INCOME TAXES

Income tax expense was $550 million, $186 million, and $209 million in 2017, 2016 and 2015, respectively. The following table summarizes the difference between income tax expense at the United States statutory rate of 35% and the income tax expense at effective worldwide tax rates for the respective periods:



Millions of dollars	2017			2016			2015
Earnings before income taxes
United States	$	671		$	605		$	555
Foreign	216			509			476
Earnings before income taxes	887			1,114			1,031

Income tax computed at United States statutory rate	310			390			361
U.S. government tax incentives	(13		)	(9		)	(13		)
Foreign government tax incentives, including BEFIEX	(29		)	(11		)	(19		)
Foreign tax rate differential	(14		)	(50		)	(36		)
U.S. foreign tax credits	17			(86		)	(103		)
Valuation allowances	(68		)	(121		)	(95		)
State and local taxes, net of federal tax benefit	29			20			18
Foreign withholding taxes	41			36			16
U.S. tax on foreign dividends and subpart F income	12			63			57
Settlement of global tax audits	48			(40		)	16
U.S. Transition Tax	190			—			—
Changes in enacted tax rates	49			32			—
Other items, net	(22		)	(38		)	7
Income tax computed at effective worldwide tax rates	$	550		$	186		$	209

Current and Deferred Tax Provision

The following table summarizes our income tax (benefit) provision for 2017, 2016 and 2015:



	2017					2016					2015
Millions of dollars	Current		Deferred			Current		Deferred			Current		Deferred
United States	$	138	$	386		$	34	$	120		$	98	$	55
Foreign	213		(233		)	167		(154		)	181		(143		)
State and local	12		34			7		12			10		8
	$	363	$	187		$	208	$	(22	)	$	289	$	(80	)
Total income tax expense			$	550				$	186				$	209

United States Government Tax Legislation

On December 22, 2017, H.R.1 (the “Tax Cuts and Jobs Act”) was signed into law. Significant provisions impacting Whirlpool's 2017 effective tax rate include the reduction in corporate tax rate from 35% to 21% effective in 2018, and a one-time deemed repatriation (“Transition Tax”) on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. At December 31, 2017, the Company had not completed its accounting for the tax effects of the enactment of the Tax Cuts and Jobs Act; however, in certain cases, as described below, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and impact of the one-time Transition Tax. For the items for which the Company was able to determine a reasonable estimate, it recognized the following provisional impacts. The reduction in corporate tax rate resulted in a one - time tax expense in the amount of $49 million related to the revaluation of our U.S. net deferred tax asset. The Transition Tax resulted in a one-time tax expense in the amount of $190 million. The tax expense recognized represents the Company's best estimate of the impact of the Tax Cuts and Jobs Act. During 2018, the Company will continue to refine the calculations related to both provisional amounts as it gains a more thorough understanding of the tax law, and certain aspects of the Tax Cuts and Jobs Act are clarified by the taxing authorities.

On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 (the "Act") was signed into law. The Act makes permanent certain provisions including the Research and Development Credit. The Act extends through 2019 certain provisions including Bonus Depreciation and exempts certain types of income payments between related controlled foreign corporations.

United States Tax on Foreign Dividends

We have historically reinvested all unremitted earnings of the majority of our foreign subsidiaries and affiliates, and therefore have not recognized any U.S. deferred tax liability on those earnings. However, upon the enactment of the Tax Cuts and Jobs Act, the unremitted earnings of our foreign subsidiaries and affiliates are subject to U.S. tax under the Transition Tax provision. As a result, we recognized a one-time income tax expense in the amount of $190 million. We had previously disclosed in prior periods our plans to distribute foreign earnings from certain foreign subsidiaries that were forecasted to result in tax benefits which were not recognized in the prior period because of their contingent nature. In Q4, we did distribute $89 million of dividends to the U.S. from these foreign subsidiaries. However, as a result of the Tax Cuts and Jobs Act, the distribution did not generate a tax benefit. We are not planning to distribute additional cash related to these earnings. The Company had cash and cash equivalents of approximately $1.2 billion at December 31, 2017, of which substantially all was held by subsidiaries in foreign countries. Our intent is to permanently reinvest these funds outside of the United States and our current plans do not demonstrate a need to repatriate the cash to fund our U.S. operations. However, if these funds were repatriated, we would be required to accrue and pay applicable United States taxes (if any) and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with the repatriation of cash due to the complexity of its hypothetical calculation.

Valuation Allowances

At December 31, 2017, we had net operating loss carryforwards of $4.1 billion, $842 million of which were U.S. state net operating loss carryforwards. Of the total net operating loss carryforwards, $2.8 billion do not expire, with substantially all of the remaining carryforwards expiring in various years through 2037. As of December 31, 2017, we had $927 million of United States general business credit carryforwards available to offset future payments of federal income taxes, expiring between 2018 and 2037.

We routinely review the future realization of deferred tax assets based on projected future reversal of taxable temporary differences, available tax planning strategies and projected future taxable income. We have recorded a valuation allowance to reflect the net estimated amount of certain deferred tax assets associated with net operating loss and other deferred tax assets we believe will be realized. Our recorded valuation allowance of $178 million at December 31, 2017 consists of $156 million of net operating loss carryforward deferred tax assets and $22 million of other deferred tax assets. Our recorded valuation allowance was $150 million at December 31, 2016 and consisted of $128 million of net operating loss carryforward deferred tax assets and $22 million of other deferred tax assets. The increase in our valuation allowance includes $83 million of releases recognized in net earnings, offset by $15 million of additional valuation allowances. The remaining change relates to reclassification within our net deferred tax asset. We believe that it is more likely than not that we will realize the benefit of existing deferred tax assets, net of valuation allowances mentioned above.

Settlement of Global Tax Audits

We are in various stages of audits by certain governmental tax authorities. We establish liabilities for the difference between tax return provisions and the benefits recognized in our financial statements. Such amounts represent a reasonable provision for taxes ultimately expected to be paid, and may need to be adjusted over time as more information becomes known. We are no longer subject to any significant United States federal tax examinations for the years before 2009, or any state, local or foreign income tax examinations by tax authorities for years before 2004.

Deferred Tax Liabilities and Assets

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. The following table summarizes the significant components of our deferred tax liabilities and assets at December 31, 2017 and 2016:



Millions of dollars	2017			2016
Deferred tax liabilities
Intangibles	$	610		$	765
Property, net	185			199
LIFO inventory	38			59
Other	177			156
Total deferred tax liabilities	1,010			1,179
Deferred tax assets
U.S. general business credit carryforwards, including Energy Tax Credits	927			964
Pensions	220			322
Loss carryforwards	880			668
Postretirement obligations	109			144
Foreign tax credit carryforwards	—			310
Research and development capitalization	129			273
Employee payroll and benefits	56			111
Accrued expenses	170			106
Product warranty accrual	55			64
Receivable and inventory allowances	56			59
Other	521			344
Total deferred tax assets	3,123			3,365
Valuation allowances for deferred tax assets	(178		)	(150		)
Deferred tax assets, net of valuation allowances	2,945			3,215
Net deferred tax assets	$	1,935		$	2,036

Unrecognized Tax Benefits

The following table represents a reconciliation of the beginning and ending amount of unrecognized tax benefits that if recognized would impact the effective tax rate, excluding federal benefits of state and local tax positions, and interest and penalties:



Millions of dollars	2017			2016			2015
Balance, January 1	$	102		$	143		$	141
Additions for tax positions of the current year	25			14			12
Additions for tax positions of prior years	110			1			27
Reductions for tax positions of prior years	(1		)	(33		)	(25		)
Settlements during the period	(10		)	(20		)	(5		)
Positions assumed in acquisitions	—			—			—
Lapses of applicable statute of limitation	(7		)	(3		)	(7		)
Balance, December 31	$	219		$	102		$	143

Interest and penalties associated with unrecognized tax benefits resulted in a net benefit of $8 million as of December 31, 2017, a net benefit of $19 million in 2016, and a net expense of $5 million in 2015. We have accrued a total of $45 million, $42 million and $63 million at December 31, 2017, 2016 and 2015 , respectively.

It is reasonably possible that certain unrecognized tax benefits of $18 million could be settled with various related jurisdictions during the next 12 months.