INCOME TAXES

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



							in millions
	2017			2016			2015
Federal	$	755		$	710		$	564
State	81			118			89
Foreign	14			(2		)	44
	$	850		$	826		$	697

Current	$	889		$	742		$	659
Deferred	(39		)	84			38
	$	850		$	826		$	697

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



	2017		2016		2015
Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes	2.3		2.7		3.1
Unrecognized tax benefits, net	(0.1	)	(1.7	)	(1.8	)
Domestic production deduction	(3.1	)	(2.6	)	(3.7	)
Foreign rate differences and valuation allowances	0.3		—		3.8
Other	(2.1	)	(1.6	)	(0.1	)
	32.3	%	31.8	%	36.3	%

During fiscal 2017, the domestic production deduction decreased tax expense by $80 million, and state tax expense, net of federal tax benefit, was $61 million.

During fiscal 2016, the domestic production deduction and changes in unrecognized tax benefits decreased tax expense by $68 million and $43 million, respectively, and state tax expense, net of federal tax benefit, was $70 million.

During fiscal 2015, the domestic production deduction and changes in unrecognized tax benefits decreased tax expense by $72 million and $34 million, respectively, and state tax expense, net of federal tax benefit, was $59 million. Additionally, foreign rate differences, mostly driven by the China impairment, unfavorably impacted tax expense by $73 million. The sale of the Mexico and Brazil operations and related repatriation of proceeds did not have a significant impact on the effective income tax rate.

Approximately $2,603 million, $2,543 million, and $1,908 million of income from continuing operations before income taxes for fiscal 2017, 2016 and 2015, respectively, were from our operations based in 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 30, 2017, and October 1, 2016, are as follows:



									in millions
	2017					2016
	Deferred Tax					Deferred Tax
	Assets			Liabilities		Assets			Liabilities
Property, plant and equipment	$	—		$	900	$	—		$	857
Intangible assets	—			2,424		—			1,979
Accrued expenses	400			—		400			—
Net operating loss and other carryforwards	97			—		86			—
Other	204			273		140			259
	$	701		$	3,597	$	626		$	3,095
Valuation allowance	$	(75	)			$	(72	)
Net deferred tax liability				$	2,971				$	2,541

At September 30, 2017, our gross state tax net operating loss carryforwards approximated $806 million and expire in fiscal years 2018 through 2035. Gross foreign net operating loss carryforwards approximated $39 million and expire in fiscal years 2018 through 2028. Gross federal net operating loss carryforwards approximated $12 million and expire in fiscal years 2031 through 2033. We also have tax credit carryforwards of approximately $52 million, of which $45 million expire in fiscal years 2018 through 2031, and the remainder has no expiration.

We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $182 million and $219 million at September 30, 2017, and October 1, 2016, respectively. The accumulated undistributed earnings at September 30, 2017 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. Due to the uncertainty of the manner in which the undistributed earnings would be brought back to the United States, the tax laws in effect at that time, as well as the availability of the Company to claim foreign tax credits, 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 30, 2017, October 1, 2016, and October 3, 2015:



							in millions
	2017			2016			2015
Balance as of the beginning of the year	$	305		$	306		$	272
Increases related to current year tax positions	38			35			78
Increases related to prior year tax positions	5			31			11
Increase related to AdvancePierre acquisition	9			—			—
Reductions related to prior year tax positions	(27		)	(48		)	(18		)
Reductions related to settlements	(4		)	(7		)	—
Reductions related to expirations of statutes of limitations	(10		)	(12		)	(37		)
Balance as of the end of the year	$	316		$	305		$	306

The amount of unrecognized tax benefits, if recognized, that would impact our effective tax rate was $205 million at September 30, 2017 and October 1, 2016. We classify interest and penalties on unrecognized tax benefits as income tax expense. At September 30, 2017, and October 1, 2016, before tax benefits, we had $63 million and $52 million, respectively, of accrued interest and penalties on unrecognized tax benefits.

As of September 30, 2017, we are subject to income tax examinations for United States federal income taxes for fiscal years 2013 through 2016. We are also subject to income tax examinations by major state and foreign jurisdictions for fiscal years 2005 through 2016 and 2002 through 2016, respectively. We estimate that during the next twelve months it is reasonably possible that unrecognized tax benefits could decrease by as much as $9 million primarily due to expiration of statutes in various jurisdictions.