Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Provision for Federal Income Taxes

We are subject to federal income tax, but we are exempt from state and local income taxes. The following table displays the components of our provision for federal income taxes.

	For the Year Ended December 31,
	2022		2021		2020
	(Dollars in millions)
Current income tax benefit (provision)	$	(3,505)	$	(5,521)	$	(3,803)
Deferred income tax benefit (provision)(1)	195		(252)		729
Provision for federal income taxes	$	(3,310)	$	(5,773)	$	(3,074)

(1)Amount excludes the current income tax effect of items recognized directly in “Total stockholders' equity.”

The following table displays the difference between the statutory corporate tax rate and our effective tax rate.

	For the Year Ended December 31,
	2022			2021			2020
Statutory corporate tax rate		21.0	%		21.0	%		21.0	%
Research tax credits		(1.5)			—			—
Equity investments in affordable housing projects		(0.1)			(0.1)			(0.1)
Valuation allowance		0.7			—			—
Other		0.3			(0.2)			(0.2)
Effective tax rate		20.4	%		20.7	%		20.7	%

Our effective tax rate is the provision for federal income taxes expressed as a percentage of income or loss before federal income taxes. Our effective tax rates for the years 2022, 2021, and 2020 were impacted by the benefits of our investments in housing projects eligible for low-income housing tax credits. Our effective tax rate for 2022 was also impacted by the benefit of the research tax credits claimed on current year and amended prior year returns, and the valuation allowance against the deferred tax asset relating to capital loss carryforwards.

Deferred Tax Assets and Liabilities

We evaluate our deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including our historical profitability and projections of future taxable income. Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, to the extent it exists, including:

•the sustainability of recent profitability required to realize the deferred tax assets;

•the cumulative net income or losses in our consolidated statements of operations and comprehensive income in recent years;

•unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a continuing basis in future years;

•the funding available to us under the senior preferred stock purchase agreement; and

•the carryforward period for capital losses.

As of December 31, 2022, we continued to conclude that the positive evidence in favor of the recoverability of our deferred tax assets, except the deferred tax asset relating to capital loss carryforwards, outweighed the negative evidence and that it is more likely than not that our deferred tax assets will be realized. For the deferred tax asset relating to capital loss carryforwards, we concluded that the negative evidence outweighed the positive evidence, and it is more likely than not that these capital loss carryforwards will not be utilized during the allowable five-year carryforward period, which will expire in 2027 if unused. Therefore, a valuation allowance has been recorded against our capital loss carryforward deferred tax asset, which is included in “Other, net” in the table below.

The following table displays our deferred tax assets and deferred tax liabilities.

	As of December 31,
	2022			2021
	(Dollars in millions)
Deferred tax assets:
Mortgage and mortgage-related assets		$	6,764		$	7,547
Allowance for loan losses and basis in acquired property, net		2,055			1,060
Derivative instruments		1,153			778
Partnership and other equity investments		52			88
Interest-only securities		3,811			3,977
Other, net		295			—
Total deferred tax assets		14,130			13,450
Deferred tax liabilities:
Debt instruments		1,104			377
Other, net		—			358
Total deferred tax liabilities		1,104			735
Valuation allowance		(115)			—
Deferred tax assets, net		$	12,911		$	12,715

Unrecognized Tax Benefits

We had $60 million of unrecognized tax benefits for the year ended December 31, 2022. If these positions were to resolve favorably, our effective tax would be reduced in future periods by $60 million. We had no unrecognized tax benefits for the years ended December 31, 2021 and 2020.

Our tax years 2019 through 2021 remain open to examination by the IRS.