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Income Taxes
 12 Months Ended
Dec. 31, 2023
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)
202320222021
Current income tax expense
U.S. federal$85 $1 $502 
Foreign5 3 4 
State and local36 9 168 
Total current expense126 13 674 
Deferred income tax (benefit) expense
U.S. federal(57)493 151 
Foreign(1)(1)— 
State and local(7)61 (35)
Total deferred (benefit) expense(65)553 116 
Other tax expense (a)— 61 — 
Total income tax expense from continuing operations$61 $627 $790 
(a)Represents the realization of stranded tax amounts, under the portfolio method, connected to our qualified defined benefit pension plan that was settled during the year ended December 31, 2022. These stranded tax amounts had accumulated in other comprehensive loss over time. Refer to Note 18 for additional information.
A reconciliation of income tax expense from continuing operations with the amounts at the statutory U.S. federal income tax rate is shown in the following table.
Year ended December 31, ($ in millions)
202320222021
Statutory U.S. federal tax expense$227 $492 $810 
Change in tax resulting from
Tax credits, excluding expirations(133)(73)(58)
Valuation allowance change, excluding expirations(91)54 (78)
Nondeductible expenses44 31 30 
Unrecognized tax benefits38 (4)— 
Tax law enactment(18)— (1)
State and local income taxes, net of federal income tax benefit(4)77 106 
Settlement of qualified defined benefit pension plan— 61 — 
Other, net(2)(11)(19)
Total income tax expense from continuing operations$61 $627 $790 
For the year ended December 31, 2023, consolidated income tax expense from continuing operations was largely driven by pretax earnings, partially offset by an income tax benefit related to various tax credits, as well as the release of the valuation allowance on foreign tax credit carryforwards. The release of the valuation allowance was primarily driven by the identification and execution of a tax planning strategy allowing for additional utilization of foreign tax credits. 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.
We record rehabilitation, energy, and clean vehicle tax credits as part of our investment tax credit category. Under the flow-through method, the tax credits are recognized as a reduction to current income tax expense. During each of the years ended December 31, 2023, 2022 and 2021, we recorded $4 million of rehabilitation tax credit benefits and $1 million of energy tax credit benefits, respectively. There were no
corresponding deferred tax balances for rehabilitation tax credits and energy tax credits as of December 31, 2023, and 2021, due to full utilization. As of December 31, 2022, the deferred tax balance for rehabilitation tax credits and energy tax credits were $4 million and $1 million, respectively. Additionally, during the year ended December 31, 2023, we recorded a $99 million clean vehicle tax credit benefit, with a corresponding deferred tax balance of the same amount.
The significant components of deferred tax assets and liabilities are reflected in the following table.
December 31, ($ in millions)
20232022
Deferred tax assets
Adjustments to securities and hedging transactions (a)$1,066 $1,095 
Adjustments to loan value569 822 
Tax credit carryforwards500 960 
State and local taxes305 310 
Fixed assets165 101 
U.S. federal tax loss carryforwards (b)8 428 
Other418 369 
Gross deferred tax assets3,031 4,085 
Valuation allowance (c)(176)(644)
Deferred tax assets, net of valuation allowance2,855 3,441 
Deferred tax liabilities
Lease transactions1,134 1,831 
Deferred acquisition costs387 394 
Other121 145 
Gross deferred tax liabilities1,642 2,370 
Net deferred tax assets (d)$1,213 $1,071 
(a)Securities include deferred tax assets related to available-for-sale securities, held-to-maturity securities, and equity securities. At December 31, 2023, and 2022, there were $808 million and $1.0 billion of deferred tax assets related to available-for-sale securities, respectively.
(b)Primarily the result of switching from 100% bonus depreciation to MACRS depreciation for 2022 operating lease originations at the filing of the 2022 tax return.
(c)The valuation allowance decreased $468 million to $176 million at December 31, 2023, as a result of a $359 million reduction related to the expiration of foreign tax credit carryforwards, as well as a $109 million release of valuation allowance predominantly related to the identification and execution of a tax planning strategy.
(d)Amounts include $1.2 billion and $1.1 billion 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 $10 million and $16 million included in accrued expenses and other liabilities on our Consolidated Balance Sheet for tax jurisdictions in a total net deferred tax liability position at December 31, 2023, and 2022, respectively.
As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets. We continue to believe it is more likely than not that the benefit for certain foreign tax credit carryforwards and state net operating loss carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance on the deferred tax assets relating to these carryforwards and it is reasonably possible that the valuation allowance may change in the next 12 months.
The following table summarizes net deferred tax assets including related valuation allowances at December 31, 2023.
($ in millions)Deferred tax assetValuation allowanceNet deferred tax assetYears of expiration
Tax credit carryforwards
General business credits$236 $— $236 2042–2043
Foreign tax credits136 (41)95 2024–2033
CAMT credits128 — 128 Indefinite
Total tax credit carryforwards500 (41)459 
Tax loss carryforwards
Net operating losses — state171 (a)(135)36 2024–Indefinite
Net operating losses — federal8 — 8 2028–Indefinite
Total U.S. federal and state tax loss carryforwards179 (135)44 
Other net deferred tax assets710 — 710 n/a
Net deferred tax assets (liabilities)$1,389 $(176)$1,213 
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.
On August 16, 2022, President Biden signed the Inflation Reduction Act into law. The Inflation Reduction Act includes a new Federal CAMT, first effective in 2023, which is based on 15% of an applicable corporation’s adjusted financial statement income. A corporation is subject to the CAMT if its average pre-tax adjusted financial statement income over the three prior years is greater than $1 billion. A corporation’s CAMT liability is payable to the extent the CAMT liability exceeds the regular corporate income tax liability. Any CAMT paid would be indefinitely available as a credit carryforward that could reduce future regular corporate income tax in excess of CAMT. As an applicable corporation, we recorded a CAMT liability of $128 million and a corresponding deferred tax asset for the CAMT credit carryforward as of December 31, 2023, which resulted in no impact to total income tax expense.
As of December 31, 2023, we have recognized insignificant deferred tax liabilities for incremental U.S. federal taxes that stem from temporary differences related to investment in foreign subsidiaries or corporate joint ventures as there is no assertion of indefinite reinvestment outside of the United States.
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits.
($ in millions)202320222021
Balance at January 1,$46 $53 $53 
Additions based on tax positions related to the current year— — — 
Additions for tax positions of prior years48 2 7 
Reductions for tax positions of prior years(2)(2)(7)
Settlements(1)(7)— 
Expiration of statute of limitations— — — 
Balance at December 31,$91 $46 $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 $75 million for the year ended December 31, 2023, $36 million for the year ended December 31, 2022, and $42 million for the year ended December 31, 2021.
We recognize accrued interest and penalties related to uncertain income tax positions in interest expense and other operating expenses, respectively. As of December 31, 2023, the cumulative accrued balance for interest and penalties was $6 million, and interest and penalties of $3 million were accrued during the year ended December 31, 2023. As of December 31, 2022, the cumulative accrued balance for interest and penalties was $3 million, and penalties of $2 million were accrued during the year ended December 31, 2022. As of December 31, 2021, the cumulative accrued balance for interest and penalties was $1 million, and interest and penalties of less than $1 million were accrued during the year ended December 31, 2021.
It is reasonably possible that the unrecognized tax benefits will decrease by up to $78 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.