INCOME TAXES

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

For a discussion of our income tax accounting policies and other income tax-related information see Note 2.

Income taxes

The following table details the total income tax provision/(benefit) allocation for each respective period.

	Year ended September 30,
$ in millions	2021		2020		2019
Recorded in:
Net income	$	388	$	234	$	341
Equity, arising from available-for-sale securities recorded through OCI	(32)		23		27
Equity, arising from currency translations, net of the impact of net investment hedges recorded through OCI	(10)		2		7
Equity, arising from cash flow hedges recorded through OCI	8		(12)		(23)
Total provision for income taxes	$	354	$	247	$	352

The following table details our provision/(benefit) for income taxes included in net income for each respective period.

	Year ended September 30,
$ in millions	2021		2020		2019
Current:
Federal	$	321	$	215	$	286
State and local	79		49		63
Foreign	25		9		15
Total current	425		273		364
Deferred:
Federal	(28)		(36)		(22)
State and local	(6)		(3)		(1)
Foreign	(3)		—		—
Total deferred	(37)		(39)		(23)
Total provision for income taxes	$	388	$	234	$	341

A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is detailed in the following table.

	Year ended September 30,
	2021		2020		2019
Provision calculated at statutory rate	21.0	%	21.0	%	21.0	%
State income tax, net of federal benefit	3.3	%	3.6	%	3.6	%
Gains on company-owned life insurance policies which are not subject to tax	(1.8)	%	(1.0)	%	(0.1)	%
Federal tax credits	(0.7)	%	(1.1)	%	(0.9)	%
Excess tax benefits related to share-based compensation	(0.2)	%	(0.6)	%	(0.4)	%
Other, net	0.1	%	0.3	%	1.6	%
Total provision for income tax	21.7	%	22.2	%	24.8	%

The following table presents our U.S. and foreign components of pre-tax income for each respective period.

	Year ended September 30,
$ in millions	2021		2020		2019
U.S.	$	1,701	$	1,019	$	1,340
Foreign	90		33		35
Pre-tax income	$	1,791	$	1,052	$	1,375

The cumulative effects of temporary differences that give rise to significant portions of the deferred tax asset/(liability) items are detailed in the following table.

	September 30,
$ in millions	2021		2020
Deferred tax assets:
Deferred compensation	$	287	$	229
Allowances for credit losses	81		89
Unrealized loss associated with foreign currency translations	3		8
Unrealized loss associated with available-for-sale securities	2		—
Unrealized loss associated with cash flow hedges	9		18
Accrued expenses	46		34
Partnership investments	9		13
Lease liabilities	115		80
Other	18		16
Total deferred tax assets	570		487
Deferred tax liabilities:
Goodwill and identifiable intangible assets	(64)		(34)
Property and equipment	(85)		(81)
Lease ROU assets	(114)		(80)
Unrealized gain associated with available-for-sale securities	—		(30)
Other	(2)		—
Total deferred tax liabilities	(265)		(225)
Net deferred tax assets	$	305	$	262

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. Deferred income tax assets are subject to a valuation allowance if, in management’s opinion, it is more likely than not that these benefits will not be realized. Our deferred income taxes principally relate to deferred compensation, allowances for credit losses and other accrued expenses.

Substantially all of our deferred tax assets relate to U.S. federal and state taxing jurisdictions. As of September 30, 2021, the deferred tax assets aggregated to $570 million. We continue to believe that the realization of our deferred tax assets is more likely than not based on expectations of future taxable income.

As of September 30, 2021, we considered substantially all undistributed earnings of non-U.S. subsidiaries to be permanently reinvested. Due to the fact that the Tax Cut and Jobs Act (“TCJA”) enacted on December 22, 2017 reduces our incremental tax cost of repatriating offshore earnings, we have not provided for any U.S. deferred income taxes related to such subsidiaries. The TCJA instituted a territorial system of international taxation. Under the system, dividends received by a U.S. corporation from its 10%-or-greater-owned foreign subsidiaries are generally exempt from U.S. tax if attributable to non-U.S. source earnings, but are subject to tax on “Global intangible low-taxed income” which is applicable regardless of whether the income is repatriated. As of September 30, 2021, we had approximately $331 million of cumulative undistributed earnings attributable to foreign subsidiaries. Because the time and manner of repatriation is uncertain, we cannot determine the impact of local taxes, withholding taxes and foreign tax credits associated with the future repatriation of such earnings, and therefore, cannot quantify the tax liability that would be payable in the event all such foreign earnings are repatriated.

As of September 30, 2021, the current tax receivable, which is included in “Other receivables” on our Consolidated Statements of Financial Condition, was $12 million, and the current tax payable, which is included in “Other payables,” was $51 million. As of September 30, 2020, the current tax receivable was $17 million and the current tax payable was $82 million.

Uncertain tax positions

We recognize the accrual of interest and penalties related to income tax matters in interest expense and other expense, respectively. As of September 30, 2021 and 2020, accrued interest and penalties were $7 million and $8 million, respectively.

The following table presents the aggregate changes in the balances for uncertain tax positions.

	Year ended September 30,
$ in millions	2021		2020		2019
Uncertain tax positions beginning of year	$	45	$	42	$	31
Increases for tax positions related to the current year	5		5		11
Increases for tax positions related to prior years	2		3		7
Decreases for tax positions related to prior years	(7)		(1)		—
Decreases due to lapsed statute of limitations	(5)		(4)		(2)
Decreases related to settlements	(4)		—		(5)
Uncertain tax positions end of year	$	36	$	45	$	42

The total amount of uncertain tax positions that, if recognized, would impact the effective tax rate (the items included in the preceding table after considering the federal tax benefit associated with any state tax provisions) was $31 million, $40 million, and $38 million at September 30, 2021, 2020 and 2019, respectively.  We anticipate that the uncertain tax position liability balance will decrease by approximately $10 million over the next 12 months due to expiration of statutes of limitations of federal and state tax returns and settlements of positions with the Internal Revenue Service.

We file U.S. federal income tax returns as well as returns with various state, local and foreign jurisdictions. With few exceptions, we are generally no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authorities for years prior to fiscal year 2018 for federal tax returns, fiscal year 2017 for state and local tax returns and fiscal year 2017 for foreign tax returns. Various foreign and state audits in process are expected to be completed in fiscal year 2022.