Entity information:
Income Taxes
Income Tax Expense
Income tax expense for the three years ended December 31 are as follows:
 
2017
 
2016
 
2015
Current


 


 


Federal
$
10,871

 
$
5,516

 
$
(37,561
)
Foreign
(121
)
 
—

 
—

State and other
(201
)
 
368

 
197

 
10,549

 
5,884

 
(37,364
)
Deferred
 
 
 
 
 
Federal
(34,635
)
 
(44,488
)
 
11,073

Foreign
4,065

 
—

 
—

State and other
290

 
(711
)
 
(1,316
)
 
(30,280
)
 
(45,199
)
 
9,757

Changes in valuation allowance
—

 
—

 
—

Income tax expense
$
(19,731
)
 
$
(39,315
)
 
$
(27,607
)

A reconciliation of the U.S. federal statutory income tax rate to the actual income tax rate for the three years ended December 31 is as follows:
 
2017
 
2016
 
2015
U.S. federal statutory income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
Nontaxable bargain purchase gain (a)
(32.1
)
 
—

 
—

U.S. federal rate change (b)
3.2

 
—

 
—

Domestic manufacturing production deduction
(0.3
)
 
—

 
(4.2
)
State credits
—

 
(0.8
)
 
(0.9
)
Nondeductible executive compensation
0.4

 
0.6

 
1.2

Adjustment to previously filed tax returns
(1.1
)
 
—

 
—

Nondeductible transaction costs (c)
1.0

 
—

 
—

Change in state rate
(0.1
)
 
—

 
1.4

Other
(0.3
)
 
0.1

 
0.8

Income tax rate as reported
5.7
 %
 
34.9
 %
 
33.3
 %

(a)
The bargain purchase gain of $317 million from the acquisition of Tembec is not taxable resulting in a decrease in the income tax rate (see Note 3 —Recent Acquisition).
(b)
The income tax rate for the year ended December 31, 2017 was impacted by the Tax Cuts and Jobs Act through a decrease in the federal tax rate from 35 percent to 21 percent. Income tax expense for the re-measurement of the deferred tax assets of $11 million was recorded during the year ended December 31, 2017. This expense is the result of previously recorded deferred tax deductions which will now result in a lower after-tax benefit due to the reduced rate.
(c)
The Company incurred significant costs associated with the acquisition of Tembec. Certain costs incurred are considered facilitative to the transaction and not currently deductible, resulting in an unfavorable adjustment to the income tax rate.
Deferred Taxes
Deferred income taxes result from recording revenues and expenses in different periods for financial reporting versus tax reporting. The nature of the temporary differences and the resulting net deferred tax liability for the two years ended December 31 were as follows:
 
2017
 
2016
Gross deferred tax assets:
 
 
 
Pension, postretirement and other employee benefits
$
49,669

 
$
71,842

Tax credit carryforwards (a)
77,897

 
17,967

Property, plant and equipment basis differences
97,242

 
—

Canadian pool of scientific research and experimentation deductions ("SR&ED") (a)
79,349

 
—

Environmental liabilities
36,791

 
54,351

Capitalized costs
6,347

 
10,894

U.S. federal and Canadian net operating losses (a)
212,904

 
8,951

State net operating losses (a)
2,946

 
3,102

Interest carryforwards (a)
11,635

 
—

Other
1,868

 
—

Total gross deferred tax assets
576,648

 
167,107

Less: valuation allowance
(92,081
)
 
(20,821
)
Total deferred tax assets after valuation allowance
484,567

 
146,286

Gross deferred tax liabilities:

 
 
Property, plant and equipment basis differences
(95,754
)
 
(92,287
)
Intangible assets
(15,948
)
 
—

Other
(2,626
)
 
(2,753
)
Total gross deferred tax liabilities
(114,328
)
 
(95,040
)
Net deferred tax asset
$
370,239

 
$
51,246

 
 
 
 
Included in:
 
 


Deferred tax assets
$
402,846

 
$
51,246

Deferred tax liabilities
(32,607
)
 
—

 
$
370,239

 
$
51,246

 
 
 
 
(a)
The following relates to tax credit carryforwards and net operating losses as of December 31, 2017:
 
Gross Amount
 
Tax Effected
 
Valuation Allowance
 
Expiration
State tax credit carryforwards
$
17,646

 
$
17,646

 
$
17,249

 
2018 - 2025
Foreign R&D credit carryforwards
60,251

 
60,251

 
60,251

 
2017 - 2036
State net operating losses
63,503

 
2,946

 
2,946

 
2017 - 2033
Canada non-capital losses
796,394

 
212,904

 
—

 
2025 - 2036
Interest limitation carryforward
52,885

 
11,635

 
11,635

 
None
Canadian pool of SR&ED
308,591

 
79,349

 
—

 
None


Unrecognized Tax Benefits
The Company recognizes the impact of a tax position if it is “more likely than not” to prevail. As of December 31, 2017, there were several positions resulting in unrecognized tax benefits that, if recognized, would affect income tax expense.During the years ended December 31, 2017, 2016 and 2015, the Company did not record interest expense or penalties in income tax expense. A reconciliation of the beginning and ending unrecognized tax benefits for the three years ended December 31 is as follows:
 
2017
 
2016
 
2015
Balance at January 1,
$
—

 
$
—

 
$
—

Decreases related to prior year tax positions
—

 
—

 
—

Increases related to prior year tax positions
11,171

 
—

 
—

Decreases related to current year tax positions
—

 
—

 
—

Increases related to current year tax positions
12,633

 
—

 
—

Balance at December 31,
$
23,804

 
$
—

 
$
—


Each of our unrecognized tax benefits would decrease our effective tax rate if recognized.
It is reasonably possible that within the next twelve months a number of tax positions could increase or decrease, impacting our unrecognized tax position reserve by between a decrease of $5 million and increase of $5 million.
Tax Statutes
The following table provides detail of tax years that remain open to examination by significant taxing jurisdictions:
Taxing Jurisdiction
Open Tax Years
U.S.
2014 - 2017
France (a)
2014 - 2017
Canada
2013 - 2017
State of Florida
2014 - 2017

(a)
France is currently examining certain returns from 2014 to 2017. There are no identified high risk areas in this examination, so no reserve has been recorded.
Tax Cuts and Jobs Act
On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “Act”), resulting in significant modifications to existing law. The most significant impact to the Company is the reduction of the U.S. federal corporate tax rate, effective January 1, 2018, from 35 percent to 21 percent, partially offset by the loss of the domestic manufacturing production deduction. The Company is likely to also be impacted by 100 percent tax expensing for certain assets in the next five years, new U.S. interest expense limitations, changes to executive compensation deductibility, tax on Global Intangible Low-Taxed Income and a deduction for Foreign Derived Intangible Income.
The Company has completed the accounting for the effects of the Act during the fourth quarter of 2017, except for the one-time deemed repatriation transition tax on unrepatriated foreign earnings (“Repatriation Tax”). Based on information currently available, we estimate the Repatriation Tax will not be material. However, the Company continues to gather and analyze information in order to complete the accounting for the effects, if any. Additionally, we made a reasonable assessment concerning whether our executive compensation plans in effect November 2, 2017 qualified to continue to be treated under pre-Act law. That assessment may change as guidance is issued.