Income Taxes

The following table summarizes income before income taxes (in millions):



	Years Ended December 31,
	2014		2013		2012
U.S. income	$	481	$	637	$	732
Non-U.S. income	334		246		12
Income before income taxes	$	815	$	883	$	744

Income Tax Expense

The following table summarizes income tax expense (in millions):



	Years Ended December 31,
	2014			2013			2012
Current income tax expense:
U.S. federal	$	284		$	67		$	254
U.S. state and local	14			5			23
Non-U.S.	63			66			1
Total current	361			138			278
Deferred income tax expense:
U.S. federal	(87		)	176			(4		)
U.S. state and local	(5		)	7			5
Non-U.S.	9			(4		)	2
Total deferred	(83		)	179			3
Total income tax provision	$	278		$	317		$	281

Provisions are made for estimated U.S. and non-U.S. income taxes, less available tax credits and deductions, which may be incurred on the remittance of our basis differences in investments in foreign subsidiaries not deemed to be indefinitely reinvested. Taxes have not been provided on basis differences in investments as a result of earnings in foreign subsidiaries which are deemed indefinitely reinvested of $26 million and $115 million at December 31, 2014 and 2013. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable.

Our effective income tax rate on income before income taxes differs from the U.S. statutory rate as follows:



	Years Ended December 31,
	2014		2013		2012
U.S. statutory tax rate	35.0	%	35.0	%	35.0	%
Non-U.S. income taxed at other than 35%	(2.2	)	(1.7	)	—
State and local income taxes	1.2		1.1		1.2
U.S. tax on non-U.S. earnings	7.2		(1.7	)	—
Adjustment to reserve for uncertain tax positions, net	(0.3	)	0.2		1.2
Valuation allowance	(4.9	)	3.4		—
Other	(2.0	)	(0.4	)	0.4
Effective tax rate	34.0	%	35.9	%	37.8	%

Deferred Income Tax Assets and Liabilities

Deferred income tax assets and liabilities at December 31, 2014 and 2013 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the basis of such assets, liabilities and equity as measured by tax laws, as well as tax loss and tax credit carryforwards.

The following table summarizes the components of temporary differences and carryforwards that give rise to deferred tax assets and liabilities (in millions):



	December 31, 2014			December 31, 2013
Deferred tax assets:
Net operating loss carryforward^(a)	$	205		$	254
Market value difference of loan portfolio	349			117
Purchase accounting adjustments	37			56
Accruals	157			131
Income tax benefits from uncertain tax positions	31			31
Other	81			101
Total deferred tax assets before valuation allowance	860			690
Less: valuation allowance	(57		)	(104		)
Total deferred tax assets	803			586
Deferred tax liabilities:
Capitalized direct loan origination costs	22			18
Fee income	21			32
Depreciable assets	300			153
Intangible assets	35			40
Accrued commissions	41			28
Deferred acquisition costs/revenue	50			30
Other	13			13
Total deferred tax liabilities	482			314
Net deferred tax asset	$	321		$	272

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(a)	Includes tax-effected operating losses of $58 million expiring through 2035 and $147 million that may be carried forward indefinitely at December 31, 2014.

As of December 31, 2014, we have $57 million in valuation allowances against deferred tax assets in non-U.S. jurisdictions. The movement in the valuation allowance during 2014 primarily related to the release of the full valuation allowance related to U.S. foreign tax credits. A transaction occurred in 2014 that generated significant foreign source income and the full balance of the credits were utilized.

Uncertain Tax Positions

The following table summarizes activity of unrecognized tax benefits (in millions):



	Years Ended December 31,
	2014			2013			2012
Beginning balance	$	130		$	53		$	48
International operations acquired amounts	—			71			—
Additions to prior years' tax positions	1			—			1
Reductions to prior years' tax positions	(12		)	(1		)	(2		)
Additions to current year tax positions	7			12			9
Reductions in tax positions due to lapse of statutory limitations	(6		)	(3		)	—
Settlements	(20		)	(1		)	(3		)
Foreign currency translation	(5		)	(1		)	—
Ending balance	$	95		$	130		$	53

At December 31, 2014, 2013 and 2012, there were $71 million, $104 million and $28 million of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate.

We recognize accrued interest and penalties associated with uncertain tax positions as a component of the income tax provision. Accrued interest and penalties are included within the related tax liability line on the consolidated balance sheets.

In 2014, 2013 and 2012, we recorded income tax related interest expense (benefit) and penalties of $(12) million, $(7) million and $5 million. The interest and penalty benefit in 2014 is due primarily to remeasurements, settlements and statute of limitations expirations. At December 31, 2014 and 2013, we had liabilities of $125 million and $149 million for income tax related interest and penalties.

At December 31, 2014, we believe that it is reasonably possible that the balance of the gross unrecognized tax benefits could decrease between $20 million to $31 million in the next twelve months due to settlements or the expiration of statutes of limitations.

Periodically we make deposits to taxing jurisdictions which reduce our unrecognized tax benefit balance, but are not reflected in the reconciliation above. The amount of deposits that reduce our unrecognized tax benefit liability in the consolidated balance sheets was $22 million at December 31, 2014 and $44 million at December 31, 2013.

Other Matters

Since October 1, 2010, we have been included in GM's consolidated U.S. federal income tax returns. For taxable income we recognize in any period beginning on or after October 1, 2010, we are obligated to pay GM for our share of the consolidated U.S. federal and certain state tax liabilities. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. Under our tax sharing arrangement with GM, payments related to our U.S. operations for the tax years 2010 through 2014 were deferred for 4 years from their original due date. During 2014, accrued tax payments of $30 million associated with the 2010 tax year, which were due to GM in 2014, and $266 million associated with the 2011 tax year, which would have been due to GM in 2015, were converted to and treated as capital contributions. As of December 31, 2014 and 2013, we have recorded related party taxes payable to GM in the amount of $636 million and $643 million.

Income tax returns are filed in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. We have open tax years from 2007 to 2014 with various tax jurisdictions. Our U.S. federal tax return is considered open for tax years 2013 and 2014. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and/or recognition of expenses, or the sustainability of income tax credits. Certain of our state and foreign tax returns are currently under examination in various jurisdictions.