Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

Year ended December 31, ($ in millions)	2022		2021		2020
Current income tax expense
U.S. federal	$	1	$	502	$	—
Foreign	3		4		6
State and local	9		168		80
Total current expense	13		674		86
Deferred income tax expense (benefit)
U.S. federal	493		151		280
Foreign	(1)		—		1
State and local	61		(35)		(39)
Total deferred expense	553		116		242
Other tax expense (a)	61		—		—
Total income tax expense from continuing operations	$	627	$	790	$	328

(a)Represents the realization of stranded tax amounts, under the portfolio method, connected to our qualified defined benefit pension plan that was settled during the year ended December 31, 2022. These stranded tax amounts had accumulated in other comprehensive loss over time. Refer to Note 18 for additional information.

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)	2022		2021		2020
Statutory U.S. federal tax expense	$	492	$	810	$	297
Change in tax resulting from
State and local income taxes, net of federal income tax benefit	77		106		36
Tax credits, excluding expirations	(73)		(58)		(29)
Settlement of qualified defined benefit pension plan	61		—		—
Valuation allowance change, excluding expirations	54		(78)		(3)
Nondeductible expenses	31		30		37
Other, net	(15)		(20)		(10)
Total income tax expense from continuing operations	$	627	$	790	$	328

For the year ended December 31, 2022, consolidated income tax expense from continuing operations was largely driven by pretax earnings, the settlement of our qualified defined benefit pension plan, and an increase of the valuation allowance on foreign tax credit carryforwards, partially offset by an income tax benefit related to various tax credits. The increase in the valuation allowance was primarily driven by a reduction in forecasted foreign-sourced income caused by revised estimates from certain previously executed and forecasted securitization transactions. During 2022, we lowered our income tax benefit from these securitization transactions due to the recharacterization of certain income that was previously foreign-sourced income as domestically sourced and higher interest expense assumptions. For the year ended December 31, 2021, consolidated income tax expense from continuing operations was largely driven by pretax earnings for the year, partially offset by an income tax benefit from the release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2021. The release of valuation allowance was primarily driven by an increase in forecasted foreign-sourced income related to our capacity to engage in certain securitization transactions and the market demand from investors related to these transactions, coupled with the anticipated timing of the forecasted expiration of foreign tax credit carryforwards, resulting in a nonrecurring tax benefit. For the year ended December 31, 2020, consolidated income tax expense from continuing operations was largely driven by pretax earnings for the year.

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

December 31, ($ in millions)	2022		2021
Deferred tax assets
Adjustments to available-for-sale securities, equity securities, and hedging transactions (a)	$	1,095	$	124
Tax credit carryforwards	960		1,014
Adjustments to loan value	822		920
U.S. federal tax loss carryforwards (b)	428		256
State and local taxes	310		233
Other	470		480
Gross deferred tax assets	4,085		3,027
Valuation allowance (c)	(644)		(839)
Deferred tax assets, net of valuation allowance	3,441		2,188
Deferred tax liabilities
Lease transactions	1,831		1,385
Deferred acquisition costs	394		403
Other	145		156
Gross deferred tax liabilities	2,370		1,944
Net deferred tax assets (d)	$	1,071	$	244

(a)Amounts primarily include $1.0 billion and $104 million of deferred tax assets related to available-for-sale securities at December 31, 2022, and 2021, respectively.

(b)Primarily the result of a 100% bonus depreciation election for 2022 and 2021 operating lease originations.

(c)The valuation allowance decreased $195 million to $644 million at December 31, 2022, as a result of a $249 million reduction related to the expiration of foreign tax credit carryforwards, partially offset by an increase of $54 million predominantly related to a reduction in forecasted foreign-sourced income.

(d)Amounts include $1.1 billion and $254 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 $16 million and $10 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, 2022, and 2021, respectively.

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 following table summarizes net deferred tax assets including related valuation allowances at December 31, 2022.

($ in millions)	Deferred tax asset			Valuation allowance		Net deferred tax asset		Years of expiration
Tax credit carryforwards
Foreign tax credits	$	765		$	(517)	$	248	2023–2032
General business credits	$	195		$	—	$	195	2023–2042
Total tax credit carryforwards	960			(517)		443
Tax loss carryforwards
Net operating losses — federal	428			—		428		2027–Indefinite
Net operating losses — state	166		(a)	(127)		39		2023–Indefinite
Total U.S. federal and state tax loss carryforwards	594			(127)		467
Other net deferred tax assets	161			—		161		n/a
Net deferred tax assets (liabilities)	$	1,715		$	(644)	$	1,071

n/a = not applicable

(a)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, 2022, we have recognized negligible deferred tax liabilities for incremental U.S. federal taxes that stem from temporary differences related to investment in foreign subsidiaries or corporate joint ventures as there is no assertion of indefinite reinvestment outside of the United States.

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

($ in millions)	2022		2021		2020
Balance at January 1,	$	53	$	53	$	48
Additions based on tax positions related to the current year	—		—		—
Additions for tax positions of prior years	2		7		5
Reductions for tax positions of prior years	(2)		(7)		—
Settlements	(7)		—		—
Expiration of statute of limitations	—		—		—
Balance at December 31,	$	46	$	53	$	53

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 U.S. federal deduction. The balance of unrecognized tax benefits that, if recognized, would affect our effective tax rate is $36 million for the year ended December 31, 2022, and $42 million for both of the years ended December 31, 2021, and 2020.

We recognize accrued interest and penalties related to uncertain income tax positions in interest expense and other operating expenses, respectively. For the year ended December 31, 2022, the cumulative accrued balance for interest and penalties was $3 million and penalties of $2 million were accrued during the year. For both of the years ended December 31, 2021, and 2020, the cumulative accrued balance for interest and penalties was $1 million or less and interest and penalties of less than $1 million were accrued each year.

It is reasonably possible that the unrecognized tax benefits will decrease by up to $45 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 2019 and 2011, respectively.