
Note 11.	Income Taxes

For interim income tax reporting we estimate our annual effective tax rate and apply it to our year-to-date ordinary income. Tax jurisdictions with a projected or year-to-date loss for which a tax benefit cannot be realized are excluded. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur.

We had gross unrecognized tax benefits of $82 million and $53 million at September 30, 2013 and December 31, 2012. The amounts of net unrecognized tax benefits that, if recognized, would affect the effective tax rate are $55 million and $28 million at September 30, 2013 and December 31, 2012. The increase in the gross unrecognized tax benefits is primarily due to the acquisition of the international operations. See Note 2 - "Acquisition of Ally Financial Inc. International Operations" for further discussion on the acquisition.

At September 30, 2013, we believe that it is reasonably possible that the gross unrecognized tax benefits could decrease by $5 million to $13 million in the next twelve months due to settlements or the expiration of statutes of limitations. We continually evaluate expiring statutes of limitations, audits, proposed settlements, changes in tax laws and new authoritative rulings.

We recognize accrued interest and penalties associated with uncertain tax positions as a component of the income tax provision. As of September 30, 2013, accrued interest and penalties associated with uncertain tax positions were $17 million and $16 million. During the nine months ended September 30, 2013, we released $11 million in interest associated with uncertain tax positions. The interest release is primarily a result of the completion of an IRS audit as discussed below.

We have open tax years ranging from 2005 to 2012 with various U.S. federal, state and non-U.S. tax jurisdictions. Certain of our tax returns are currently under examination in these various tax jurisdictions. Since October 1, 2010, we have been included in GM's consolidated U.S. federal income tax returns. Similarly, we also file unitary, combined or consolidated state and local tax returns with GM in certain jurisdictions. We continue to file separate returns in those state, local and foreign taxing jurisdictions where filing a separate return is required. Prior to October 1, 2010, we filed income tax returns with the U.S. federal government and with various state, local and foreign jurisdictions. Our federal income tax returns for fiscal 2006 through 2010 were audited by the IRS and previously submitted to the Congressional Joint Committee on Taxation ("JCT") for review. Pursuant to a notice dated April 10, 2013, the JCT completed its review and took no exception to the conclusions reached by the IRS. The completion of the JCT review is reflected in the September 30, 2013 financial statements.

For taxable income recognized by us in any period beginning on or after October 1, 2010, we are obligated to pay GM for our share of the consolidated federal and state tax liabilities. Likewise, GM is obligated to reimburse us for the tax effects of net operating losses to the extent such losses could be carried back as if we had filed separate income tax returns. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. Under our tax sharing arrangement with GM, amended effective April 1, 2013, payments for the tax years 2010 through 2014 are deferred for four years from their original due date, with the first payment due December 15, 2014. The total amount of deferral cannot exceed $1.0 billion. Any difference between the amounts paid under our tax sharing arrangement with GM and our separate return basis used for financial reporting purposes is reported in our condensed consolidated financial statements as additional paid-in capital. As of September 30, 2013, a cumulative difference of $1 million between the amounts to be paid under our tax sharing arrangement with GM and our separate return basis used for financial reporting purposes was reported in our condensed consolidated financial statements through additional paid-in capital. As of September 30, 2013, we have recorded related party taxes payable to GM in the amount of $598 million, representing the tax effects of income earned subsequent to the merger with GM.

Our effective income tax rate was 32.8% and 33.9% for the three and nine months ended September 30, 2013. Our effective income tax rate was 38.2% and 37.8% for the three and nine months ended September 30, 2012. The decrease in the effective income tax rate is primarily related to the settlement of the IRS audit as well as the acquisition of the international operations, which resulted in income in jurisdictions with lower tax rates and other permanent differences; these decreases were offset by the tax effects of certain non-deductible transaction costs.