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, 2019

Schedule of Income before Income Tax, Domestic and Foreign

The following table summarizes income before income taxes:



	Years ended December 31,
In millions	2019		2018		2017
U.S. income	$	1,677	$	1,239	$	1,237
Foreign income	1,157		1,514		1,128
Income before income taxes	$	2,834	$	2,753	$	2,365

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

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⁽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	2019			2018			2017
Current
U.S. federal and state	$	288		$	303		$	355
Foreign	282			348			289
Impact of tax legislation	—			153			349
Total current income tax expense	570			804			993
Deferred
U.S. federal and state	(32		)	(71		)	(42		)
Foreign	28			(26		)	(12		)
Impact of tax legislation	—			(141		)	432
Total deferred income tax (benefit) expense	(4		)	(238		)	378
Income tax expense	$	566		$	566		$	1,371

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,
	2019		2018		2017
Statutory U.S. federal income tax rate	21.0	%	21.0	%	35.0	%
State income tax, net of federal effect	1.1		0.9		0.6
Differences in rates and taxability of foreign subsidiaries and joint ventures	1.5		(0.2	)	(6.4	)
Research tax credits	(1.5	)	(1.2	)	(1.4	)
Foreign derived intangible income	(1.3	)	(1.3	)	—
Impact of tax legislation	—		0.5		33.1
Other, net	(0.8	)	0.9		(2.9	)
Effective tax rate	20.0	%	20.6	%	58.0	%

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	2019			2018
Deferred tax assets
U.S. state carryforward benefits	$	207		$	191
Foreign carryforward benefits	157			149
Employee benefit plans	279			245
Warranty expenses	427			401
Lease liabilities	122			—
Accrued expenses	76			94
Other	44			65
Gross deferred tax assets	1,312			1,145
Valuation allowance	(317		)	(327		)
Total deferred tax assets	995			818
Deferred tax liabilities
Property, plant and equipment	(260		)	(255		)
Unremitted income of foreign subsidiaries and joint ventures	(181		)	(184		)
Employee benefit plans	(222		)	(202		)
Lease assets	(120		)	—
Other	(77		)	(30		)
Total deferred tax liabilities	(860		)	(671		)
Net deferred tax assets	$	135		$	147

Our Consolidated Balance Sheets contain the following tax related items:



	December 31,
In millions	2019		2018
Prepaid expenses and other current assets
Refundable income taxes	$	191	$	117
Other assets
Deferred income tax assets	441		410
Long-term refundable income taxes	23		6
Other accrued expenses
Income tax payable	52		97
Other liabilities
One-time transition tax	293		293
Deferred income tax liabilities	306		263

Schedule of Unrecognized Tax Benefits Roll Forward

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



	December 31,
In millions	2019			2018			2017
Balance at beginning of year	$	71		$	41		$	59
Additions to current year tax positions	23			10			11
Additions to prior years' tax positions	5			27			9
Reductions to prior years' tax positions	(11		)	(2		)	(3		)
Reductions for tax positions due to settlements with taxing authorities	(11		)	(5		)	(35		)
Balance at end of year	$	77		$	71		$	41