Income Taxes
Income tax provisions (benefits) were:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
(In millions) | Current | | Deferred | | Total | | Current | | Deferred | | Total | | Current | | Deferred | | Total |
Federal | $ | 954 |
| | $ | 20 |
| | $ | 974 |
| | $ | 1,185 |
| | $ | 432 |
| | $ | 1,617 |
| | $ | 1,040 |
| | $ | 139 |
| | $ | 1,179 |
|
State and local | 131 |
| | 8 |
| | 139 |
| | 169 |
| | 57 |
| | 226 |
| | 152 |
| | (16 | ) | | 136 |
|
Foreign | 5 |
| | (5 | ) | | — |
| | (1 | ) | | 3 |
| | 2 |
| | 15 |
| | — |
| | 15 |
|
Total | $ | 1,090 |
| | $ | 23 |
| | $ | 1,113 |
| | $ | 1,353 |
| | $ | 492 |
| | $ | 1,845 |
| | $ | 1,207 |
| | $ | 123 |
| | $ | 1,330 |
|
The provision for income taxes for periods prior to the Spinoff have been computed as if we were a stand-alone company.
A reconciliation of the federal statutory income tax rate (35 percent) applied to income before income taxes to the provision for income taxes follows:
|
| | | | | | | | |
| 2013 | | 2012 | | 2011 |
Statutory rate applied to income before income taxes | 35 | % | | 35 | % | | 35 | % |
State and local income taxes, net of federal income tax effects | 3 |
| | 2 |
| | 2 |
|
Domestic manufacturing deduction | (2 | ) | | (1 | ) | | (1 | ) |
Other | (2 | ) | | (1 | ) | | — |
|
Provision for income taxes | 34 | % | | 35 | % | | 36 | % |
Deferred tax assets and liabilities resulted from the following:
|
| | | | | | | |
| December 31, |
(In millions) | 2013 | | 2012 |
Deferred tax assets: | | | |
Employee benefits | $ | 483 |
| | $ | 585 |
|
Environmental | 37 |
| | 35 |
|
Other | 49 |
| | 55 |
|
Total deferred tax assets | 569 |
| | 675 |
|
Deferred tax liabilities: | | | |
Property, plant and equipment | 2,290 |
| | 2,225 |
|
Inventories | 614 |
| | 610 |
|
Investments in subsidiaries and affiliates | 267 |
| | 307 |
|
Other | 70 |
| | 29 |
|
Total deferred tax liabilities | 3,241 |
| | 3,171 |
|
Net deferred tax liabilities | $ | 2,672 |
| | $ | 2,496 |
|
Net deferred tax liabilities were classified in the consolidated balance sheets as follows:
|
| | | | | | | |
| December 31, |
(In millions) | 2013 | | 2012 |
Assets: | | | |
Other noncurrent assets | $ | 2 |
| | $ | — |
|
Liabilities: | | | |
Accrued taxes | 370 |
| | 446 |
|
Deferred income taxes | 2,304 |
| | 2,050 |
|
Net deferred tax liabilities | $ | 2,672 |
| | $ | 2,496 |
|
The ability to realize the benefit of foreign tax credits is based on certain estimates concerning future financial conditions, income generated from foreign sources and our tax profile in the years that such credits may be claimed. A federal valuation allowance was established in 2013 for $2 million due to changes in the expected realizability of foreign tax credits.
MPC was a new taxpayer beginning in 2011. Prior to 2011, MPC was included in the Marathon Oil federal income tax returns for applicable years. MPC is continuously undergoing examination of its U.S. federal income tax returns by the Internal Revenue Service. Such audits have been completed through the 2009 tax year. We believe adequate provision has been made for federal income taxes and interest which may become payable for years not yet settled. Further, we are routinely involved in U.S. state income tax audits. We believe all other audits will be resolved with the amounts paid and/or provided for these liabilities. As of December 31, 2013, our income tax returns remain subject to examination in the following major tax jurisdictions for the tax years indicated:
|
| | | |
United States Federal | 2010 | - | 2012 |
States | 2004 | - | 2012 |
As a result of the Spinoff and pursuant to the tax sharing agreement by Marathon Oil and MPC, the unrecognized tax benefits related to MPC operations for which Marathon Oil was the taxpayer remain the responsibility of Marathon Oil and MPC has indemnified Marathon Oil. Before the Spinoff, MPC made a prepayment of a portion of the unrecognized tax benefits to Marathon Oil, which is reflected in the table below as settlements. See Note 25. During 2013, we settled with Marathon Oil our U.S. federal and related state return liabilities for the 2008-2009 tax years, resulting in a reduction in unrecognized tax benefits of $21 million, which are also reflected in the table below as settlements.
During 2013, we settled with Marathon Oil for the 2011 period prior to the spinoff based on filed tax returns and in accordance with the tax sharing agreement, resulting in a $39 million increase to additional paid-in capital.
The following table summarizes the activity in unrecognized tax benefits:
|
| | | | | | | | | | | |
(In millions) | 2013 | | 2012 | | 2011 |
January 1 balance | $ | 40 |
| | $ | 20 |
| | $ | 14 |
|
Additions for tax positions of prior years | 30 |
| | 32 |
| | 50 |
|
Reductions for tax positions of prior years | (25 | ) | | (6 | ) | | — |
|
Settlements | (30 | ) | | (6 | ) | | (44 | ) |
Statute of limitations | (2 | ) | | — |
| | — |
|
December 31 balance | $ | 13 |
| | $ | 40 |
| | $ | 20 |
|
If the unrecognized tax benefits as of December 31, 2013 were recognized, $6 million would affect our effective income tax rate. There were $5 million of uncertain tax positions as of December 31, 2013 for which it is reasonably possible that the amount of unrecognized tax benefits would significantly increase or decrease during the next twelve months.
Interest and penalties related to income taxes are recorded as part of the provision for income taxes. Such interest and penalties were net receipts (expenses) of ($11 million), $1 million and ($5 million) in 2013, 2012 and 2011. As of December 31, 2013 and 2012, $15 million and $9 million of interest and penalties were accrued related to income taxes.
