Income Taxes

The current income tax provision reflects the tax consequences of revenues and expenses currently taxable or deductible on various income tax returns for the year reported. The deferred income tax provision or benefit generally reflects the net change in deferred income tax assets and liabilities during the year, excluding any deferred income tax assets and liabilities of acquired businesses. The components of the provision for income taxes for the years ended December 31 are as follows:



(in millions)	2014			2013		2012
Current Provision:
Federal	$	3,883		$	3,004	$	2,638
State and local	271			237		150
Total current provision	4,154			3,241		2,788
Deferred provision	(117		)	1		308
Total provision for income taxes	$	4,037		$	3,242	$	3,096

The reconciliation of the tax provision at the U.S. federal statutory rate to the provision for income taxes and the effective tax rate for the years ended December 31 is as follows:



(in millions, except percentages)	2014					2013					2012
Tax provision at the U.S. federal statutory rate	$	3,380		35.0	%	$	3,120		35.0	%	$	3,018		35.0	%
Industry tax	469			4.8		—			—		—			—
State income taxes, net of federal benefit	154			1.6		126			1.4		143			1.7
Tax-exempt investment income	(49		)	(0.5	)	(53		)	(0.6	)	(59		)	(0.7	)
Non-deductible compensation	96			1.0		39			0.5		22			0.2
Other, net	(13		)	(0.1	)	10			0.1		(28		)	(0.3	)
Provision for income taxes	$	4,037		41.8	%	$	3,242		36.4	%	$	3,096		35.9	%

The higher tax rate for 2014 is mostly due to the nondeductibility of the Industry Tax. The higher effective income tax rate for 2013 as compared to 2012 primarily resulted from the favorable resolution of various one-time tax matters in 2012.

Deferred income tax assets and liabilities are recognized for the differences between the financial and income tax reporting bases of assets and liabilities based on enacted tax rates and laws. The components of deferred income tax assets and liabilities as of December 31 are as follows:



(in millions)	2014			2013
Deferred income tax assets:
Accrued expenses and allowances	$	313		$	284
U.S. federal and state net operating loss carryforwards	172			257
Share-based compensation	141			200
Long-term liabilities	222			170
Medical costs payable and other policy liabilities	120			155
Non-U.S. tax loss carryforwards	257			110
Unearned revenues	90			65
Unrecognized tax benefits	38			38
Other-domestic	36			57
Other-non-U.S.	141			89
Subtotal	1,530			1,425
Less: valuation allowances	(119		)	(207		)
Total deferred income tax assets	1,411			1,218
Deferred income tax liabilities:
U.S. federal and state intangible assets	(1,275		)	(1,207		)
Non-U.S. goodwill and intangible assets	(496		)	(453		)
Capitalized software	(506		)	(481		)
Net unrealized gains on investments	(129		)	(31		)
Depreciation and amortization	(272		)	(268		)
Prepaid expenses	(140		)	(137		)
Other-non-U.S.	(102		)	(7		)
Total deferred income tax liabilities	(2,920		)	(2,584		)
Net deferred income tax liabilities	$	(1,509	)	$	(1,366	)

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. The valuation allowances primarily relate to future tax benefits on certain federal, state and non-U.S. net operating loss carryforwards. Federal net operating loss carryforwards of $129 million expire beginning in 2021 through 2034; state net operating loss carryforwards expire beginning in 2015 through 2034. Substantially all of the non-U.S. tax loss carryforwards have indefinite carryforward periods.

As of December 31, 2014, the Company had $391 million of undistributed earnings from non-U.S. subsidiaries that are intended to be reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. It is not practicable to estimate the amount of U.S. tax that might be payable on the eventual remittance of such earnings.

A reconciliation of the beginning and ending amount of unrecognized tax benefits as of December 31 is as follows:



(in millions)	2014			2013			2012
Gross unrecognized tax benefits, beginning of period	$	89		$	81		$	129
Gross increases:
Current year tax positions	—			8			6
Prior year tax positions	4			5			18
Gross decreases:
Prior year tax positions	—			—			(48		)
Settlements	—			—			(10		)
Statute of limitations lapses	(1		)	(5		)	(14		)
Gross unrecognized tax benefits, end of period	$	92		$	89		$	81

The Company classifies interest and penalties associated with uncertain income tax positions as income taxes within its Consolidated Financial Statements. During 2014 and 2013, the Company recognized $6 million and $4 million of interest expense, respectively. The Company recognized tax benefits from the net reduction of interest and penalties accrued of $20 million during the year ended December 31, 2012. The Company had $33 million and $27 million of accrued interest and penalties for uncertain tax positions as of December 31, 2014 and 2013, respectively. These amounts are not included in the reconciliation above. As of December 31, 2014, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate, was $92 million.

The Company currently files income tax returns in the United States, various states and non-U.S. jurisdictions. The U.S. Internal Revenue Service (IRS) has completed exams on the consolidated income tax returns for fiscal years 2013 and prior. The Company’s 2014 tax year is under advance review by the IRS under its Compliance Assurance Program. With the exception of a few states, the Company is no longer subject to income tax examinations prior to the 2007 tax year. The Brazilian federal revenue service - Secretaria da Receita Federal (SRF) may audit the Company’s Brazilian subsidiaries for a period of five years from the date on which corporate income taxes should have been paid and/or the date when the tax return was filed. Estimated taxes are paid monthly in Brazil with an annual return due on June 30 following the end of the taxable year.

The Company believes it is reasonably possible that its liability for unrecognized tax benefits will decrease in the next twelve months by $39 million as a result of audit settlements and the expiration of statutes of limitations in certain major jurisdictions.