United Parcel Service, Inc. Annual report pursuant to Section 13 and 15(d)

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2014

The income tax expense (benefit) for the years ended December 31 consists of the following (in millions):

Income before income taxes includes the following components (in millions):

A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31 consists of the following:



	2014		2013		2012
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
U.S. state and local income taxes (net of federal benefit)	1.2		2.1		—
Non-U.S. tax rate differential	(2.4	)	(1.3	)	(6.1	)
Nondeductible/nontaxable items	1.3		(0.2	)	(0.4	)
U.S. federal tax credits	(1.5	)	(1.2	)	(7.4	)
Other	1.0		0.1		(4.0	)
Effective income tax rate	34.6	%	34.5	%	17.1	%

Deferred tax liabilities and assets are comprised of the following at December 31 (in millions):



	2014			2013
Fixed assets and capitalized software	$	(4,816	)	$	(4,624	)
Other	(424		)	(756		)
Deferred tax liabilities	(5,240		)	(5,380		)
Pension and postretirement benefits	4,722			3,086
Loss and credit carryforwards (non-U.S. and state)	250			279
Insurance reserves	745			765
Stock compensation	242			70
Other	630			933
Deferred tax assets	6,589			5,133
Deferred tax assets valuation allowance	(208		)	(251		)
Deferred tax asset (net of valuation allowance)	6,381			4,882
Net deferred tax asset (liability)	$	1,141		$	(498	)

Amounts recognized in the consolidated balance sheets:
Current deferred tax assets	$	590		$	684
Current deferred tax liabilities (included in other current liabilities)	(18		)	(48		)
Non-current deferred tax assets	652			110
Non-current deferred tax liabilities	(83		)	(1,244		)
Net deferred tax asset (liability)	$	1,141		$	(498	)

We have U.S. state and local operating loss and credit carryforwards as follows (in millions):



	2014		2013
U.S. state and local operating loss carryforwards	$	815	$	546
U.S. state and local credit carryforwards	$	52	$	42

The following table summarizes the activity related to our unrecognized tax benefits (in millions):



	Tax			Interest			Penalties
Balance at January 1, 2012	$	252		$	73		$	3
Additions for tax positions of the current year	13			—			—
Additions for tax positions of prior years	7			9			1
Reductions for tax positions of prior years for:
Changes based on facts and circumstances	(22		)	(18		)	—
Settlements during the period	(3		)	(7		)	—
Lapses of applicable statute of limitations	(15		)	(4		)	—
Balance at December 31, 2012	232			53			4
Additions for tax positions of the current year	15			—			—
Additions for tax positions of prior years	20			9			2
Reductions for tax positions of prior years for:
Changes based on facts and circumstances	(67		)	(23		)	(1		)
Settlements during the period	(8		)	1			—
Lapses of applicable statute of limitations	(1		)	—			(1		)
Balance at December 31, 2013	191			40			4
Additions for tax positions of the current year	15			—			—
Additions for tax positions of prior years	51			13			—
Reductions for tax positions of prior years for:
Changes based on facts and circumstances	(74		)	(8		)	—
Settlements during the period	(10		)	(2		)	—
Lapses of applicable statute of limitations	(1		)	(1		)	(1		)
Balance at December 31, 2014	$	172		$	42		$	3