(18)	Income taxes

The liabilities for income taxes reflected in our Consolidated Balance Sheets are as follows (in millions).

 

		December 31,
		2018				2017
Currently payable (receivable)		$	323			$	(129)
Deferred			50,503				56,182
Other			549				554
		$	51,375			$	56,607

 

On December 22, 2017, President Trump signed into law legislation known as the Tax Cuts and Jobs Act of 2017 (“TCJA”). Among its provisions, the TCJA reduced the statutory U.S. Corporate income tax rate from 35% to 21% effective January 1, 2018. The TCJA also included a one-time tax on certain accumulated undistributed post-1986 earnings of foreign subsidiaries. Further, the TCJA includes provisions that, in certain instances, impose U.S. income tax liabilities on future earnings of foreign subsidiaries and limit the deductibility of future interest expenses. The TCJA also provides for accelerated deductions of certain capital expenditures made after September 27, 2017 through bonus depreciation. The application of the TCJA may change due to regulations subsequently issued by the U.S. Treasury Department.

Upon the enactment of the TCJA, we recorded a reduction in our deferred income tax liabilities of approximately $35.6 billion for the effect of the aforementioned change in the U.S. statutory income tax rate. As a result, we recorded an income tax benefit of approximately $29.6 billion and we increased regulatory liabilities of our regulated utility subsidiaries by approximately $6.0 billion for the portion of the deferred income tax liability reduction that we will be required to, effectively, refund to customers in the rate setting process. We also recognized an income tax charge of approximately $1.4 billion with respect to the deemed repatriation of the accumulated undistributed post-1986 earnings of our foreign subsidiaries. Thus, upon the enactment of the TCJA, we included a net income tax benefit in our 2017 earnings of approximately $28.2 billion. In 2018, we reduced our estimate of the income taxes on the deemed repatriation of earnings of foreign subsidiaries by $141 million and recognized additional deferred income tax rate change effects.

We have not established deferred income taxes on accumulated undistributed earnings of certain foreign subsidiaries, which are expected to be reinvested indefinitely. Repatriation of all accumulated earnings of foreign subsidiaries would be impracticable to the extent that such earnings represent capital to support normal business operations. Generally, no U.S. federal income taxes will be imposed on future distributions of foreign earnings under the current law. However, distributions to the U.S. or other foreign jurisdictions could be subject to withholding and other local taxes.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are shown below (in millions).

 

		December 31,
		2018				2017
Deferred tax liabilities:
Investments – unrealized appreciation and cost basis differences		$	17,765			$	24,251
Deferred charges reinsurance assumed			2,970				3,226
Property, plant and equipment			28,279				26,671
Goodwill and other intangible assets			7,199				7,204
Other			3,187				3,216
			59,400				64,568
Deferred tax assets:
Unpaid losses and loss adjustment expenses			(1,238)				(1,231)
Unearned premiums			(767)				(345)
Accrued liabilities			(1,956)				(2,501)
Regulatory liabilities			(1,673)				(1,707)
Other			(3,263)				(2,602)
			(8,897)				(8,386)
Net deferred tax liability		$	50,503			$	56,182

 

Income tax expense reflected in our Consolidated Statements of Earnings for each of the three years ending December 31, 2018 is as follows (in millions).

 

		2018				2017				2016
Federal		$	(1,613)			$	(23,427)			$	7,796
State			175				894				556
Foreign			1,117				1,018				888
		$	(321)			$	(21,515)			$	9,240
Current		$	5,176			$	3,299			$	6,565
Deferred			(5,497)				(24,814)				2,675
		$	(321)			$	(21,515)			$	9,240

Income tax expense is reconciled to hypothetical amounts computed at the U.S. federal statutory rate for each of the three years ending December 31, 2018 in the table below (in millions).

 

		2018				2017				2016
Earnings before income taxes		$	4,001			$	23,838			$	33,667
Hypothetical income tax expense computed at the U.S. federal statutory rate		$	840			$	8,343			$	11,783
Dividends received deduction and tax exempt interest			(393)				(905	)			(789	)
State income taxes, less U.S. federal income tax benefit			138				465				361
Foreign tax rate differences			271				(339	)			(421	)
U.S. income tax credits			(711)				(636	)			(518	)
Non-taxable exchange of investments			—				—				(1,143	)
Net benefit from the enactment of the TCJA			(302)				(28,200	)			—
Other differences, net			(164)				(243	)			(33	)
		$	(321)			$	(21,515	)		$	9,240

We file income tax returns in the United States and in state, local and foreign jurisdictions. We are under examination by the taxing authorities in many of these jurisdictions. We have settled income tax liabilities with the U.S. federal taxing authority (“IRS”) for tax years through 2011. The IRS continues to audit Berkshire’s consolidated U.S. federal income tax returns for the 2012 and 2013 tax years. We are also under audit or subject to audit with respect to income taxes in many state and foreign jurisdictions. It is reasonably possible that certain of these income tax examinations will be settled in 2019. We currently do not believe that the outcome of unresolved issues or claims will be material to our Consolidated Financial Statements.

At December 31, 2018 and 2017, net unrecognized tax benefits were $549 million and $554 million, respectively. Included in the balance at December 31, 2018, were $452 million of tax positions that, if recognized, would impact the effective tax rate. The remaining balance in net unrecognized tax benefits principally relates to tax positions where the ultimate recognition is highly certain but there is uncertainty about the timing of such recognition. Because of the impact of deferred income tax accounting, the differences in recognition periods would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. As of December 31, 2018, we do not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months.