Entity information:
Income Taxes
The components of income before income taxes are as follows:
 
 
2017

 
2016

 
2015

United States
 
$
3,452

 
$
2,630

 
$
2,879

Foreign
 
6,150

 
5,923

 
4,563

 
 
$
9,602

 
$
8,553

 
$
7,442

 
The provision for income taxes consisted of the following:
 
2017

 
2016

 
2015

Current:
U.S. Federal
$
4,925

 
$
1,219

 
$
1,143

 
Foreign
724

 
824

 
773

 
State
136

 
77

 
65

 
 
5,785

 
2,120

 
1,981

Deferred:
U.S. Federal
(1,159
)
 
109

 
(14
)
 
Foreign
(9
)
 
(33
)
 
(32
)
 
State
77

 
(22
)
 
6

 
 
(1,091
)
 
54

 
(40
)
 
 
$
4,694

 
$
2,174

 
$
1,941


A reconciliation of the U.S. Federal statutory tax rate to our annual tax rate is as follows:
 
2017

 
2016

 
2015

U.S. Federal statutory tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income tax, net of U.S. Federal tax benefit
0.9

 
0.4

 
0.6

Lower taxes on foreign results
(9.4
)
 
(8.0
)
 
(10.5
)
Impact of Venezuela impairment charges
—

 
—

 
6.4

Provisional one-time mandatory transition tax - TCJ Act
41.4

 
—

 
—

Provisional remeasurement of deferred taxes - TCJ Act
(15.9
)
 
—

 
—

Tax settlements
—

 
—

 
(3.1
)
Other, net
(3.1
)
 
(2.0
)
 
(2.3
)
Annual tax rate
48.9
 %
 
25.4
 %
 
26.1
 %
Tax Cuts and Jobs Act
During the fourth quarter of 2017, the TCJ Act was enacted in the United States. Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings and reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of the enactment of the TCJ Act, we recognized a provisional net tax expense of $2.5 billion in the fourth quarter of 2017. See further unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. 

Included in the provisional net tax expense of $2.5 billion is a provisional mandatory one-time transition tax of approximately $4 billion on undistributed international earnings, included in other liabilities. This provisional mandatory one-time transition tax was partially offset by a provisional $1.5 billion benefit resulting from the required remeasurement of our deferred tax assets and liabilities to the new, lower U.S. corporate income tax rate, effective January 1, 2018. The effect of the remeasurement was recorded in the fourth quarter of 2017, consistent with the enactment date of the TCJ Act, and reflected in our provision for income taxes.
The TCJ Act also creates a new requirement that certain income earned by foreign subsidiaries, known as GILTI, must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. Due to the complexity of calculating GILTI under the new law, we have not determined which method we will apply. Therefore, we have not made any adjustments related to potential GILTI tax in our financial statements. We expect to elect an accounting policy in the first quarter of 2018.
The components of the provisional net tax expense recorded in 2017 are based on currently available information and additional information needs to be prepared, obtained and/or analyzed to determine the final amounts. The provisional tax expense for the mandatory repatriation of undistributed international earnings will require further analysis of certain foreign exchange gains or losses, substantiation of foreign tax credits, as well as estimated cash and cash equivalents as of November 30, 2018, the tax year-end of our foreign subsidiaries. The provisional tax benefit for the remeasurement of deferred taxes will require additional information necessary for the preparation of our U.S. federal tax return, and further analysis and interpretation of certain provisions of the TCJ Act impacting deferred taxes, for example 100% expensing of qualified assets as well as our accounting policy election for recognizing deferred taxes for GILTI, could impact our deferred tax balance as of December 30, 2017.
Tax effects for these items will be recorded in subsequent quarters, as discrete adjustments to our income tax provision, once complete. The SEC has issued guidance that allows for a measurement period of up to one year after the enactment date of the TCJ Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments by the end of 2018.
The recorded impact of the TCJ Act is provisional and the final amount may differ, possibly materially, due to, among other things, changes in estimates, interpretations and assumptions we have made, changes in IRS interpretations, the issuance of new guidance, legislative actions, changes in accounting standards or related interpretations in response to the TCJ Act and future actions by states within the United States that have not currently adopted the TCJ Act.
For further unaudited information and discussion of the potential impact of the TCJ Act, refer to “Item 1A. Risk Factors,” “Our Business Risks,” “Our Liquidity and Capital Resources” and “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. 
Deferred tax liabilities and assets are comprised of the following:
Deferred Tax Liabilities
 
2017

 
2016

Debt guarantee of wholly-owned subsidiary
$
578

 
$
839

Property, plant and equipment
1,397

 
1,967

Intangible assets other than nondeductible goodwill
3,169

 
4,124

Other
50

 
245

Gross deferred tax liabilities
5,194

 
7,175

Deferred tax assets
 
 
 
Net carryforwards
1,400

 
1,255

Share-based compensation
107

 
219

Retiree medical benefits
198

 
316

Other employee-related benefits
338

 
614

Pension benefits
22

 
419

Deductible state tax and interest benefits
157

 
189

Other
893

 
839

Gross deferred tax assets
3,115

 
3,851

Valuation allowances
(1,163
)
 
(1,110
)
Deferred tax assets, net
1,952

 
2,741

Net deferred tax liabilities
$
3,242

 
$
4,434

A summary of our valuation allowance activity is as follows:
 
2017

 
2016

 
2015

Balance, beginning of year
$
1,110

 
$
1,136

 
$
1,230

Provision/(benefit)
33

 
13

 
(26
)
Other additions/(deductions)
20

 
(39
)
 
(68
)
Balance, end of year
$
1,163

 
$
1,110

 
$
1,136


For additional unaudited information on our income tax policies, including our reserves for income taxes, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Reserves
A number of years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions and the related open tax audits are as follows:
Jurisdiction
 
Years Open to Audit
 
Years Currently Under Audit
United States
 
2012-2016
 
2012-2013
Mexico
 
2014-2016
 
2014
United Kingdom
 
2014-2016
 
None
Canada (Domestic)
 
2013-2016
 
2013-2014
Canada (International)
 
2010-2016
 
2010-2014
Russia
 
2012-2016
 
2012-2016

While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our reserves reflect the probable outcome of known tax contingencies. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution. For further unaudited information on the impact of the resolution of open tax issues, see “Other Consolidated Results” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In 2015, we reached an agreement with the IRS resolving substantially all open matters related to the audits of taxable years 2010 and 2011. The agreement resulted in a 2015 non-cash tax benefit totaling $230 million.
As of December 30, 2017, the total gross amount of reserves for income taxes, reported in other liabilities, was $2.2 billion. We accrue interest related to reserves for income taxes in our provision for income taxes and any associated penalties are recorded in selling, general and administrative expenses. The gross amount of interest accrued, reported in other liabilities, was $283 million as of December 30, 2017, of which $89 million of expense was recognized in 2017. The gross amount of interest accrued, reported in other liabilities, was $193 million as of December 31, 2016, of which $61 million of expense was recognized in 2016.
A reconciliation of unrecognized tax benefits, is as follows:
 
2017

 
2016

Balance, beginning of year
$
1,885

 
$
1,547

Additions for tax positions related to the current year
309

 
349

Additions for tax positions from prior years
86

 
139

Reductions for tax positions from prior years
(51
)
 
(70
)
Settlement payments
(4
)
 
(26
)
Statutes of limitations expiration
(33
)
 
(27
)
Translation and other
20

 
(27
)
Balance, end of year
$
2,212

 
$
1,885


Carryforwards and Allowances
Operating loss carryforwards totaling $12.6 billion at year-end 2017 are being carried forward in a number of foreign and state jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future taxable income. These operating losses will expire as follows: $0.2 billion in 2018, $11.1 billion between 2019 and 2037 and $1.3 billion may be carried forward indefinitely. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Undistributed International Earnings
As of December 30, 2017, we had approximately $42.5 billion of undistributed international earnings. We intend to repatriate approximately $20 billion of our foreign earnings back to the United States and have recognized all tax expense on these earnings in the fourth quarter of 2017. We intend to continue to reinvest the remaining $22.5 billion of earnings outside the United States for the foreseeable future and while U.S. federal tax expense has been recognized as a result of the TCJ Act, no deferred tax liabilities with respect to items such as certain foreign exchange gains or losses, foreign withholding taxes or state taxes have been recognized. It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested international earnings.