INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Provision

Details of the Company’s income tax provision are presented below:



In millions of dollars	2019			2018			2017
Current
Federal	$	365		$	834		$	332
Non-U.S.	4,352			4,290			3,910
State	323			284			269
Total current income taxes	$	5,040		$	5,408		$	4,511
Deferred
Federal	$	(907	)	$	(620	)	$	24,902
Non-U.S.	10			371			(377		)
State	287			198			352
Total deferred income taxes	$	(610	)	$	(51	)	$	24,877
Provision for income tax on continuing operations before noncontrolling interests⁽¹⁾	$	4,430		$	5,357		$	29,388
Provision (benefit) for income taxes on discontinued operations	(27		)	(18		)	7
Income tax expense (benefit) reported in stockholders’ equity related to:
FX translation	(11		)	(263		)	188
Investment securities	648			(346		)	(149		)
Employee stock plans	(16		)	(2		)	(4		)
Cash flow hedges	269			(8		)	(12		)
Benefit plans	(119		)	(20		)	13
FVO DVA	(337		)	302			(250		)
Excluded fair value hedges	8			(17		)	—
Retained earnings⁽²⁾	46			(305		)	(295		)
Income taxes before noncontrolling interests	$	4,891		$	4,680		$	28,886


(1)	Includes the tax on realized investment gains and other-than-temporary-impairment losses resulting in a provision (benefit) of $373 million and $(9) million in 2019, $104 million and $(32) million in 2018 and $272 million and $(22) million in 2017, respectively.


(2)	2019 reflects the tax effect of the accounting change for ASU 2016-02. 2018 reflects the tax effect of the accounting change for ASU 2016-16 and the tax effect of the accounting change for ASU 2018-03, to report the net unrealized gains on former AFS equity securities. 2017 reflects the tax effect of the accounting change for ASU 2017-08. See Note 1 to the Consolidated Financial Statements.

Tax Rate

The reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate applicable to income from continuing operations (before noncontrolling interests and the cumulative effect of accounting changes) for each of the periods indicated is as follows:



	2019		2018		2017
Federal statutory rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal benefit	1.9		1.8		1.1
Non-U.S. income tax rate differential	1.3		5.3		(1.6	)
Effect of tax law changes⁽¹⁾	(0.5	)	(0.6	)	99.7
Basis difference in affiliates	(0.1	)	(2.4	)	(2.1	)
Tax advantaged investments	(2.3	)	(2.0	)	(2.2	)
Valuation allowance releases⁽²⁾	(3.0	)	—		—
Other, net	0.2		(0.3	)	(0.8	)
Effective income tax rate	18.5	%	22.8	%	129.1	%


(1)	2018 includes one-time Tax Reform benefits of $94 million for amounts that were considered provisional pursuant to SAB 118. 2017 includes the one-time $22,594 million charge for Tax Reform.


(2)	See the Deferred Tax Assets section below for a description of the components.

As set forth in the table above, Citi’s effective tax rate for 2019 was 18.5%. The rate is lower than the 22.8% reported in 2018, primarily due to the general basket FTC valuation allowance release.

Deferred Income Taxes

Deferred income taxes at December 31 related to the following:



In millions of dollars	2019			2018
Deferred tax assets
Credit loss deduction	$	3,809		$	3,419
Deferred compensation and employee benefits	2,224			1,975
Repositioning and settlement reserves	345			428
U.S. tax on non-U.S. earnings	1,030			2,080
Investment and loan basis differences	2,727			4,891
Tax credit and net operating loss carry-forwards	19,711			20,759
Fixed assets and leases	2,607			1,006
Other deferred tax assets	2,996			2,385
Gross deferred tax assets	$	35,449		$	36,943
Valuation allowance	$	6,476		$	9,258
Deferred tax assets after valuation allowance	$	28,973		$	27,685
Deferred tax liabilities
Intangibles and leases	$	(2,640	)	$	(1,284	)
Debt issuances	(201		)	(530		)
Non-U.S. withholding taxes	(974		)	(1,040		)
Interest-related items	(587		)	(594		)
Other deferred tax liabilities	(1,477		)	(1,334		)
Gross deferred tax liabilities	$	(5,879	)	$	(4,782	)
Net deferred tax assets	$	23,094		$	22,903

Unrecognized Tax Benefits

The following is a rollforward of the Company’s unrecognized tax benefits:



In millions of dollars	2019			2018			2017
Total unrecognized tax benefits at January 1	$	607		$	1,013		$	1,092
Net amount of increases for current year’s tax positions	50			40			43
Gross amount of increases for prior years’ tax positions	151			46			324
Gross amount of decreases for prior years’ tax positions	(44		)	(174		)	(246		)
Amounts of decreases relating to settlements	(21		)	(283		)	(199		)
Reductions due to lapse of statutes of limitation	(23		)	(23		)	(11		)
Foreign exchange, acquisitions and dispositions	1			(12		)	10
Total unrecognized tax benefits at December 31	$	721		$	607		$	1,013

The total amounts of unrecognized tax benefits at December 31, 2019, 2018 and 2017 that, if recognized, would affect Citi’s tax expense are $0.6 billion, $0.4 billion and $0.8 billion, respectively. The remaining uncertain tax positions have offsetting amounts in other jurisdictions or are temporary differences.

Interest and penalties (not included in “unrecognized tax benefits” above) are a component of Provision for income taxes.



	2019						2018				2017
In millions of dollars	Pretax			Net of tax			Pretax		Net of tax		Pretax		Net of tax
Total interest and penalties on the Consolidated Balance Sheet at January 1	$	103		$	85		$	121	$	101	$	260	$	164
Total interest and penalties in the Consolidated Statement of Income	(4		)	(4		)	6		6		5		21
Total interest and penalties on the Consolidated Balance Sheet at December 31⁽¹⁾	100			82			103		85		121		101


(1)	Includes $3 million, $2 million and $3 million for non-U.S. penalties in 2019, 2018 and 2017. Also includes $1 million, $1 million and $3 million for state penalties in 2019, 2018 and 2017.

As of December 31, 2019, Citi was under audit by the Internal Revenue Service and other major taxing jurisdictions around the world. It is thus reasonably possible that significant changes in the gross balance of unrecognized tax benefits may occur within the next 12 months, although Citi does not expect such audits to result in amounts that would cause a significant change to its effective tax rate.

The following are the major tax jurisdictions in which the Company and its affiliates operate and the earliest tax year subject to examination:



Jurisdiction	Tax year
United States	2016
Mexico	2014
New York State and City	2009
United Kingdom	2015
India	2016
Singapore	2011
Hong Kong	2013
Ireland	2015

Non-U.S. Earnings

Non-U.S. pretax earnings approximated $16.7 billion in 2019, $16.1 billion in 2018 and $13.7 billion in 2017. As a U.S. corporation, Citigroup and its U.S. subsidiaries are currently subject to U.S. taxation on all non-U.S. pretax earnings of non-U.S. branches. Beginning in 2018, there is a separate foreign tax credit (FTC) basket for branches. Also, dividends from a non-U.S. subsidiary or affiliate are effectively exempt from U.S. taxation. The Company provides income taxes on the book over tax basis differences of non-U.S. subsidiaries except to the extent that such differences are indefinitely reinvested outside the U.S.

At December 31, 2019, $10.9 billion of basis differences of non-U.S. entities was indefinitely invested compared to $15.5 billion at December 31, 2018. At the existing tax rates, additional taxes (net of U.S. FTCs) of $4.1 billion would have to be provided if such assertions were reversed. The decrease of $4.6 billion in basis differences from the prior year end was primarily due to a tax election to treat a contiguous country affiliate as a branch rather than a subsidiary.

Income taxes are not provided for the Company’s “savings bank base year bad debt reserves” that arose before 1988, because under current U.S. tax rules, such taxes will become payable only to the extent that such amounts are distributed in excess of limits prescribed by federal law. At December 31, 2019, the amount of the base year reserves

totaled approximately $358 million (subject to a tax of $75 million).

Deferred Tax Assets

As of December 31, 2019, Citi had a valuation allowance of $6.5 billion, composed of valuation allowances of $4.6 billion on its FTC carry-forwards, $0.8 billion on its U.S. residual DTA related to its non-U.S. branches, $1.0 billion on local non-U.S. DTAs and $0.1 billion on state net operating loss carry-forwards. The valuation allowance against FTCs results from the impact of the lower tax rate and the new separate FTC basket for non-U.S. branches. The absolute amount of Citi’s post-Tax Reform-related valuation allowances may change in future years. First, the separate FTC basket for non-U.S. branches may result in additional DTAs (for FTCs) requiring a valuation allowance, given that the local tax rate for these branches exceeds on average the U.S. tax rate of 21%, offset by expirations of carry-forwards. The valuation allowance for the branch basket FTCs was reduced from $4.4 billion to $3.5 billion, primarily as a result of the expiration of the 2009 FTC carry-forward.

Second, in Citi’s general basket for FTCs, changes in the forecasted amount of income in U.S. locations derived from sources outside the U.S., as well as actions that Citi may be able to take to enhance such income, in addition to tax examination changes from prior years, could alter the amount of valuation allowance that is needed against such FTCs. The valuation allowance for the general basket decreased from $1.6 billion to $1.1 billion. The decrease consists of the following items. Citi committed to a plan to move a financing business involving non-U.S. clients and its associated funding to the U.S. The incremental foreign source income generated by this action over time will more-likely-than-not enable usage of FTC carry-forwards of $0.2 billion. In addition, Citi committed to a plan as part of the Company’s liquidity management program, to increase its ownership of certain types of non-U.S. securities and to hold such securities in its U.S. operations. The incremental foreign source income generated by this action will more-likely-than-not enable the usage of FTC carry-forwards of another $0.2 billion. The remainder of the decrease in the valuation allowance in the general basket was the result of other increases in foreign source income of $0.3 billion (of which $0.2 billion is considered discrete and $0.1 billion is related to changes in 2019 foreign source income), partially offset by an increase of $0.2 billion relating to prior years’ tax return adjustments that increased FTCs and the corresponding valuation allowance. The valuation allowance for U.S. residual DTA related to its non-U.S. branches decreased from $1.7 billion to $0.8 billion primarily due to a tax election to convert a contiguous country subsidiary into a branch, which resulted in $0.9 billion of U.S. DTLs offsetting non-U.S local DTAs. In addition, the non-U.S. local valuation allowance was reduced from $1.5 billion to $1.0 billion, primarily due to an expiration of NOL carry-forwards in a non-U.S. jurisdiction. The following table summarizes Citi’s DTAs:



In billions of dollars
Jurisdiction/component⁽¹⁾	DTAs balance December 31, 2019		DTAs balance December 31, 2018
U.S. federal⁽²⁾
Net operating losses (NOLs)⁽³⁾	$	2.8	$	2.6
Foreign tax credits (FTCs)	6.3		6.8
General business credits (GBCs)	2.5		1.0
Future tax deductions and credits	6.2		6.7
Total U.S. federal	$	17.8	$	17.1
State and local
New York NOLs	$	1.7	$	2.0
Other state NOLs	0.2		0.2
Future tax deductions	1.3		1.4
Total state and local	$	3.2	$	3.6
Non-U.S.
NOLs	$	0.5	$	0.6
Future tax deductions	1.6		1.6
Total non-U.S.	$	2.1	$	2.2
Total	$	23.1	$	22.9


(1)	All amounts are net of valuation allowances.


(2)	Included in the net U.S. federal DTAs of $17.8 billion as of December 31, 2019 were deferred tax liabilities of $3.4 billion that will reverse in the relevant carry-forward period and may be used to support the DTAs.


(3)	Consists of non-consolidated tax return NOL carry-forwards that are eventually expected to be utilized in Citigroup’s consolidated tax return.

The following table summarizes the amounts of tax carry-forwards and their expiration dates:



In billions of dollars
Year of expiration	December 31, 2019		December 31, 2018
U.S. tax return general basket foreign tax credit carry-forwards⁽¹⁾
2020	$	0.9	$	2.0
2021	1.1		1.1
2022	2.4		2.4
2023	0.4		0.4
2025	1.4		1.4
2027	1.2		1.1
Total U.S. tax return general basket foreign tax credit carry-forwards	$	7.4	$	8.4
U.S. tax return branch basket foreign tax credit carry-forwards⁽¹⁾
2019	$	—	$	0.9
2020	0.7		0.6
2021	0.6		0.7
2022	1.0		0.9
2028	0.9		1.3
2029	0.3		—
Total U.S. tax return branch basket foreign tax credit carry-forwards	$	3.5	$	4.4
U.S. tax return general business credit carry-forwards
2033	$	0.3	$	—
2034	0.2		—
2035	0.2		—
2036	0.1		0.1
2037	0.5		0.4
2038	0.5		0.5
2039	0.7		—
Total U.S. tax return general business credit carry-forwards	$	2.5	$	1.0
U.S. subsidiary separate federal NOL carry-forwards
2027	$	0.1	$	0.2
2028	0.1		0.1
2030	0.3		0.3
2032	—		0.1
2033	1.6		1.6
2034	2.0		2.1
2035	3.3		3.3
2036	2.1		2.1
2037	1.0		1.0
Unlimited carry-forward period	3.0		1.7
Total U.S. subsidiary separate federal NOL carry-forwards⁽²⁾	$	13.5	$	12.5
New York State NOL carry-forwards⁽²⁾
2034	$	9.9	$	11.7
New York City NOL carry-forwards⁽²⁾
2034	$	10.0	$	11.5
Non-U.S. NOL carry-forwards⁽¹⁾
Various	$	1.5	$	2.0


(1)	Before valuation allowance.


(2)	Pretax.

The time remaining for utilization of the FTC component has shortened, given the passage of time. Although realization is not assured, Citi believes that the realization of the recognized net DTAs of $23.1 billion at December 31, 2019 is more-likely-than-not, based upon expectations as to future taxable income in the jurisdictions in which the DTAs arise and consideration of available tax planning strategies (as defined in ASC 740, Income Taxes).

Citi believes the U.S. federal and New York State and City NOL carry-forward period of 20 years provides enough time to fully utilize the DTAs pertaining to the existing NOL carry-forwards. This is due to Citi’s forecast of sufficient U.S. taxable income and the fact that New York State and City continue to tax Citi’s non-U.S. income.

With respect to the FTCs component of the DTAs, the carry-forward period is 10 years. Utilization of FTCs in any year is generally limited to 21% of foreign source taxable income in that year. However, overall domestic losses that Citi has incurred of approximately $39 billion as of December 31, 2019 are allowed to be reclassified as foreign source income to the extent of 50%–100% (at taxpayer’s election) of domestic source income produced in subsequent years. Such resulting foreign source income would substantially cover the FTC carry-forwards after valuation allowance. As noted in the tables above, Citi’s FTC carry-forwards were $6.3 billion ($10.9 billion before valuation allowance) as of December 31, 2019, compared to $6.8 billion as of December 31, 2018. Citi believes that it will generate sufficient U.S. taxable income within the 10-year carry-forward period to be able to utilize the net FTCs after the valuation allowance, after considering any FTCs produced in the tax return for such period, which must be used prior to any carry-forward utilization.