Income Taxes

The following table summarizes income before income taxes and equity income:



	Years Ended December 31,
	2019		2018		2017
U.S. income	$	1,599	$	1,421	$	710
Non-U.S. income	339		289		313
Income before income taxes and equity income	$	1,938	$	1,710	$	1,023



Income Tax Expense	Years Ended December 31,
	2019		2018		2017
Current income tax expense
U.S. state and local	$	16	$	1	$	(4	)
Non-U.S.	81		83		73
Total current	97		84		69
Deferred income tax expense
U.S. federal	330		133		(16		)
U.S. state and local	71		75		31
Non-U.S.	39		31		27
Total deferred	440		239		42
Total income tax provision	$	537	$	323	$	111

Provisions are made for estimated U.S. and non-U.S. income taxes, which may be incurred on the reversal of our basis differences in investments in foreign subsidiaries not deemed to be indefinitely reinvested. At December 31, 2019 and 2018, taxes on $409 million and $138 million have not been provided on basis differences in investments as a result of earnings in foreign subsidiaries which are deemed indefinitely reinvested. Deferred tax liability associated with indefinitely reinvested basis differences was insignificant.

A reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows:



	Years Ended December 31,
	2019		2018		2017
U.S. federal statutory tax rate	21.0	%	21.0	%	35.0	%
Non-U.S. income taxed at other than the U.S. federal statutory rate	2.1		2.8		(0.1	)
State and local income taxes	4.0		4.2		3.5
U.S. tax on non-U.S. earnings	1.1		0.2		7.3
Valuation allowance	0.5		0.4		1.1
Tax credits and incentives	(0.7	)	(6.2	)	(11.2	)
U.S. federal tax reform impact	—		(2.6	)	(23.4	)
Other	(0.3	)	(0.9	)	(1.3	)
Effective tax rate	27.7	%	18.9	%	10.9	%

Deferred Income Tax Assets and Liabilities Deferred income tax assets and liabilities at December 31, 2019 and 2018 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:



	December 31, 2019			December 31, 2018
Deferred tax assets
Net operating loss carryforward - U.S.^(a)	$	371		$	968
Net operating loss carryforward - non-U.S.^(b)	178			167
Market value difference of loan portfolio	310			23
Accruals	115			104
Tax credits^(c)	839			806
Other	185			151
Total deferred tax assets before valuation allowance	1,998			2,219
Less: valuation allowance	(279		)	(270		)
Total deferred tax assets	1,719			1,949
Deferred tax liabilities
Depreciable assets	2,177			2,020
Deferred acquisition costs	123			134
Other	152			103
Total deferred tax liabilities	2,452			2,257
Net deferred tax liability	$	(733	)	$	(308	)

_________________


(a)	Includes tax-effected operating losses of $339 million expiring through 2039 and $32 million that may be carried forward indefinitely at December 31, 2019.


(b)	Includes tax-effected operating losses of $142 million expiring through 2039 and $36 million that may be carried forward indefinitely at December 31, 2019.


(c)	Includes tax credits of $839 million expiring through 2039 at December 31, 2019.

We are included in GM’s consolidated U.S. federal income tax return and certain states’ income tax returns. Net operating losses and certain tax credits generated by us have been utilized by GM; however, income tax expense and deferred tax balances are presented in these financial statements as if we filed our own tax returns in each jurisdiction. As of December 31, 2019, we have $279 million in valuation allowances against deferred tax assets in U.S. jurisdictions. The increase in valuation allowance of $9 million is a result of an increase in foreign tax credits.



Uncertain Tax Positions	Years Ended December 31,
	2019			2018			2017
Beginning balance	$	50		$	54		$	56
Additions to prior years' tax positions	1			—			—
Reductions to prior years' tax positions	—			—			(1		)
Additions to current year tax positions	7			3			4
Reductions in tax positions due to lapse of statutory limitations	(1		)	(5		)	(5		)
Foreign currency translation	—			(2		)	—
Ending balance	$	57		$	50		$	54

At December 31, 2019, 2018 and 2017, there were $41 million, $37 million and $33 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 other liabilities on the consolidated balance sheets.

During 2019, 2018 and 2017, income tax related interest and penalties recorded were insignificant. At December 31, 2019 and 2018 we had liabilities of $78 million and $74 million for income tax-related interest and penalties.

At December 31, 2019, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months.

Periodically, we make deposits to taxing jurisdictions which reduce our unrecognized tax benefit balance, but are not reflected in the reconciliation above. At December 31, 2019 and 2018 the amount of deposits that reduce our unrecognized tax benefit liability in the consolidated balance sheets was $13 million and $14 million.

Other Matters We are included in GM's consolidated U.S. federal income tax returns and certain U.S. state returns, and we are obligated to pay GM for our share of these tax liabilities. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. At December 31, 2019, we had related party taxes payable of $4 million for state tax liabilities. At December 31, 2018, there were no related party taxes payable due to GM.

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 2011 to 2019 with various tax jurisdictions. 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.

On December 22, 2017, the Tax Act was signed into law. The Tax Act changed many aspects of U.S. corporate income taxation, including the reduction of the corporate income tax rate from 35% to 21%, implementation of a territorial tax system and imposition of a tax on deemed repatriated earnings of foreign subsidiaries. During 2018, we filed our 2017 U.S. federal income tax return and updated our 2017 estimated tax benefit from $240 million to $286 million, primarily related to the remeasurement of transition tax as a result of proposed regulations issued in August 2018 and associated impacts to our deferred tax asset carryforwards.