• | As a result of The Act, the Corporation remeasured its U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. However, the Corporation is still analyzing certain aspects of The Act and refining its 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 remeasurement of the Corporation’s deferred tax balance was $250 million, recorded as a charge to "Provision (Credit) for income taxes." |
• | The Act requires a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits ("E&P"), which results in a one-time transition tax. As a result, the Corporation recorded an insignificant provisional amount for the transition tax liability for its foreign subsidiaries. The Corporation has not yet completed its calculation of the total post-1986 foreign E&P for its foreign subsidiaries as E&P will not be finalized until the DowDuPont federal income tax return is filed. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets, which is a defined term under The Act. |
• | For tax years beginning after December 31, 2017, The Act introduces new provisions for U.S. taxation of certain global intangible low-taxed income ("GILTI"). Due to its complexity and a current lack of guidance as to how to calculate the tax, the Corporation is not yet able to determine a reasonable estimate for the impact of the incremental tax liability. When additional guidance is available, the Corporation will make a policy election on whether the additional liability will be recorded in the period in which it is incurred or recognized for the basis differences that would be expected to reverse in future years. |
Geographic Allocation of Income and Provision (Credit) for Income Taxes | |||||||||
In millions | 2017 | 2016 | 2015 | ||||||
Income (Loss) Before Income Taxes | |||||||||
Domestic | $ | 856 | $ | 49 | $ | 1,254 | |||
Foreign | (6 | ) | 8 | (11 | ) | ||||
Income before income taxes | $ | 850 | $ | 57 | $ | 1,243 | |||
Current tax expense (benefit) | |||||||||
Federal | $ | 226 | $ | 265 | $ | 373 | |||
State and local | 2 | (3 | ) | 2 | |||||
Foreign | 3 | 3 | 104 | ||||||
Total current tax expense | $ | 231 | $ | 265 | $ | 479 | |||
Deferred tax expense (benefit) | |||||||||
Federal 1 | $ | 392 | $ | (285 | ) | $ | (31 | ) | |
State and local | 22 | (12 | ) | (13 | ) | ||||
Total deferred tax expense (benefit) | $ | 414 | $ | (297 | ) | $ | (44 | ) | |
Provision (Credit) for income taxes | $ | 645 | $ | (32 | ) | $ | 435 | ||
Net Income | $ | 205 | $ | 89 | $ | 808 | |||
1. | 2017 includes the impact of The Act; 2016 includes the impact of the asbestos-related charge. |
Reconciliation to U.S. Statutory Rate | 2017 | 2016 | 2015 | |||
Statutory U.S. federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % |
U.S. manufacturing deductions | — | (14.0 | ) | (0.6 | ) | |
Unrecognized tax benefits | (0.4 | ) | (45.6 | ) | 1.9 | |
Federal tax accrual adjustments | (1.1 | ) | (12.3 | ) | (0.6 | ) |
Impact of U.S. tax reform | 29.4 | — | — | |||
Deferred intercompany gain | 11.4 | — | — | |||
State and local tax impact | 2.2 | (24.6 | ) | (0.9 | ) | |
Other - net | (0.6 | ) | 5.4 | 0.2 | ||
Effective Tax Rate 1 | 75.9 | % | (56.1 | )% | 35.0 | % |
1. | The tax rate for 2017 was unfavorably impacted by The Act and the recognition of a deferred gain. The tax rate for 2016 was favorably impacted by the release of a reserve in excess of the settlement of an uncertain tax position and from the asbestos-related charge. The tax rate for 2015 was favorably impacted by changes in valuation allowances on state income tax attributes. A change in uncertain tax positions in the fourth quarter of 2015 unfavorably impacted the tax rate and resulted in an increase in "Deferred income tax assets" and "Other noncurrent obligations" in the consolidated balance sheets. |
Deferred Tax Balances at Dec 31 | 2017 | 2016 | ||||||||||
In millions | Assets | Liabilities | Assets | Liabilities | ||||||||
Property | $ | — | $ | 132 | $ | — | $ | 183 | ||||
Tax loss and credit carryforwards | 47 | — | 53 | — | ||||||||
Postretirement benefit obligations | 251 | — | 442 | — | ||||||||
Other accruals and reserves | 349 | 1 | 611 | — | ||||||||
Inventory | 8 | — | 14 | — | ||||||||
Other - net | 9 | 1 | 13 | 2 | ||||||||
Subtotal | $ | 664 | $ | 134 | $ | 1,133 | $ | 185 | ||||
Valuation allowances 1 | (19 | ) | — | (20 | ) | — | ||||||
Total | $ | 645 | $ | 134 | $ | 1,113 | $ | 185 | ||||
1. | Primarily related to the realization of recorded tax benefits on state tax loss carryforwards from operations in the United States. |
Operating Loss and Tax Credit Carryforwards | 2017 | 2016 | ||||
In millions | Asset | Asset | ||||
Operating loss carryforwards | ||||||
Expire within 5 years | $ | 29 | $ | 31 | ||
Expire after 5 years or indefinite expiration | 12 | 17 | ||||
Total operating loss carryforwards | $ | 41 | $ | 48 | ||
Tax credit carryforwards | ||||||
Expire within 5 years | $ | 1 | $ | 1 | ||
Expire after 5 years or indefinite expiration | 5 | 4 | ||||
Total tax credit carryforwards | $ | 6 | $ | 5 | ||
Total Gross Unrecognized Tax Benefits | |||||||||
In millions | 2017 | 2016 | 2015 | ||||||
Total unrecognized tax benefits at Jan 1 | $ | 1 | $ | 68 | $ | 1 | |||
Increases related to positions taken on items from prior years | — | 139 | 67 | ||||||
Settlement of uncertain tax positions with tax authorities | — | (206 | ) | — | |||||
Total unrecognized tax benefits at Dec 31 | $ | 1 | $ | 1 | $ | 68 | |||
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 1 | $ | 1 | $ | 1 | |||
Total amount of interest and penalties (benefit) recognized in "Provision (Credit) for income taxes" | $ | (6 | ) | $ | (36 | ) | $ | 37 | |
Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | — | $ | — | $ | 38 | |||
Tax Years Subject to Examination by Major Tax Jurisdiction at Dec 31, 2017 | Earliest Open Year |
Jurisdiction | |
United States: | |
Federal income tax | 2004 |
State and local income tax | 2004 |