Entity information:
Income Tax Provision
Loss from operations before income taxes, based on geographic location of the operations to which such earnings are attributable, is provided below.
 
Years Ended December 31,
 
2017
 
2016
 
2015
United States

($49.5
)
 

($136.2
)
 

($82.2
)
Non-United States
7.2

 
(5.8
)
 
10.5

Loss income from operations before income taxes

($42.3
)
 

($142.0
)
 

($71.7
)

The provision (benefit) for income taxes consisted of the following:
 
Years Ended December 31,
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
Federal

$1.1

 

$—

 

$—

State and local
0.1

 
0.1

 
(1.2
)
Foreign
0.6

 
0.2

 
0.1

 

$1.8

 

$0.3

 

($1.1
)
Deferred:
 
 
 
 
 
Federal

($0.4
)
 

($32.9
)
 

($28.7
)
State and local
—

 
(3.6
)
 
0.2

Foreign
0.1

 
(0.3
)
 
2.9

 
(0.3
)
 
(36.8
)
 
(25.6
)
U.S. and foreign tax expense (benefit) on loss from operations before income taxes

$1.5

 

($36.5
)
 

($26.7
)

For the year ended December 31, 2017, TimkenSteel made $0.4 million in foreign tax payments, no U.S. federal and state tax payments, and had $0.4 million of refundable overpayments of state income taxes. For the year ended December 31, 2016, TimkenSteel made $0.2 million in foreign tax payments, no U.S. federal and state tax payments, and had $0.5 million of refundable overpayments of state income taxes. The Company recorded these receivables as a component of prepaid expenses on the Consolidated Balance Sheets.
The reconciliation between TimkenSteel’s effective tax rate on loss from continuing operations and the statutory tax rate is as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
Tax at the U.S. federal statutory rate

($14.8
)
 

($49.7
)
 

($25.2
)
Adjustments:
 
 
 
 
 
State and local income taxes, net of federal tax benefit
(0.7
)
 
(3.5
)
 
(2.2
)
Foreign earnings taxed at different rates
(0.2
)
 
(0.1
)
 
—

U.S. research tax credit
(0.2
)
 
(0.4
)
 
(0.5
)
Valuation allowance
6.3

 
15.6

 
—

Tax Reform impact - transition tax and rate change
10.2

 
—

 
—

Other items, net
0.9

 
1.6

 
1.2

Provision (benefit) for income taxes

$1.5

 

($36.5
)
 

($26.7
)
Effective income tax rate
(3.7
)%
 
25.7
%
 
37.2
%

Income tax expense includes U.S. and international income taxes. Except as required under U.S. tax law, U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the U.S. This amount becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. Undistributed earnings of foreign subsidiaries outside of the U.S. were $2.9 million, $1.6 million and $1.6 million at December 31, 2017, 2016 and 2015, respectively. The 2017 earnings amounts were recognized through the transition tax calculation pursuant to the Tax and Jobs Act enacted in December 2017. The Company recognized a deferred tax liability in the amount of $0.3 million during 2017 for current-year earnings at its TimkenSteel (Shanghai) Corporation Limited and TimkenSteel de Mexico S. de R.L. de C.V. subsidiaries, as those earnings are not permanently reinvested by the Company.
The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31, 2017 and 2016 was as follows:
 
December 31,
 
2017
 
2016
 
 
 
 
Deferred tax liabilities:
 
 
 
Depreciation

($103.4
)
 

($156.8
)
Inventory

($5.4
)
 

($9.7
)
Convertible debt

($3.5
)
 

($6.6
)
Other, net

($0.3
)
 

($0.2
)
Deferred tax liabilities subtotal

($112.6
)
 

($173.3
)
 
 
 
 
Deferred tax assets:
 
 
 
Pension and postretirement benefits

$50.6

 

$70.3

Other employee benefit accruals
6.6

 
9.1

Tax loss carryforwards
80.9

 
107.4

Foreign tax credit
0.6

 
—

Intangible assets
1.4

 
2.5

Inventory
1.8

 
2.9

State decoupling
5.4

 
0.5

Other, net
2.0

 
5.3

Deferred tax assets subtotal

$149.3

 

$198.0

Valuation allowances
(36.6
)
 
(24.4
)
Deferred tax assets
112.7

 
173.6

Net deferred tax assets

$0.1

 

$0.3


As of December 31, 2017, The Company had a deferred tax asset of $0.4 million recorded as a component of other non-current assets and a deferred tax liability of $0.3 million recorded as a component of non-current liabilities, netted to a deferred tax asset of $0.1 million, on the Consolidated Balance Sheets.
As of December 31, 2017, TimkenSteel had loss carryforwards in the U.S. and various non-U.S. jurisdictions totaling $335 million having various expirations dates. TimkenSteel has provided valuation allowances of $36.6 million against these carryforwards. The majority of the non-U.S. loss carryforwards represent local country net operating losses for branches of TimkenSteel or entities treated as branches of TimkenSteel under U.S. tax law. Tax benefits have been recorded for these losses in the U.S. The related local country net operating loss carryforwards are offset fully by valuation allowances.
Operating losses generated in the U.S. resulted in a decrease in the carrying value of our U.S. deferred tax liability to the point of a net U.S. deferred tax asset at December 31, 2016. At that time, we assessed, based upon operating performance in the U.S. and industry conditions that it was more likely than not we would not realize a portion of our U.S. deferred tax assets. The Company recorded a valuation allowance in 2016 and remained in a valuation allowance position in 2017. Going forward, the need to maintain valuation allowances against deferred tax assets in the U.S. and other affected countries will cause variability in the Company’s effective tax rate. The Company will maintain a valuation allowance against its deferred tax assets in the U.S. and applicable foreign countries until sufficient positive evidence exists to eliminate them.
TimkenSteel records interest and penalties related to uncertain tax positions as a component of provision (benefit) for income taxes. As of December 31, 2017, 2016, and 2015 TimkenSteel had no total gross unrecognized tax benefits, and no amounts which represented unrecognized tax benefits that would favorably impact TimkenSteel’s effective income tax rate in any future periods if such benefits were recognized. As of December 31, 2017, TimkenSteel does not anticipate a change in its unrecognized tax positions during the next 12 months. TimkenSteel had no accrued interest and penalties related to uncertain tax positions as of December 31, 2017, 2016, and 2015.
The reconciliation of TimkenSteel’s total gross unrecognized tax benefits is as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
Beginning balance, January 1

$—

 

$—

 

$—

Tax positions related to prior years:
 
 
 
 
 
Reductions
—

 
—

 
—

Ending balance, December 31

$—

 

$—

 

$—


As of December 31, 2017, TimkenSteel is subject to examination by the IRS for the period June 30, 2014 through December 31, 2017. TimkenSteel also is subject to tax examination in various tax jurisdictions, including Mexico, China, Poland, Singapore, and the U.K. for the period June 30, 2014 through December 31, 2017. Pursuant to the Tax Sharing Agreement dated June 30, 2014 between TimkenSteel and The Timken Company, TimkenSteel may be subject to results from tax examinations for The Timken Company related to steel business activities, for federal, state and local and various foreign tax jurisdictions in various open audit periods.
Tax Cuts and Jobs Act Bill

On December 22, 2017, the Tax Cut and Jobs Act (the Act) was signed into law, which resulted in significant changes to U.S. tax and related laws. Some of the provisions of the Act affecting corporations include, but are not limited to reducing the federal corporate income tax rate from 35% to 21%, limiting the interest expense deduction, expensing of cost of acquired qualified property and eliminating the domestic production activities deduction. We are currently evaluating the impact the Act will have on our financial condition and results of operations. At this time, we do not anticipate a significant reduction in our effective income tax rate or our net deferred federal income tax assets as a result of the income tax rate reduction, as we expect to be in a valuation allowance in 2018. The company estimates, based on currently available information, that the enactment of the Act will not result in any one-time (net of any required repatriation taxes) non-cash tax impact in the fourth quarter of 2017, primarily due to the fact that the company is in a valuation allowance position.
Other provisions of the Act include a new minimum tax on certain foreign earnings, the Global Intangibles Low-taxed Income, a new tax on certain payments to foreign related parties, the Base Erosion Anti-avoidance Tax, a new incentive for Foreign-derived Intangibles Income, changes to the limitation on the deductibility of certain executive compensation, and new limitations on the deductibility of interest expense. Generally, these other provisions take effect for the Company in the year ending December 31, 2018. On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (SAB 118). This guidance allows registrants a “measurement period,” not to exceed one year from the date of enactment, to complete their accounting for the tax effects of the Act. SAB 118 further directs that, during the measurement period, registrants that are able to make reasonable estimates of the tax effects of the Act should include those amounts in their financial statements as “provisional” amounts. Registrants should reflect adjustments over subsequent periods as they are able to refine their estimates and complete their accounting for the tax effects of the Act. The tax effects related to the Act described in the paragraph above represent the Company’s reasonable estimates within the meaning of SAB 118. Also, it is expected that the U.S. Treasury will issue regulations and other guidance on the application of certain provisions of the Act. In subsequent periods, but within the measurement period, the Company will analyze that guidance and other necessary information.