Cummins Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES (Tables)

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of Income before Income Tax, Domestic and Foreign

The following table summarizes income before income taxes:



	Years ended December 31,
In millions	2018		2017		2016
U.S. income	$	1,239	$	1,237	$	995
Foreign income	1,514		1,128		935
Income before income taxes	$	2,753	$	2,365	$	1,930

Schedule of Components of Income Tax Expense (Benefit)

The adjustments for income tax expense (benefit) during the one-year Tax Legislation measurement period for each group and other Tax Legislation adjustments consisted of the following:



	Years Ended December 31,
In millions	2018			2017		Total Impact
One-year measurement adjustments to 2017 estimates
Withholding tax accrued	$	(148	)	$	331	$	183
Deferred tax balances	7			152		159
One-time transition tax	111			298		409
Net impact of measurement period changes	(30		)	781		751
Other 2018 adjustments
Deferred tax charges⁽¹⁾	35			—		35
Foreign currency adjustment related to Tax Legislation	7			—		7
Net impact of 2018 adjustments	42			—		42
Total Tax Legislation impact	$	12		$	781	$	793

____________________________________________________

⁽¹⁾ Charges relate to one-time recognition of deferred tax charges at historical tax rates on intercompany profit in inventory.Income tax expense (benefit) consists of the following:



	Years ended December 31,
In millions	2018			2017			2016
Current
U.S. federal and state	$	303		$	355		$	211
Foreign	348			289			213
Impact of tax legislation	153			349			—
Total current	804			993			424
Deferred
U.S. federal and state	(71		)	(42		)	57
Foreign	(26		)	(12		)	(7		)
Impact of tax legislation	(141		)	432			—
Total deferred	(238		)	378			50
Income tax expense	$	566		$	1,371		$	474

Schedule of Effective Income Tax Rate Reconciliation

A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate was as follows:



	Years ended December 31,
	2018		2017		2016
Statutory U.S. federal income tax rate	21.0	%	35.0	%	35.0	%
State income tax, net of federal effect	0.9		0.6		0.8
Differences in rates and taxability of foreign subsidiaries and joint ventures	(0.2	)	(6.4	)	(7.2	)
Research tax credits	(1.2	)	(1.4	)	(1.7	)
Impact of tax legislation	0.5		33.1		—
Other, net	(0.4	)	(2.9	)	(2.3	)
Effective tax rate	20.6	%	58.0	%	24.6	%

Schedule of Deferred Tax Assets and Liabilities

Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax (liabilities) assets were as follows:



	December 31,
In millions	2018			2017
Deferred tax assets
U.S. state carryforward benefits	$	191		$	200
Foreign carryforward benefits	149			159
Employee benefit plans	245			274
Warranty expenses	401			300
Accrued expenses	94			95
Other	65			70
Gross deferred tax assets	1,145			1,098
Valuation allowance	(327		)	(347		)
Total deferred tax assets	818			751
Deferred tax liabilities
Property, plant and equipment	(255		)	(250		)
Unremitted income of foreign subsidiaries and joint ventures	(184		)	(331		)
Employee benefit plans	(202		)	(224		)
Other	(30		)	(31		)
Total deferred tax liabilities	(671		)	(836		)
Net deferred tax assets (liabilities)	$	147		$	(85	)

Our Consolidated Balance Sheets contain the following tax related items:



	December 31,
In millions	2018		2017
Prepaid and other current assets
Refundable income taxes	$	117	$	152
Other assets
Deferred income tax assets	410		306
Long-term refundable income taxes	6		6
Accrued expenses
Income tax payable	97		77
Other liabilities and deferred revenue
Income tax payable	293		281
Deferred income tax liabilities	263		391

Schedule of Unrecognized Tax Benefits Roll Forward

A reconciliation of unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016 was as follows:



	December 31,
In millions	2018			2017			2016
Balance at beginning of year	$	41		$	59		$	135
Additions to current year tax positions	10			11			10
Additions to prior years' tax positions	27			9			18
Reductions to prior years' tax positions	(2		)	(3		)	—
Reductions for tax positions due to settlements with taxing authorities	(5		)	(35		)	(104		)
Balance at end of year	$	71		$	41		$	59