Notes to Consolidated Financial Statements

(Continued)

Note 14.
Income Taxes:

Earnings from continuing operations before income taxes and minority interest, and provision for income taxes consisted of the following for the years ended December 31, 2004, 2003 and 2002:

	(in millions)		2004				2003		2002
	Earnings from continuing
	operations before income
	taxes and minority interest:
	United States		$  7,414				$   8,062		$12,037
	Outside United States		6,590				6,547		5,908
	Total		$14,004				$ 14,609		$17,945
	Provision for income taxes:
	United States federal:
	Current		$  2,106				1,926		2,585
	Deferred		450				742		1,493
			2,556				2,668		4,078
	State and local		398				377		454
	Total United States		2,954				3,045		4,532
	Outside United States:
	Current		1,605				1,810		1,744
	Deferred		(19	)			242		92
	Total outside United States		1,586				2,052		1,836
	Total provision for income taxes		$  4,540				$  5,097		$  6,368

The (loss) earnings from discontinued operations for the year ended December 31, 2004, included a deferred income tax benefit of $43 million. Kraft also anticipates additional tax expense of approximately $270 million in 2005, once the sale of its sugar confectionery business has been consummated.

At December 31, 2004, applicable United States federal income taxes and foreign withholding taxes have not been provided on approximately $11.8 billion of accumulated earnings of foreign subsidiaries that are expected to be permanently reinvested.

On October 22, 2004, the American Jobs Creation Act (“the Jobs Act”) was signed into law. The Jobs Act includes a deduction for 85% of certain foreign earnings that are repatriated. Altria Group, Inc. may elect to apply this provision to qualifying earnings repatriations in 2005 and is conducting analyses of its effects. The U.S. Treasury Department recently provided additional clarifying language on key elements of the provision which is under consideration as part of Altria Group, Inc.’s evaluation. Altria Group, Inc. expects to complete its evaluation of the effects of the repatriation provision within a reasonable period of time. The amount of dividends Altria Group, Inc. can repatriate under this provision is up to $7.1 billion. Since Altria Group, Inc. has provided deferred taxes on a portion of its unrepatriated earnings, there is a potential financial statement income tax benefit upon repatriations under the Jobs Act. Assuming certain expected technical amendments to the Jobs Act are enacted and if the entire $7.1 billion were repatriated, the income tax benefit would be approximately $80 million.

The Jobs Act also provides tax relief to U.S. domestic manufacturers by providing a tax deduction of up to 9% of the lesser of “qualified production activities income” or taxable income. In December 2004, the FASB issued FASB Staff Position 109-1, “Application of FASB Statement No. 109, ‘Accounting for Income Taxes,’ to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (“FSP 109-1”). FSP 109-1 requires companies to account for this deduction as a “special deduction” rather than a rate reduction, in accordance with SFAS No. 109, and therefore, Altria Group, Inc. will recognize these benefits, which are not expected to be significant, in the year earned.

The effective income tax rate on pre-tax earnings differed from the U.S. federal statutory rate for the following reasons for the years ended December 31, 2004, 2003 and 2002:

			2004				2003		2002
	U.S. federal statutory rate		35.0	%			35.0	%	35.0	%
	Increase (decrease) resulting from:
	State and local income taxes,
	net of federal tax benefit		1.8				1.8		1.7
	Reversal of taxes no longer
	required		(3.1	)			(0.5	)
	Other		(1.3	)			(1.4	)	(1.2	)
	Effective tax rate		32.4	%			34.9	%	35.5	%

The tax provision in 2004 includes the reversal of $355 million of tax accruals that are no longer required due to foreign tax events that were resolved during the first quarter of 2004 ($35 million) and the second quarter of 2004 ($320 million), and an $81 million favorable resolution of an outstanding tax item at Kraft, the majority of which occurred in the third quarter. The tax provision in 2003 reflects reversals of $74 million of state tax liabilities, net of federal tax benefit, that are no longer needed due to published rulings during 2003.

The tax effects of temporary differences that gave rise to consumer products deferred income tax assets and liabilities consisted of the following at December 31, 2004 and 2003:

	(in millions)		2004				2003
	Deferred income tax assets:
	Accrued postretirement and
	postemployment benefits		$ 1,427				$ 1,392
	Settlement charges		1,229				1,240
	Other		224				415
	Total deferred income tax assets		2,880				3,047
	Deferred income tax liabilities:
	Trade names		(3,545	)			(3,839	)
	Unremitted earnings		(971	)			(862	)
	Property, plant and equipment		(2,415	)			(2,275	)
	Prepaid pension costs		(1,378	)			(1,199	)
	Total deferred income tax liabilities		(8,309	)			(8,175	)
	Net deferred income tax liabilities		$(5,429	)			$(5,128	)

Financial services deferred income tax liabilities are primarily attributable to temporary differences relating to net investments in finance leases.