Income Taxes Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

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



Year ended December 31, ($ in millions)	2019			2018			2017
Current income tax (benefit) expense
U.S. federal	$	(2	)	$	(12	)	$	(17	)
Foreign	4			5			6
State and local	65			35			53
Total current expense	67			28			42
Deferred income tax expense (benefit)
U.S. federal	178			328			566
Foreign	2			—			—
State and local	(1		)	3			(27		)
Total deferred expense	179			331			539
Total income tax expense from continuing operations	$	246		$	359		$	581

A reconciliation of income tax expense 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)	2019			2018			2017
Statutory U.S. federal tax expense (a)	$	413		$	340		$	527
Change in tax resulting from
Valuation allowance change, excluding expirations	(219		)	(8		)	(49		)
State and local income taxes, net of federal income tax benefit (b)	50			26			7
Nondeductible expenses	29			28			4
Tax credits, excluding expirations	(27		)	(20		)	(12		)
Changes in unrecognized tax benefits	5			22			1
Tax law enactment	(1		)	(23		)	119
Other, net	(4		)	(6		)	(16		)
Total income tax expense from continuing operations	$	246		$	359		$	581


(a)	The statutory U.S. federal tax rate was 21% for both the years ended December 31, 2019, and 2018, and 35% for year ended December 31, 2017.


(b)	Amount for 2017 includes state deferred tax adjustments primarily offset in the valuation allowance change caption.

For the year ended December 31, 2019, consolidated income tax expense from continuing operations was driven by tax attributable to pretax earnings for the year, partially offset by a release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2019. The valuation allowance release was primarily driven by our current capacity to engage in certain foreign securitization transactions and the market demand from investors related to these transactions, coupled with the anticipated timing of the forecasted expiration of certain foreign tax credit carryforwards. For the year ended December 31, 2018, consolidated income tax expense from continuing operations was largely driven by tax attributable to pretax earnings for the year. For the year ended December 31, 2017, consolidated income tax expense from continuing operations was largely driven by tax attributable to pretax earnings for the year and income tax expense attributable to changes to our net deferred tax assets as a result of the Tax Cuts and Jobs Act of 2017 (Tax Act), partially offset by changes to our valuation allowance balances related to capital-in-nature deferred tax assets and foreign tax credit carryforwards.

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 foreign tax credit carryforwards 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 and it is reasonably possible that the valuation allowance may change in the next 12 months.

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



December 31, ($ in millions)	2019			2018
Deferred tax assets
Tax credit carryforwards	$	1,784		$	1,796
Adjustments to loan value	448			366
State and local taxes	153			168
Unearned insurance premiums	98			90
Other	214			257
Gross deferred tax assets	2,697			2,677
Valuation allowance	(837		)	(1,057		)
Deferred tax assets, net of valuation allowance	1,860			1,620
Deferred tax liabilities
Lease transactions	1,325			850
Deferred acquisition costs	366			321
Debt transactions	91			93
Other	87			56
Gross deferred tax liabilities	1,869			1,320
Net deferred tax (liabilities) assets (a)	$	(9	)	$	300

(a)

Amounts include $58 million and $317 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 at December 31, 2019, and 2018, respectively, and $67 million and $17 million included in accrued expenses and other liabilities on our Consolidated Balance Sheet for tax jurisdictions in a total net deferred tax liability position.

The following table summarizes net deferred tax assets including related valuation allowances at December 31, 2019.



($ in millions)	Deferred tax asset (liability)				Valuation allowance			Net deferred tax asset (liability)			Years of expiration
Tax credit carryforwards
Foreign tax credits	$	1,433			$	(737	)	$	696		2022–2029
General business credits	351				—			351			2025–2039
Total tax credit carryforwards	1,784				(737		)	1,047
Tax loss carryforwards
Net operating losses — federal	7			(a)	—			7			2027–2036
Net operating losses — state	176			(b)	(100		)	76			2020–2039
Total federal and state tax loss carryforwards	183				(100		)	83
Other net deferred tax liabilities	(1,139		)		—			(1,139		)	n/a
Net deferred tax assets (liabilities)	$	828			$	(837	)	$	(9	)


(a)	Federal net operating loss carryforwards are included in the other assets total disclosed in our deferred inventory table above.


(b)	State net operating loss carryforwards are included in the state and local taxes and other liabilities totals disclosed in our deferred inventory table above.

As of December 31, 2019, we continue to not assert that foreign earnings are indefinitely reinvested outside of the United States. Deferred tax liabilities for incremental U.S. tax that stem from temporary differences related to investment in foreign subsidiaries or corporate joint ventures are negligible and have been recognized as of December 31, 2019.

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



($ in millions)	2019			2018		2017
Balance at January 1,	$	44		$	15	$	14
Additions based on tax positions related to the current year	—			—		—
Additions for tax positions of prior years	11			29		3
Reductions for tax positions of prior years	(5		)	—		(1		)
Settlements	(2		)	—		—
Expiration of statute of limitations	—			—		(1		)
Balance at December 31,	$	48		$	44	$	15

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, 2019, 2018, and 2017, the balance of unrecognized tax benefits that, if recognized, would affect our effective tax rate were $38 million, $34 million, and $12 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, 2019, 2018, and 2017, the cumulative accrued balance for interest and penalties was less than $1 million and interest and penalties of $1 million or less were accrued each year.

It is reasonably possible that the unrecognized tax benefits will decrease by up to $36 million over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdictions.

We file tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. Our most significant operations are in the United States and Canada. The oldest tax years that remain subject to examination for those jurisdictions are 2016 and 2011, respectively.