Income Taxes (Note)
 12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 13 INCOME TAXES

The components of International Paper’s earnings from continuing operations before income taxes and equity earnings by taxing jurisdiction were as follows: 
In millions
2019
2018
2017
Earnings (loss)
 
 
 
U.S.
$
1,342

$
1,450

$
297

Non-U.S.
262

331

551

Earnings (loss) from continuing operations before income taxes and equity earnings
$
1,604

$
1,781

$
848



On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation

transition tax (the Transition Tax) on certain earnings of
foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (AMT) and changing how AMT
credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

In connection with our initial analysis of the impact of the Tax Act, we recorded a provisional net tax benefit of $1.22 billion in the period ending December 31, 2017. The net tax benefit primarily consisted of a net tax benefit for the re-measurement of U.S. deferred taxes of $1.454 billion and an expense for the Transition Tax of $231 million. During the period ended December 31, 2018, we recorded an additional net tax benefit of $36 million associated with the one-time effects of the Tax Act.






The provision (benefit) for income taxes from continuing operations (excluding noncontrolling interests) by taxing jurisdiction was as follows:
In millions
2019
2018
2017
Current tax provision (benefit)
 
 
 
U.S. federal
$
271

$
227

$
(73
)
U.S. state and local
29

37

(23
)
Non-U.S.
122

165

112

 
$
422

$
429

$
16

Deferred tax provision (benefit)
 
 
 
U.S. federal
$
44

$
12

$
(1,150
)
U.S. state and local
(23
)
50

9

Non-U.S.
191

(46
)
40

 
$
212

$
16

$
(1,101
)
Income tax provision (benefit)
$
634

$
445

$
(1,085
)

The Company’s deferred income tax provision (benefit) includes a $44 million benefit, a $13 million benefit and a $1.459 billion benefit for 2019, 2018 and 2017, respectively, for the effect of various changes in non-U.S. and U.S. federal and state tax rates.

International Paper made income tax payments, net of refunds, of $349 million, $388 million and $7 million in 2019, 2018 and 2017, respectively.

A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision follows: 
In millions
2019
2018
2017
Earnings (loss) from continuing
operations before income taxes
and equity earnings
$
1,604

$
1,781

$
848

Statutory U.S. income tax rate
21
%
21
%
35
 %
Tax expense (benefit) using statutory U.S. income tax rate
337

374

297

State and local income taxes
6

72

(7
)
Impact of rate differential on non-U.S. permanent differences and earnings
31

35

(36
)
Foreign valuation allowance
203

—

—

Tax expense (benefit) on manufacturing activities
—

(1
)
23

Non-deductible business expenses
20

27

7

Non-deductible impairments
31

—

—

Tax audits
—

28

—

Deemed repatriation, net of foreign tax credits
1

(25
)
231

U.S. federal tax rate change
—

(13
)
(1,451
)
Foreign derived intangible income deduction
2

(25
)
—

US tax on non-U.S. earnings (GILTI and Subpart F)
36

19

44

Foreign tax credits
(2
)
(15
)
(96
)
General business and other tax credits
(33
)
(26
)
(86
)
Other, net
2

(5
)
(11
)
Income tax provision (benefit)
$
634

$
445

$
(1,085
)
Effective income tax rate
40
%
25
%
(128
)%


The tax effects of significant temporary differences, representing deferred income tax assets and liabilities at December 31, 2019 and 2018, were as follows: 

In millions
2019
2018
Deferred income tax assets:
 
 
Postretirement benefit accruals
$
90

$
89

Pension obligations
421

465

Tax credits
290

291

Net operating and capital loss carryforwards
621

594

Compensation reserves
181

191

Lease obligations
106

—

Environmental reserves
93

78

Other
126

86

Gross deferred income tax assets
$
1,928

$
1,794

Less: valuation allowance (a)
(691
)
(441
)
Net deferred income tax asset
$
1,237

$
1,353

Deferred income tax liabilities:
 
 
Intangibles
$
(152
)
$
(152
)
Investments
(265
)
(255
)
Right of use assets
(106
)
—

Plants, properties and equipment
(1,866
)
(1,826
)
Forestlands, related installment sales, and investment in subsidiary
(1,407
)
(1,453
)
Gross deferred income tax liabilities
$
(3,796
)
$
(3,686
)
Net deferred income tax liability
$
(2,559
)
$
(2,333
)


(a) The net change in the total valuation allowance for the years ended December 31, 2019 and 2018 was an increase of $250 million and an increase of $12 million, respectively. The net change in the current year is primarily due to tax law changes in foreign jurisdictions impacting future utilization of deferred tax assets of $203 million.

Deferred income tax assets and liabilities are recorded in the accompanying consolidated balance sheet under the captions Deferred charges and other assets and Deferred income taxes. Of the $1.4 billion of deferred tax liabilities for forestlands, related installment sales, and investment in subsidiary, $884 million is attributable to an investment in subsidiary and relates to a 2006 International Paper installment sale of forestlands and $485 million is attributable to a 2007 Temple-Inland installment sale of forestlands (see Note 15).

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017 is as follows: 

In millions
2019
2018
2017
Balance at January 1
$
(220
)
$
(188
)
$
(98
)
(Additions) reductions for tax positions related to current year
(5
)
(7
)
(54
)
(Additions) for tax positions related to prior years
(6
)
(37
)
(40
)
Reductions for tax positions related to prior years
5

5

4

Settlements
31

2

6

Expiration of statutes of
limitations
3

2

1

Currency translation adjustment
3

3

(7
)
Balance at December 31
$
(189
)
$
(220
)
$
(188
)


If the Company were to prevail on the unrecognized tax benefits recorded, substantially all of the balances at December 31, 2019, 2018 and 2017 would benefit the effective tax rate.

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 $21 million accrued for the payment of estimated interest and penalties associated with unrecognized tax benefits at both December 31, 2019 and 2018, respectively.

The major jurisdictions where the Company files income tax returns are the United States, Brazil, France, Poland and Russia. Generally, tax years 2006 through 2018 remain open and subject to examination by the relevant
tax authorities. The Company frequently faces challenges regarding the amount of taxes due. These
challenges include positions taken by the Company related to the timing, nature, and amount of deductions
and the allocation of income among various tax jurisdictions. Pending audit settlements and the expiration of statute of limitations could reduce the uncertain tax positions by $53 million during the next twelve months.













The Brazilian Federal Revenue Service has challenged the deductibility of goodwill amortization generated in a 2007 acquisition by International Paper do Brasil Ltda., a wholly-owned subsidiary of the Company. The Company received assessments for the tax years 2007-2015 totaling approximately $146 million in tax, and $387 million in interest and penalties as of December 31, 2019 (adjusted for variation in currency exchange rates). After a previous favorable ruling challenging the basis for these assessments, we received unfavorable decisions in October 2018 and November 2019 from the Brazilian Administrative Council of Tax Appeals. The Company has appealed and intends to further appeal these and any future unfavorable administrative judgments to the Brazilian federal courts; however, this tax litigation matter may take many years to resolve. The Company believes that it has appropriately evaluated the transaction underlying these assessments, and has concluded based on Brazilian tax law, that its tax position would be sustained. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for tax years subsequent to 2015.

The Company provides for foreign withholding taxes and any applicable U.S. state income taxes on earnings intended to be repatriated from non-U.S. subsidiaries, which we believe will be limited in the future to each year's current earnings. No provision for these taxes on approximately $2.2 billion of undistributed earnings of non-U.S. subsidiaries as of December 31, 2019 has been made, as these earnings are considered indefinitely invested. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted in a taxable manner is not practicable.

If management decided to monetize the Company’s foreign investments, we would recognize the tax cost related to the excess of the book value over the tax basis of those investments. This would include foreign withholding taxes and any applicable U.S. Federal and state income taxes. Determination of the tax cost that that would be incurred upon monetization of the Company’s foreign investments is not practicable; however, we do not believe it would be material.

The following details the scheduled expiration dates of the Company’s net operating loss and income tax credit carryforwards: 
In millions
2020
Through
2029
2030
Through
2039
Indefinite
Total
U.S. federal and non-U.S. NOLs
$
55

$
48

$
424

$
527

State taxing jurisdiction NOLs (a)
76

18

—

94

U.S. federal, non-
U.S. and state tax credit carryforwards (a)
160

12

118

290

U.S. federal and state capital loss carryforwards (a)
—

—

—

—

Total
$
291

$
78

$
542

$
911

Less: valuation allowance (a)
(198
)
(44
)
(393
)
(635
)
Total, net
$
93

$
34

$
149

$
276



(a) State amounts are presented net of federal benefit.