Income Taxes

6 Months Ended

Jun. 30, 2025

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The effective tax rate was 18.7 percent and 20.4 percent for the three months ended June 30, 2025 and 2024, respectively and 20.5 percent and 21.4 percent for the six months ended June 30, 2025 and 2024, respectively. The lower effective tax rates for the three and six month periods primarily reflected discrete tax benefits in the current periods relating to the resolution of certain prior-year tax items.

We are under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which we have significant business operations. The tax years under examination and open for examination vary by jurisdiction. We are currently under examination by the IRS for the 2017 and 2018 tax years.

In 2024, we received a Notice of Proposed Adjustment (Notice) from the IRS regarding transfer pricing between our U.S. and foreign subsidiaries for the 2017 and 2018 tax years currently under examination. The Notice proposes an increase to our U.S. taxable income that would result in an additional estimated U.S. federal income tax payment of approximately $185 million for 2017 and 2018, excluding interest and state income taxes, and asserts penalties of approximately $50 million for the same period. Although the Notice only applies to the 2017 and 2018 tax years currently under examination, the IRS may seek similar adjustments for subsequent tax years.

We strongly disagree with the IRS’s positions and plan to pursue all available remedies to vigorously contest the adjustments made by the IRS. We believe our income tax reserves are appropriate for all open tax years and that final resolution of this matter will not have a material impact on our results of operations. However, the ultimate outcome of this matter is uncertain, and if we are required to pay the IRS additional U.S. taxes, interest and/or potential penalties, our results of operations could be materially affected for the period in which the matter is resolved.

We believe it is reasonably possible that our unrecognized tax benefits could decrease within the next twelve months by as much as $126 million, principally as a result of potential resolutions of prior years’ tax items with various taxing authorities. The prior years’ tax items include unrecognized tax benefits relating to the deductibility of certain expenses or losses and the attribution of taxable income to a particular jurisdiction or jurisdictions. Of the $126 million of unrecognized tax benefits, approximately $99 million relates to amounts that, if recognized, would impact the effective tax rate in a future period.

Tax Credit Investments

As of June 30, 2025 and 2024, we had $1,697 million and $1,577 million in tax credit investments, respectively, included in Other assets on the Consolidated Balance Sheets, comprised of Low Income Housing Tax Credit investments and other qualifying investments. We account for such tax credit investments using the Proportional Amortization Method.

The following table presents tax credit investment expenses and associated income tax credits and other income tax benefits for the three and six months ended June 30:

Table 13.1: Tax Credit Investments Expenses and Credits

	Three Months Ended June 30,				Six Months Ended June 30,
(Millions)	2025		2024		2025		2024
Proportional amortization recognized in tax provision	$	58	$	48	$	115	$	95
Income tax credits and Other income tax benefits (a) recognized in tax provision	73		56		139		113

(a) Other income tax benefits are a result of tax deductible expenses generated by our tax credit investments

Income tax credits and other income tax benefits associated with our tax credit investments are also recognized in the Consolidated Statements of Cash Flows in the Operating activities section primarily under Accounts payable and other liabilities. Refer to Note 6 to our “Consolidated Financial Statements” in the 2024 Form 10-K for additional information on our tax credit investments for the year ended December 31, 2024.