The effective tax rate for income from continuing operations in the first nine months of 2014 was 34.6% compared to 31.5% in the first nine months of 2013. The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing operations for the nine months ended September 30, 2014 and 2013 are as follows:



	Percent of Income Before Income Taxes
Nine Months Ended September 30,	2014		2013
Income tax expense at federal statutory rate	35.0		35.0
Income tax contingency accruals and tax settlements	1.8		0.9
State taxes, net of federal income tax benefit	1.6		2.2
Unremitted earnings from foreign operations	1.2		1.1
Non-deductible expenses	0.2		0.8
Research and development tax credit	—		(1.4	)
Foreign tax incentives	(0.1	)	(4.8	)
Valuation allowance for capital loss carry-forwards	(0.2	)	1.1
Changes in estimates related to prior year tax provision	(0.4	)	(0.3	)
Valuation allowance for foreign operating loss carry-forwards	(1.1	)	0.9
Foreign rate differences	(1.2	)	(2.3	)
Domestic production activities deduction	(2.1	)	(1.5	)
Other	(0.1	)	(0.2	)
Effective income tax rate for income from continuing operations	34.6		31.5

The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social contribution on income). Terphane Holdings, LLC’s (“Terphane”) manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate levied on the operating profit of its products. These incentives produce a current effective tax rate of 15.25% for Terphane Ltda. (6.25% of income tax and 9.0% social contribution on income). The current incentives will expire at the end of 2014, but the Company anticipates that it will qualify for additional incentives that will extend beyond 2014. The benefit from tax incentives was $42,000 (0 cents per share) and $1.9 million (6 cents per share) in the first nine months of 2014 and 2013, respectively.

In connection with its capacity expansion project in Brazil, the Company has paid certain social taxes associated with the purchase of machinery and equipment and construction of buildings and other long-term assets. Payments of these taxes in Brazil have been included in “Net cash used in investing activities” given the nature of the underlying use of cash (e.g. the purchase of property, plant and equipment). The Company can recover tax credits associated with the purchase of machinery and equipment at different points over period up to 24 months. Tax credits will be applied against various other taxes due in Brazil, with their recovery being reflected as cash received from investing activities, consistent with the classification of the original payment.

The Company has a valuation allowance for excess capital losses from investments and other related items of $16 million at September 30, 2014. Tredegar continues to evaluate opportunities to utilize these loss carryforwards prior to their expiration at various dates in the future. As events and circumstances warrant, allowances will be reversed when it is more likely than not that future taxable income will exceed deductible amounts, thereby resulting in the realization of deferred tax assets.

Tredegar and its subsidiaries file income tax returns in the U.S., various states and jurisdictions outside the U.S. With few exceptions, Tredegar and its subsidiaries are no longer subject to state or non-U.S. income tax examinations by tax authorities for years before 2010.