Income Taxes

The significant components of income tax expense (benefit) from continuing operations were as follows.



Year ended December 31, ($ in millions)	2014			2013			2012
Current income tax (benefit) expense
U.S. federal	$	(3	)	$	—		$	—
Foreign	8			4			(24		)
State and local	5			—			10
Total current expense (benefit)	10			4			(14		)
Deferred income tax expense (benefit)
U.S. federal	270			(67		)	(663		)
Foreign	2			(1		)	25
State and local	39			5			(204		)
Total deferred expense (benefit)	311			(63		)	(842		)
Total income tax expense (benefit) from continuing operations	$	321		$	(59	)	$	(856	)

A reconciliation of income tax expense (benefit) from continuing operations with the amounts at the statutory U.S. federal income tax rate is shown in the following table.



Year ended December 31, ($ in millions)	2014			2013			2012
Statutory U.S. federal tax expense (benefit)	$	436		$	125		$	180
Change in tax resulting from
Effect of valuation allowance change	(64		)	(154		)	(1,022		)
Changes in unrecognized tax benefits	(63		)	(10		)	(6		)
Tax law enactment	(39		)	(44		)	—
Tax credits	(10		)	(45		)	(45		)
Non-deductible expenses	31			26			12
State and local income taxes, net of federal income tax benefit	48			16			(34		)
Other, net	(18		)	27			59
Total income tax expense (benefit) from continuing operations	$	321		$	(59	)	$	(856	)

Our income tax expense (benefit) from continuing operations has not naturally corresponded with our income (loss) from continuing operations before income tax for the years ended December 31, 2014, 2013, and 2012, given we had U.S. and foreign valuation allowance movements during those years. For 2014, consolidated income tax expense from continuing operations is largely driven by tax attributable to pretax earnings for the year, offset by tax benefits recognized from the release of a portion of our valuation allowance on capital loss carryforwards utilized against current year capital gains, a reduction in the liability for unrecognized tax benefits resulting from the completion of the U.S. federal audit related to our 2009 tax year, and the reinstatement of the active financing exception included in the Tax Increase Prevention Act of 2014. For 2013, consolidated income tax benefit from continuing operations was largely driven by a release of a portion of our valuation allowance related to the measurement of foreign tax credit carryforwards anticipated to be utilized in the future and release of our valuation allowance on capital loss carryforwards. Additional benefit was also recognized from a tax law enactment that retroactively reinstated the active financing exception. For 2012, consolidated income tax benefit from continuing operations was largely driven by a release of a portion of our U.S. valuation allowance on the basis of management's reassessment of the amount of its deferred tax assets that were more likely than not to be realized.

As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets. We continue to believe it is more likely than not that the benefit for certain capital loss, foreign tax credit, and state net operating loss carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance on the deferred tax assets relating to these carryforwards.

The sale of our joint venture in China, which was completed in January 2015, will result in additional capital gains that will allow us to realize additional capital loss carryforwards. Any resulting reversal of valuation allowance on these deferred tax assets will be recognized as income tax benefit upon such reversal.

The significant components of deferred tax assets and liabilities are reflected in the following table.



December 31, ($ in millions)	2014			2013
Deferred tax assets
Tax credit carryforwards	$	1,911		$	1,874
Tax loss carryforwards	1,158			1,624
Mark-to-market on consumer finance receivables and loans	349			721
State and local taxes	227			297
Provision for loan losses	171			257
Unearned insurance premiums	141			140
Hedging transactions	139			177
Basis difference in subsidiaries	17			—
ResCap settlement accrual	—			53
Other	193			247
Gross deferred tax assets	4,306			5,390
Valuation allowance	(734		)	(1,154		)
Deferred tax assets, net of valuation allowance	3,572			4,236
Deferred tax liabilities
Lease transactions	1,148			1,527
Deferred acquisition costs	378			351
Debt transactions	161			191
Sales of finance receivables and loans	16			26
Basis difference in subsidiaries	—			55
Other	62			46
Gross deferred tax liabilities	1,765			2,196
Net deferred tax assets (a)	$	1,807		$	2,040


(a)	Total net deferred tax assets includes $1,812 million of net deferred tax assets included in other assets on our Consolidated Balance Sheet for tax jurisdictions in a total net deferred tax asset position and $5 million included in accrued expenses and other liabilities on our Consolidated Balance Sheet for tax jurisdictions in a total net deferred tax liability position at December 31, 2014.

The following table summarizes net deferred tax assets including related valuation allowances at December 31, 2014.



($ in millions)	Deferred Tax Asset/(Liability)				Valuation Allowance			Net Deferred Tax Asset/(Liability)			Years of Expiration
Tax credit carryforwards
Foreign tax credits	$	1,741			$	(478	)	$	1,263		2015 - 2023
General business credits	153				—			153			2032 - 2034
AMT credits	17				—			17			n/a
Total tax credit carryforwards	1,911				(478		)	1,433
Tax loss carryforwards
Net operating losses — federal	1,001				—			1,001			2025 - 2033
Capital losses — federal	157				(135		)	22			2015 - 2017
Total tax loss carryforwards	1,158				(135		)	1,023
State and local tax carryforwards
Net operating losses — state	220				(82		)	138			2015 - 2034
Capital losses — state	38				(33		)	5			2015 - 2017
Total state and local carryforwards	258			(a)	(115		)	143
Other deferred tax assets	979				(6		)	973			n/a
Deferred tax assets	4,306				(734		)	3,572
Deferred tax liabilities	(1,765		)		—			(1,765		)	n/a
Net deferred tax assets	$	2,541			$	(734	)	$	1,807


(a)	State net operating loss and capital loss carryforwards are included in the state and local taxes total disclosed in our deferred inventory table above.

As of December 31, 2014, we do not assert that any foreign earnings are indefinitely reinvested outside of the United States. As a result, all deferred tax liabilities for incremental U.S. tax that stem from temporary differences related to investments in foreign subsidiaries or foreign corporate joint ventures have been recognized as of December 31, 2014.

The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits.



($ in millions)	2014			2013			2012
Balance at January 1,	$	262		$	102		$	198
Additions based on tax positions related to the current year	—			174			14
Additions for tax positions of prior years	9			1			2
Reductions for tax positions of prior years	—			—			(4		)
Settlements	(79		)	(14		)	(17		)
Expiration of statute of limitations	(1		)	(1		)	(4		)
Foreign-currency translation adjustments	—			—			(5		)
Deconsolidation of ResCap and discontinued operations	—			—			(82		)
Balance at December 31,	$	191		$	262		$	102

Included in the unrecognized tax benefits balances are some items, the recognition of which would not affect the effective tax rate, such as the tax effect of certain temporary differences and the portion of gross state unrecognized tax benefits that would be offset by the tax benefit of the associated federal deduction. At December 31, 2014, 2013, and 2012, the balance of unrecognized tax benefits that, if recognized, would affect our effective tax rate is $182 million, $240 million, and $84 million, respectively.

We recognize accrued interest and penalties related to uncertain income tax positions in interest expense and other operating expenses, respectively. For the years ended December 31, 2014, 2013, and 2012, $1 million, $2 million, and $1 million, respectively, were accrued for interest and penalties with the cumulative accrued balance totaling $5 million at December 31, 2014, $7 million at December 31, 2013, and $7 million at December 31, 2012.

It is reasonably possible that certain tax positions may be settled within the next twelve months and the unrecognized tax benefits would decrease by up to $180 million.

We file tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. Our most significant operations remaining following our divestitures of various international operations are the United States and Canada. The oldest tax years that remain subject to examination for those jurisdictions are 2010 and 2011, respectively.