Income Taxes

The consolidated income tax expense consists of the following for the years ended December 31 ($ in millions):



	2018			2017			2016
Current provision
Federal	$	498		$	421		$	485
State and local	107			14			22
Total current provision	605			435			507
Deferred provision	(131		)	(109		)	92
Total income tax expense	$	474		$	326		$	599

The reconciliation of the tax provision at the U.S. federal statutory rate to income tax expense for the years ended December 31 is as follows ($ in millions):



	2018			2017			2016
Earnings from operations, before income tax expense	$	1,368		$	1,134		$	1,160
Loss (earnings) attributable to flow through noncontrolling interest	4			15			(8		)
Earnings from operations, less noncontrolling interest, before income tax expense	1,372			1,149			1,152

Tax provision at the U.S. federal statutory rate	288			402			402
State income taxes, net of federal income tax benefit	52			11			10
Nondeductible compensation	33			58			23
ACA Health Insurer Fee	149			—			162
Income Tax Reform	—			(125		)	—
Valuation Allowance	(28		)	14			10
Other, net	(20		)	(34		)	(8		)
Income tax expense	$	474		$	326		$	599

The tax effects of temporary differences which give rise to deferred tax assets and liabilities are presented below for the years ended December 31 ($ in millions):



	2018			2017
Deferred tax assets:
Medical claims liability	$	78		$	46
Nondeductible liabilities	128			41
Net operating loss and tax credit carryforwards	77			94
Compensation accruals	109			129
Premium and trade receivables	76			45
Other	61			11
Deferred tax assets	529			366
Valuation allowance	(53		)	(81		)
Net deferred tax assets	$	476		$	285

Deferred tax liabilities:
Intangible assets	$	343		$	342
Prepaid assets	31			23
Fixed assets	132			84
Investments in joint ventures	27			20
Deferred revenue	19			26
Other	6			17
Deferred tax liabilities	558			512
Net deferred tax assets (liabilities)	$	(82	)	$	(227	)

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. The valuation allowances primarily relate to future tax benefits on certain federal, state and foreign net operating loss and tax credit carryforwards. The $28 million decrease in valuation allowance relates to an increase in current taxable income of a subsidiary whose annual net operating loss deduction is limited by law.

Federal net operating loss carryforwards of $19 million expire beginning in 2020 through 2038; state net operating loss and tax credit carryforwards of $44 million expire beginning in 2019 through 2038. Substantially all of the non-U.S. tax loss carryforwards have indefinite carryforward periods.

The Company maintains a reserve for uncertain tax positions that may be challenged by a tax authority. A rollforward of the beginning and ending amount of uncertain tax positions, exclusive of related interest and penalties, is as follows:



	Year Ended December 31,
	2018			2017
Gross unrecognized tax benefits, beginning of period	$	257		$	102
Gross increases:
Current year tax positions	7			43
Prior year tax positions	14			113
Gross decreases:
Statute of limitation lapses	(1		)	(1		)
Gross unrecognized tax benefits, end of period	$	277		$	257

Uncertain tax positions increased $20 million due to various federal positions. As of December 31, 2018, $248 million of unrecognized tax benefits would impact the Company's effective tax rate in future periods, if recognized. The Company believes it is reasonably possible that its liability for unrecognized tax benefits will decrease in the next twelve months by $15 million as a result of the expiration of statutes of limitations and projected audit settlements in certain jurisdictions.

The table above excludes interest, net of related tax benefits, which is treated as income tax expense (benefit) under the Company's accounting policy. For the year ended December 31, 2018, the Company recognized net interest expense related to uncertain positions of $5 million. The Company had $14 million and $9 million of accrued interest and penalties for uncertain tax positions as of December 31, 2018 and 2017, respectively.

The Company files tax returns for federal as well as numerous state tax jurisdictions. As of December 31, 2018, Health Net is under federal examination for tax years 2011 through its final return in 2016. Additionally, Centene's tax returns for years 2014 through 2017 are subject to federal examination.

The Company has completed its accounting of the effects of the TCJA on current and deferred income taxes. No material changes were made to the tax effects recorded in 2017.