6.Income Taxes



Income before income taxes follows (in millions):







The current and deferred amounts of the (provision) benefit for income taxes follow (in millions):







Amounts are reflected in the preceding tables based on the location of the taxing authorities.



6.Income Taxes (continued)



Reconciliation of the U.S. statutory income tax rate to our effective tax rate for operations follows:







Corning’s results for the year ending December 31, 2017 included a total $2.2 billion worldwide tax provision, inclusive of tax on normal operations and the impacts of the 2017 Tax Act.  Given the significant complexity of the 2017 Tax Act and anticipated future guidance from the U. S. Treasury, the Securities and Exchange Commission and the Financial Accounting Standards Board (“FASB”) related to the 2017 Tax Act, the Securities Exchange Commission has issued its Staff Accounting Bulletin 118 (“SAB 118”) to provide registrants additional time to analyze and report the effects of tax reform during the “measurement period”.  Under SAB 118, the registrant is required to record those items where ASC 740 analysis is complete; include reasonable estimates and label them as provisional where ASC 740 analysis is incomplete; and if reasonable estimates cannot be made, record items under the previous tax law.  The measurement period ends on the date the entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740 and is not to exceed 1 year.



In addition to SAB 118, the FASB has issued some guidance regarding how to account for tax reform as well as a proposal to reclassify stranded tax costs from AOCI to retained earnings.  Furthermore, to date, the U.S. Treasury has issued Notice 2018-07 on December 29, 2017 and Notice 2018-13 on January 19, 2018 with additional guidance on how to compute the toll charges. 



At December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the 2017 Tax Act; however, we have made a reasonable estimate of the effects on our U.S. deferred tax balances, the one-time toll charge and the impact on our state valuation allowances.  We recognized provisional amounts which are included as a component of income tax expense from continuing operations.  The initial accounting is incomplete as we need additional time and information to analyze all aspects of the newly enacted law and how it impacts our worldwide operations.  The additional information that needs to be obtained, prepared or analyzed in order to complete the accounting requirements includes receiving further guidance from the tax authorities; additional time to prepare basis calculations; post-enactment impacts, and further time to validate our assumptions.



We re-measured the U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%.  However, we are still analyzing certain aspects of the 2017 Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.  The provisional amount recorded related to the re-measurement of our deferred tax balances was $347 million. 



The one-time toll charge is based on our unrepatriated earnings of certain foreign subsidiaries that were previously deferred.  This charge resulted in an additional provisional tax expense amount of $1.1 billion. We have not yet completed our calculation of the toll charge.  This amount may change when we finalize the calculation of unrepatriated earnings that were previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets.  Settlement of the toll charge will occur almost entirely through the use of existing foreign tax credit carryovers.

6.Income Taxes (continued)



Corning has not made sufficient progress on estimating the impact of tax reform on its assertion regarding its indefinitely reinvested foreign earnings so the Company will continue to follow its historic position while it continues to analyze this item. As of December 31, 2017, Corning estimates that its unremitted foreign earnings were $16.9 billion.  While Corning is not changing its assertion at this time, the Company has distributed  approximately $2 billion in January 2018 from two of its foreign subsidiaries to the U.S. parent of those subsidiaries.  There are no incremental taxes beyond the toll charge due with respect to this distribution of cash.



Under its historic policy, Corning will continue to indefinitely reinvest substantially all of its foreign earnings, with the exception of an immaterial amount of current earnings that have very low or no tax cost associated with their repatriation.  Our current analysis indicates that we have sufficient U.S. liquidity, including borrowing capacity, to fund foreseeable U.S. cash needs without requiring the repatriation of foreign cash.



Corning’s accounting for the impact of the global intangible low-taxed income (GILTI) provisions of the 2017 Tax Act is incomplete and, as a result, it has not yet elected a policy to account for the GILTI provisions.



We will continue to monitor for future guidance and to assess the impacts of the 2017 Tax Act.

Tax benefit associated with rate differences on foreign earnings is primarily the income of subsidiaries with lower statutory rates than the U.S. for 2017 and for 2016 and 2015 includes the benefit of excess foreign tax credits resulting from the inclusion of foreign earnings in U.S. income. 



During 2016, a realignment of Dow Corning interest took place.  Refer to Note 7 (Investments) of the Consolidated Financial Statements for additional detail.



The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities follows (in millions):









6.Income Taxes (continued)



The net deferred tax assets are classified in our consolidated balance sheets as follows (in millions):







Details on deferred tax assets for loss and tax credit carryforwards at December 31, 2017 follow (in millions):







Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not (a likelihood of greater than 50 percent) that some portion or all of the deferred tax assets will not be realized.  Corning has valuation allowances on certain shorter-lived deferred tax assets such as those represented by capital loss and state tax net operating loss carryforwards, as well as other foreign net operating loss carryforwards, because we cannot conclude that it is more likely than not that we will earn income of the character required to utilize these assets before they expire.  The amount of U.S. and foreign deferred tax assets that have remaining valuation allowances at December 31, 2017 and 2016 was $456 million and $270 million, respectively.



The 2017 Tax Act makes the following key changes to U.S. tax law which will potentially impact Corning’s deferred tax assets. Corporate alternative minimum tax (“AMT”) has been eliminated.  Taxpayers with AMT credit carryovers can use credits to offset regular tax liability for any tax year or such credits will be fully refundable by year 2022.  Corning has $28 million of AMT carryover.   Net operating losses (“NOL’s”)  generated prior to the 2017 Tax Act may still be carried back two years and forward 20 years.  Corning has $34 million of Federal NOL’s that are subject to these provisions.   The 2017 Tax Act limits and in some cases eliminates foreign tax credits.  Corning has $49 million of foreign tax credit carryforwards that may be subject to these restrictions.



In 2017, we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.  As a result, cumulative tax benefits totaling $233 million were recorded as an adjustment to beginning retained earnings.



The following is a tabular reconciliation of the total amount of unrecognized tax benefits (in millions):







Included in the balance at December 31, 2017 and 2016 are $97 million and $92 million, respectively, of unrecognized tax benefits that would impact our effective tax rate if recognized.



We recognize accrued interest and penalties associated with uncertain tax positions as part of tax expense.  For the years ended December 31, 2017 and 2016 the amount recognized in interest expense is not material.  The amounts accrued at December 31, 2017 and 2016 for the payment of interest and penalties were also not material.

6.Income Taxes (continued)



It is possible that the amount of unrecognized tax benefits will change due to one or more of the following events during the next twelve months: audit activity, tax payments, or final decisions in matters that are the subject of controversy in various jurisdictions within which we operate.  The majority of the potential change relates to tax litigation in Korea as well as our ongoing U.S. tax audit.  We believe we have provided adequate contingent reserves for these matters.  However, if upon conclusion of these matters, the ultimate determination of taxes owed is for an amount materially different than our current reserves, our overall tax expense and effective tax rate could be materially impacted in the period of adjustment. 



Corning Incorporated, as the common parent company, and all 80%-or-more-owned of its U.S. subsidiaries join in the filing of consolidated U.S. federal income tax returns.  The statute of limitations is closed for all periods ending through December 31, 2012.  All returns for periods ended through December 31, 2004, have been audited by and settled with the Internal Revenue Service (IRS).



Corning Incorporated and its U.S. subsidiaries file income tax returns on a combined, unitary or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 5 years.  Various state income tax returns are currently in the process of examination or administrative appeal.



Our foreign subsidiaries file income tax returns in the countries in which they have operations.  Generally, these countries have statutes of limitations ranging from 3 to 7 years.  Years still open to examination by foreign tax authorities in major jurisdictions include Japan (2009,  2015 onward), Taiwan (2015 onward) and South Korea (2015 onward).  Corning is currently appealing certain tax assessments resulting from audits performed by the South Korean tax authorities covering periods 2006 through 2015.  The Company is required to deposit the disputed tax amounts with the South Korean government as a condition of its appeal of these assessments.  Because we believe that it is more likely than not that we will prevail in the appeals process, we have recorded a non-current receivable of $319 million for the amount on deposit with the South Korean government.