International Paper 2015 Annual Report Download - page 77

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The tax effects of significant temporary differences,
representing deferred income tax assets and liabilities
at December 31, 2015 and 2014, were as follows:
In millions 2015 2014
Deferred income tax assets:
Postretirement benefit accruals $ 172 $ 189
Pension obligations 1,403 1,517
Alternative minimum and other tax
credits 283 342
Net operating and capital loss
carryforwards 732 672
Compensation reserves 265 280
Other 244 266
Gross deferred income tax assets 3,099 3,266
Less: valuation allowance (430)(415)
Net deferred income tax asset $2,669 $2,851
Deferred income tax liabilities:
Intangibles $(271)$(316)
Plants, properties and equipment (2,727) (2,707)
Forestlands, related installment sales,
and investment in subsidiary (2,253) (2,290)
Gross deferred income tax liabilities $ (5,251) $(5,313)
Net deferred income tax liability $ (2,582) $(2,462)
Deferred income tax assets and liabilities are recorded
in the accompanying consolidated balance sheet under
the captions Deferred income tax assets, Deferred
charges and other assets, Other accrued liabilities, and
Deferred income taxes. There is a decrease in deferred
income tax assets principally relating to the tax impact
of changes in qualified pension liabilities and the
utilization of tax credits. Deferred tax liabilities
decreased primarily due to a reduction in the intangibles
deferred tax liability. Of the $2.3 billion forestlands,
related installment sales, and investment in subsidiary
deferred tax liability, $1.4 billion is attributable to an
investment in subsidiary and relates to a 2006
International Paper installment sale of forestlands and
$840 million is attributable to a 2007 Temple-Inland
installment sale of forestlands (see Note 12). Certain
tax attributes reflected on our tax returns as filed differ
from those reflected in the deferred income tax
accounts due to uncertain tax benefits.
The valuation allowance for deferred income tax assets
as of December 31, 2015, 2014 and 2013 was $430
million, $415 million and $413 million, respectively. The
net change in the total valuation allowance for the years
ended December 31, 2015 and 2014 was an increase
of $15 million and an increase of $2 million, respectively.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits for the years ended
December 31, 2015, 2014 and 2013 is as follows:
In millions 2015 2014 2013
Balance at January 1 $(158)$(161)$ (972)
(Additions) reductions based on
tax positions related to current
year (6) (15) (22)
Additions for tax positions of prior
years (6) (1) (29)
Reductions for tax positions of
prior years 79824
Settlements 2—26
Expiration of statutes of
limitations 4211
Currency translation adjustment 781
Balance at December 31 $(150)$(158)$ (161)
Included in the balance at December 31, 2015, 2014
and 2013 are $1 million, $1 million and $1 million,
respectively, for tax positions for which the ultimate
benefits are highly certain, but for which there is
uncertainty about the timing of such benefits. However,
except for the possible effect of any penalties, any
disallowance that would change the timing of these
benefits would not affect the annual effective tax rate,
but would accelerate the payment of cash to the taxing
authority to an earlier period.
The Company accrues interest on unrecognized tax
benefits as a component of interest expense. Penalties,
if incurred, are recognized as a component of income
tax expense. The Company had approximately $34
million and $41 million accrued for the payment of
estimated interest and penalties associated with
unrecognized tax benefits at December 31, 2015 and
2014, respectively.
The major jurisdictions where the Company files
income tax returns are the United States, Brazil, France,
Poland and Russia. Generally, tax years 2003 through
2014 remain open and subject to examination by the
relevant tax authorities. The Company is typically
engaged in various tax examinations at any given time,
both in the United States and overseas. In 2013, the
Company concluded its examination with the U.S.
Internal Revenue Service for the tax years 2006 through
2009 for both International Paper Company and
Temple-Inland. As a result of the completion of the
examinations, the Company reduced its unrecognized
tax benefits by approximately $844 million. Other
pending audit settlements and the expiration of statute
of limitations could further reduce the uncertain tax
positions by $39 million during the next twelve months.
While the Company believes that it is adequately
accrued for possible audit adjustments, the final
resolution of these examinations cannot be determined
at this time and could result in final settlements that
differ from current estimates.