NOTE 10 INCOME TAXES

Income / (loss) before income taxes was $(5,476) million, $(2,421) million and $1,447 million for the years ended December 31, 2015, 2014 and 2013, respectively. The provision / (benefit) for federal, state and local income taxes consists of the following:

For the years ended December 31,	United States Federal		State and Local		Total
			(in millions)
2015
Current	$	255	$	81	$	336
Deferred	(1,961)		(297)		(2,258)

	$	(1,706)	$	(216)	$	(1,922)


2014
Current	$	66	$	99	$	165
Deferred	(840)		(312)		(1,152)

	$	(774)	$	(213)	$	(987)


2013
Current	$	227	$	91	$	318
Deferred	222		38		260

	$	449	$	129	$	578

The following reconciliation of the United States federal statutory income tax rate to our effective tax rate is stated as a percentage of pre-tax income or loss:

	For the years ended December 31,
	2015	2014	2013
United States federal statutory tax rate	35%	35%	35%
State income taxes, net of federal provision	5	6	6
Valuation allowance	(5)
Other	—	—	(1)

Effective tax rate	35%	41%	40%

The tax effects of temporary differences resulting in deferred income taxes at December 31, 2015 and 2014 were as follows:

	2015				2014

	Deferred Tax Assets		Deferred Tax Liabilities		Deferred Tax Assets		Deferred Tax Liabilities
	(in millions)
Long-term debt	$	608	$	—	$	—	$	—
Property, plant and equipment differences	132		(427)		—		(2,437)
Postretirement benefit accruals	41		—		39		—
Deferred compensation and benefits	75		—		62		—
Asset retirement obligations	156		—		184		—
Federal effect of state income taxes	28		(24)		68		—
Net operating loss carryforward	7		—		64		—
All other	47		(3)		27		(1)

Subtotal	1,094		(454)		444		(2,438)
Valuation allowance	(382)		—		—		—

Total net deferred taxes	$	712	$	(454)	$	444	$	(2,438)

The current portion of deferred tax assets was $59 million and $61 million as of December 31, 2015 and 2014, respectively, which was reported in other current assets. The noncurrent portion of total deferred tax assets was reported in other assets as of December 31, 2015.

We evaluate our deferred tax assets to determine if a valuation allowance is required to reduce our deferred tax assets to an amount expected to be realized. We expect to realize a portion of our deferred tax assets through carryback to a prior income year and reversals of taxable temporary differences. The amount of the deferred tax assets considered realizable could however be adjusted if estimates change. In the fourth quarter of 2015, we recorded a valuation allowance, net of the federal benefit for the state-related portion, of $294 million against our deferred tax assets, which we do not believe are more likely than not to be realized.

As a result of the debt exchange in December 2015, we recognized cancellation of debt income of $1.39 billion in 2015, including $830 million of original issue discount, which represented the excess of the face value of the newly issued notes over their fair value. The original issue discount will be deducted in our tax returns over a seven-year period. The tax gain exceeded our operating loss for the year. We expect to utilize our existing net operating loss (NOL) carryforwards from 2014 as well as our anticipated 2016 NOLs to offset the current tax liability resulting from this gain. As a result, the related $310 million of current federal and state tax provision has been reported in other long-term liabilities in the accompanying balance sheets. We expect this amount to become a deferred tax liability in 2016 as the anticipated losses are incurred.

Prior to the Spin-off date, we were included in the Occidental income tax returns for all applicable years. There could be a settlement between us and Occidental under the tax sharing agreement related to income taxes for the periods prior to the Spin-off. The income tax provision was calculated as if we filed separate tax returns for all periods presented prior to the Spin-off. There were no amounts due to Occidental as of December 31, 2015 and 2014.

We have no liabilities for unrecognized tax benefits as of December 31, 2015 and 2014. We believe there will not be material changes to our unrecognized tax benefits within the next 12 months. We recognize interest and penalties, if any, related to uncertain tax positions in the income tax provision. There were no amounts of interest and penalties related to uncertain tax positions during the years ended December 31, 2015, 2014 and 2013.

As of December 31, 2015, we had approximately $40 million of U.S. federal net operating losses and $106 million of California net operating losses. The net operating loss carryforwards resulted from acquisitions in prior years. The U.S. federal net operating losses begin expiring in 2017 and the California net operating losses begin expiring in 2026. The acquired net operating loss carryforward is subject to an annual limitation as a result of these acquisitions and no financial statement benefit has been recognized for a portion of the net operating loss carryforward.

Our tax returns for the one-month period December 2014 are subject to examination by U.S. federal and California tax authorities. Under the tax sharing agreement, Occidental controls tax examinations for the periods in which we were included in a consolidated or combined income tax return filed by Occidental.