Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [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 TRS, 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 a TRS consolidated reporting basis.

American Express is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which American Express has significant business operations. The tax years under examination and open for examination vary by jurisdiction. In June 2008, the IRS completed its field examination of American Express' federal tax returns for the years 1997 through 2002. In July 2009, the IRS completed its field examination of American Express' federal tax returns for the years 2003 and 2004. In April 2011, unagreed issues for 1997-2004 were resolved at IRS Appeals. Additional refund claims for those years continue to be reviewed by the IRS. In addition, American Express is currently under examination by the IRS for the years 2005 through 2007.

Credco believes it is reasonably possible that the unrecognized tax benefits could decrease within the next 12 monthsby as much as $590 million principally as a result of potential resolutions of prior years' tax items with various taxing authorities. Of the $590 million of unrecognized tax benefits, approximately $580 million relate to amounts recorded to equity that, if recognized, would not impact the effective rate. With respect to the remaining $10 million, it is not possible to quantify the impact such changes may have on the effective tax rate and net income due to the inherent complexities and the number of tax years currently under examination. Resolution of the prior years' items that comprise this remaining amount could have an impact on the effective tax rate and on net income, either favorably (principally as a result of settlements that are less than the liability for unrecognized tax benefits) or unfavorably (if such settlements exceed the liability for unrecognized tax benefits).

The following table summarizes Credco's effective tax rate:

	Three Months Ended		Nine Months Ended		Year ended
	September 30, 2011		September 30, 2011		December 31, 2010
Effective tax rate(a) (b)	(17.8)	%	(7.7)	%	(7.4)	%

• Each of the periods reflects recurring, permanent tax benefits in relation to the level of pretax income and geographic mix of business.
• The income tax provision for the three and nine months ended September 30, 2011, includes the impact of certain discrete state tax items and the impact of the favorable resolution of certain prior years' tax items. In addition, the income tax provision for the three months ended September 30, 2011, includes the impact of a federal discrete item.