Entity information:
Income Taxes

The provision for income taxes for the years ended August 31, 2017, 2016, and 2015 is as follows:

 
2017
 
2016
 
2015
 
(Dollars in thousands)
Current:
 
 
 
 
 
    Federal
$
(1,767
)
 
$
3,386

 
$
(47,695
)
    State
2,695

 
3,972

 
3,891

    Foreign
(7,088
)
 
12,729

 
1,335

 
(6,160
)
 
20,087

 
(42,469
)
Deferred:
 
 
 
 
 
    Federal
(162,223
)
 
(30,758
)
 
29,348

    State
(15,977
)
 
8,512

 
(2,799
)
    Foreign
2,285

 
(1,932
)
 
3,755

 
(175,915
)
 
(24,178
)
 
30,304

Total
$
(182,075
)
 
$
(4,091
)
 
$
(12,165
)


Deferred taxes are comprised of basis differences related to investments, accrued liabilities and certain federal and state tax credits.

Domestic income before income taxes was $213.8 million, $490.8 million, and $824.9 million for the years ended August 31, 2017, 2016, and 2015, respectively. Foreign income before taxes was ($268.7) million, ($70.9) million, and ($56.7) million for the years ended August 31, 2017, 2016, and 2015, respectively.

Deferred tax assets and liabilities as of August 31, 2017, and 2016, are as follows:
 
2017
 
2016
 
(Dollars in thousands)
Deferred tax assets:
 

 
 

    Accrued expenses
$
226,964

 
$
87,251

    Postretirement health care and deferred compensation
82,682

 
111,983

    Tax credit carryforwards
166,213

 
143,252

    Loss carryforwards
169,724

 
155,966

    Nonqualified equity
152,835

 
30,168

    Other
55,119

 
30,627

    Deferred tax assets valuation
(284,716
)
 
(194,277
)
Total deferred tax assets
568,821

 
364,970

Deferred tax liabilities:
 

 
 

    Pension
31,050

 
26,516

    Investments
129,985

 
107,716

    Major maintenance
2,115

 
4,970

    Property, plant and equipment
712,195

 
681,160

    Other
25,964

 
29,905

Total deferred tax liabilities
901,309

 
850,267

Net deferred tax liabilities
$
332,488

 
$
485,297



We have total gross loss carry forwards of $689.2 million, of which $458.1 million will expire over periods ranging from fiscal 2018 to fiscal 2039. The remainder will carry forward indefinitely. Based on estimates of future taxable profits and losses in certain foreign tax jurisdictions, we determined that a valuation allowance was required for specific foreign loss carry forwards as of August 31, 2017. If these estimates prove inaccurate, a change in the valuation allowance, up or down, could be required in the future. During fiscal 2017, valuation allowances related to foreign operations increased by $61.9 million due to net operating loss carry forwards and other timing differences. CHS McPherson Refinery Inc. ("CHS McPherson") (formerly known as National Cooperative Refinery Association ("NCRA")) gross state tax credit carry forwards for income tax are approximately $172.9 million and $133.5 million as of August 31, 2017, and 2016, respectively. During the year ended August 31, 2017, the valuation allowance for CHS McPherson increased by $26.6 million, net of federal tax, due to a change in the amount of state tax credits that are estimated to be utilized. The significant increase in state tax credit carry forwards is the result of the CHS McPherson expansion project being placed in service during fiscal 2017, resulting in a corresponding increase in valuation allowance. CHS McPherson's valuation allowance on Kansas state credits is necessary due to the limited amount of Kansas taxable income generated by the combined group on an annual basis.

Our alternative minimum tax credit of $8.1 million will not expire. Our general business credits of $60.0 million, comprised primarily of low sulfur diesel credits, will begin to expire on August 31, 2027. Our state tax credits of $172.9 million will begin to expire on August 31, 2018.

As of August 31, 2017, and 2016, net deferred tax assets of $0.7 million and $2.5 million were included in other assets, respectively.
    
The reconciliation of the statutory federal income tax rates to the effective tax rates for the years ended August 31, 2017, 2016, and 2015 is as follows:
 
2017
 
2016
 
2015
Statutory federal income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
State and local income taxes, net of federal income tax benefit
24.7

 
0.4

 
(0.5
)
Patronage earnings
192.0

 
(23.2
)
 
(29.0
)
Domestic production activities deduction
64.7

 
(13.2
)
 
(5.6
)
Export activities at rates other than the U.S. statutory rate
145.3

 
1.5

 
(0.2
)
Valuation allowance
(182.3
)
 
19.6

 
(0.1
)
Tax credits
45.8

 
(11.8
)
 
(0.8
)
Crack spread contingency
9.6

 
(5.0
)
 
(1.7
)
Other
(2.9
)
 
(4.3
)
 
1.3

Effective tax rate
331.9
 %
 
(1.0
)%
 
(1.6
)%


The components of the income tax benefit disclosed as a percentage of income before taxes in the reconciliation of the statutory federal income tax rate for the year ended August 31, 2017 are magnified because our fiscal 2017 income tax benefit is unusually large in comparison to income before taxes. The primary drivers of the fiscal 2017 income tax benefit are the recognition of deferred tax benefits related to the issuance of non-qualified equity certificates in fiscal 2013 and 2014, which is disclosed within ‘Patronage earnings’ and U.S. and Brazil deductions related to the Brazilian trading partner loss, which are disclosed within ‘Statutory federal income tax rate’ and ‘Export activities at rates other than the U.S. statutory rate’, respectively, as well as a current tax benefit from retaining a significant portion of the domestic production activities deduction. A significant income tax expense within the fiscal 2017 income tax benefit is an increase in the valuation allowance against deferred tax assets generated in the Brazilian trading partner loss and Kansas state tax credits.

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Our uncertain tax positions are affected by the tax years that are under audit or remain subject to examination by the relevant taxing authorities. In addition to the current year, fiscal 2007 through 2016 remain subject to examination, at least for certain issues.

    





We account for our income tax provisions in accordance with ASC Topic 740, Income Taxes, which prescribes a minimum threshold that a tax provision is required to meet before being recognized in our consolidated financial statements. This interpretation requires us to recognize in our consolidated financial statements tax positions determined more likely than not to be sustained upon examination, based on the technical merits of the position. Reconciliation of the gross beginning and ending amounts of unrecognized tax benefits for the periods presented follows:
 
2017
 
2016
 
2015
 
(Dollars in thousands)
Balance at beginning of period
$
37,105

 
$
72,181

 
$
72,181

Additions attributable to current year tax positions
725

 
1,387

 
—

Reductions attributable to prior year tax positions
—

 
(36,463
)
 
—

Balance at end of period
$
37,830

 
$
37,105

 
$
72,181



During fiscal 2017, we increased our unrecognized tax benefits for excise tax credits related to the blending and sale of renewable fuels deducted for income taxes. During fiscal 2016, we decreased our unrecognized tax benefits due to the settlement with the Internal Revenue Service and increased our unrecognized tax benefits for excise tax credits related to the blending and sale of renewable fuels deducted for income taxes.

If we were to prevail on all tax positions taken relating to uncertain tax positions, all the unrecognized tax benefits would benefit the effective tax rate. We do not believe it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

We recognize interest and penalties related to unrecognized tax benefits in our provision for income taxes. No amounts were recognized in our Consolidated Statements of Operations for interest related to unrecognized tax benefits for the years ended August 31, 2017, 2016, and 2015. We recorded no interest payable related to unrecognized tax benefits on our Consolidated Balance Sheets as of August 31, 2017, and 2016.