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Income Taxes
3 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The results of operations of Credco are included in the consolidated U.S. federal income tax return of American Express. Under an agreement with American Express, provision for income taxes is recognized on a separate company basis. If benefits for net operating losses, future tax deductions and foreign tax credits cannot be recognized on a separate company basis, such benefits are then recognized based upon a share, derived by formula, of those deductions and credits that are recognizable on an American Express consolidated reporting basis.
The effective tax rate was 13.0 percent and 47.6 percent for the three months ended March 31, 2021 and 2020, respectively. The decrease primarily reflected the prior period impact of an $18 million discrete tax charge related to the attribution and taxation of income to jurisdictions outside the U.S. The tax rate in each of the periods also reflected the favorable impact of Credco's ongoing funding activities outside the United States.
Credco’s provision for income taxes for interim financial periods is not based on an estimated annual effective rate due to volatility in certain components of revenues and expenses that prevents Credco from projecting a reliable estimate of full year pretax income. A discrete calculation of the provision for income taxes is recorded for each interim period.
Credco is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which it has significant business operations. The tax years under examination and open for examination vary by jurisdiction. Credco is currently under examination by the IRS for the 2017 and 2018 tax years.
Credco believes it is reasonably possible that its unrecognized tax benefits could decrease by an immaterial amount within the next 12 months, 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. The resolution of such items would not have a material impact on Credco’s effective tax rate.