrecognized tax benefits decreased tax expense by $50 million and $58 million, respectively.

During fiscal 2013, the domestic production deduction and estimated general business credits decreased tax expense by $40 million and $17 million, respectively.

During fiscal 2012, foreign valuation allowances increased tax expense by $10 million, and the domestic production deduction decreased tax expense by $17 million.

Approximately $18 million of loss and $53 million and $2 million of income from continuing operations before income taxes for fiscal 2014, 2013 and 2012, respectively, were from operations based in countries other than the United States.

We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The tax effects of major items recorded as deferred tax assets and liabilities as of September 27, 2014, and September 28, 2013, are as follows:



									in millions
	2014					2013
	Deferred Tax					Deferred Tax
	Assets			Liabilities		Assets			Liabilities
Property, plant and equipment	$	—		$	732	$	—		$	525
Suspended taxes from conversion to accrual method	—			66		—			71
Intangible assets	—			2,031		—			29
Inventory	24			121		8			110
Accrued expenses	474			—		209			—
Net operating loss and other carryforwards	96			—		77			—
Insurance reserves	21			—		22			—
Other	80			82		60			98
	$	695		$	3,032	$	376		$	833
Valuation allowance	$	(51	)			$	(77	)
Net deferred tax liability				$	2,388				$	534

We record deferred tax amounts in Other current assets, Other Assets, Other current liabilities and Deferred Income Taxes in the Consolidated Balance Sheets.

The deferred tax liability for suspended taxes from conversion to accrual method represents the 1987 change from the cash to accrual method of accounting and will be recognized by 2027.

The deferred tax liability for intangible assets increased over prior year due to the acquisition of Hillshire Brands.

At September 27, 2014, our gross state tax net operating loss carryforwards approximated $1.3 billion and expire in fiscal years 2015 through 2034. Gross foreign net operating loss carryforwards approximated $146 million, of which $50 million expire in fiscal years 2017 through 2024, and the remainder has no expiration. We also have tax credit carryforwards of approximately $25 million that expire in fiscal years 2015 through 2028.

We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $403 million and $351 million at September 27, 2014, and September 28, 2013, respectively. During fiscal 2014, the Company changed its permanent reinvestment assertion with respect to $183 million of earnings related to its poultry operations in Mexico and Brazil due to the planned sale of those operations and repatriation of the related proceeds, and as a result we recorded expense, net of foreign tax credits, of $17 million. With respect to the remaining $220 million of undistributed earnings for all other foreign subsidiaries at September 27, 2014, these earnings are expected to be indefinitely reinvested outside of the United States. If those earnings were distributed in the form of dividends or otherwise, we could be subject to federal income taxes (subject to an adjustment for foreign tax credits), state income taxes and withholding taxes payable to the various foreign countries. It is not currently practicable to estimate the tax liability that might be payable on the repatriation of these foreign earnings.

The following table summarizes the activity related to our gross unrecognized tax benefits at September 27, 2014, September 28, 2013, and September 29, 2012:



							in millions
	2014			2013			2012
Balance as of the beginning of the year	$	175		$	168		$	174
Increases related to current year tax positions	11			3			3
Increases related to prior year tax positions	17			15			5
Increases related to Hillshire Brands balances	136			—			—
Reductions related to prior year tax positions	(20		)	(6		)	(10		)
Reductions related to settlements	(1		)	(2		)	(1		)
Reductions related to expirations of statute of limitations	(46		)	(3		)	(3		)
Balance as of the end of the year	$	272		$	175		$	168

The amount of unrecognized tax benefits, if recognized, that would impact our effective tax rate was $241 million and $149 million at September 27, 2014, and September 28, 2013, respectively. We classify interest and penalties on unrecognized tax benefits as income tax expense. At September 27, 2014, and September 28, 2013, before tax benefits, we had $54 million and $63 million, respectively, of accrued interest and penalties on unrecognized tax benefits.

As of September 27, 2014, we are subject to income tax examinations for U.S. federal income taxes for fiscal years 2011 through 2013. We are also subject to income tax examinations by major state and foreign jurisdictions for fiscal years 2005 through 2013 and 2002 through 2013, respectively. We estimate that during the next twelve months it is reasonably possible that unrecognized tax benefits could decrease by as much as $30 million primarily due to expiration of statutes in various jurisdictions.