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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 15—INCOME TAXES
We recognize the current and deferred tax consequences of all transactions that have been recognized in the financial statements using the provisions of the enacted tax laws. Current income tax expense represents our estimated taxes to be paid or refunded for the current period and includes income tax expense related to our uncertain tax positions, as well as tax-related interest and penalties. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. We record the effect of remeasuring deferred tax assets and liabilities due to a change in tax rates or laws as a component of income tax expense related to continuing operations for the period in which the change is enacted. We subsequently release income tax effects stranded in AOCI using a portfolio approach. Income tax benefits are recognized when, based on their technical merits, they are more likely than not to be sustained upon examination. The amount recognized is the largest amount of benefit that is more likely than not to be realized upon settlement.
The following table presents significant components of the provision for income taxes attributable to continuing operations for the years ended December 31, 2021, 2020 and 2019.
Table 15.1: Significant Components of the Provision for Income Taxes Attributable to Continuing Operations
 Year Ended December 31,
(Dollars in millions)202120202019
Current income tax provision:
Federal taxes$2,173 $1,676 $1,207 
State taxes485 370 301 
International taxes152 67 129 
Total current provision$2,810 $2,113 $1,637 
Deferred income tax provision (benefit):
Federal taxes$490 $(1,357)$(222)
State taxes91 (266)(45)
International taxes24 (4)(29)
Total deferred provision (benefit)605 (1,627)(296)
Total income tax provision$3,415 $486 $1,341 
The international income tax provision is related to pre-tax earnings from foreign operations of approximately $677 million, $293 million and $215 million in 2021, 2020 and 2019, respectively.
Total income tax provision does not reflect the tax effects of items that are included in AOCI, which include a tax benefit of $985 million in 2021 and tax provisions of $702 million and $727 million in 2020 and 2019, respectively. See “Note 10—Stockholders’ Equity” for additional information.
The following table presents the reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate applicable to income from continuing operations for the years ended December 31, 2021, 2020 and 2019.
Table 15.2: Effective Income Tax Rate
 Year Ended December 31,
202120202019
Income tax at U.S. federal statutory tax rate21.0 %21.0 %21.0 %
State taxes, net of federal benefit3.1 3.5 3.1 
Non-deductible expenses0.4 3.2 1.6 
Affordable housing, new markets and other tax credits(2.3)(11.4)(5.2)
Tax-exempt interest and other nontaxable income(0.3)(1.7)(0.8)
Changes in valuation allowance0.4 2.3 (0.3)
Other, net(0.7)(1.7)0.1 
Effective income tax rate21.6 %15.2 %19.5 %
The following table presents significant components of our deferred tax assets and liabilities as of December 31, 2021 and 2020. The valuation allowance below represents the adjustment of our foreign tax credit carryforward, certain state deferred tax assets and net operating loss carryforwards to the amount we have determined is more likely than not to be realized.
Table 15.3: Significant Components of Deferred Tax Assets and Liabilities
(Dollars in millions)December 31, 2021December 31, 2020
Deferred tax assets:
Allowance for credit losses$2,657 $3,649 
Rewards programs825 711 
Net operating loss and tax credit carryforwards367 314 
Lease liabilities345 396 
Compensation and employee benefits337 306 
Partnership investments238 237 
Other assets359 418 
Subtotal5,128 6,031 
Valuation allowance(355)(296)
Total deferred tax assets4,773 5,735 
Deferred tax liabilities:
Original issue discount361 481 
Right-of-use assets284 342 
Partnership investments128 142 
Mortgage servicing rights88 73 
Security and loan valuations(1)
49 805 
Net unrealized gains on derivatives32 387 
Other liabilities123 179 
Total deferred tax liabilities1,065 2,409 
Net deferred tax assets$3,708 $3,326 
_________
(1)Amount includes the tax impact of our December 31, 2019 transfer of our entire portfolio of held to maturity securities to available for sale.
Our gross federal net operating loss carryforwards were $25 million and $36 million as of December 31, 2021 and 2020, respectively. These operating loss carryforwards were attributable to acquisitions and will expire from 2029 to 2037, though $20 million has no expiration. Under IRS rules, our ability to utilize these losses against future income is limited. The net tax values of our state net operating loss carryforwards were $258 million and $250 million as of December 31, 2021 and 2020, respectively, and they will expire from 2022 to 2040. Our foreign tax credit carryforwards were $91 million and $56 million as of December 31, 2021and 2020, respectively, and they will expire from 2028 to 2031.
Our valuation allowance increased by $59 million to $355 million as of December 31, 2021 compared to $296 million as of December 31, 2020. Of the total increase, $35 million is related to the current year increase in our foreign tax credit carryforwards that will not be realized prior to expiration. The remaining increase of $24 million is related to reducing state net operating losses and interest carryforwards to the amount we have determined is more likely than not to be realized.
We recognize accrued interest and penalties related to income taxes as a component of income tax expense. We recognized a $30 million tax benefit in 2021 and $16 million and $4 million of such expense in 2020 and 2019, respectively.
The following table presents the accrued balance of tax, interest and penalties related to unrecognized tax benefits.
Table 15.4: Reconciliation of the Change in Unrecognized Tax Benefits
(Dollars in millions)Gross
Unrecognized
Tax Benefits		Accrued
Interest and
Penalties		Gross Tax,
Interest and
Penalties
Balance as of January 1, 2019$440 $35 $475 
Additions for tax positions related to the current year23 17 40 
Additions for tax positions related to prior years12 4 16 
Reductions for tax positions related to prior years due to IRS and other settlements(44)(25)(69)
Balance as of December 31, 2019431 31 462 
Additions for tax positions related to the current year33 — 33 
Additions for tax positions related to prior years3 21 24 
Reductions for tax positions related to prior years due to IRS and other settlements(16)(6)(22)
Balance as of December 31, 2020451 46 497 
Additions for tax positions related to prior years1 4 5 
Reductions for tax positions related to prior years due to IRS and other settlements(47)(36)(83)
Balance as of December 31, 2021$405 $14 $419 
Portion of balance at December 31, 2021 that, if recognized, would impact the effective income tax rate$143 $10 $153 
We are subject to examination by the IRS and other tax authorities in certain countries and states in which we operate. The tax years subject to examination vary by jurisdiction. During 2021, we continued to participate in the IRS Compliance Assurance Process (“CAP”) for our open federal income tax return years and have been accepted into CAP for 2022. During 2021, the IRS review of our 2017, 2018, 2019, and 2020 federal income tax returns was substantially completed, with no open issues remaining. The examination of these returns is expected to be closed in 2022. We expect that the IRS review of our 2021 federal income tax return will be substantially completed prior to its filing in 2022.
It is reasonably possible that further adjustments to the Company’s unrecognized tax benefits may be made within 12 months of the reporting date as a result of future judicial or regulatory interpretations of existing tax laws. At this time, an estimate of the potential changes to the amount of unrecognized tax benefits cannot be made.
As of December 31, 2021, the Company had approximately $1.8 billion of unremitted earnings of subsidiaries operating outside the U.S. that upon repatriation would have no additional U.S. income taxes. In accordance with the guidance for accounting for income taxes in special areas, nearly all these earnings are considered by management to be invested indefinitely.
As of December 31, 2021, U.S. income taxes of $69 million have not been provided for approximately $287 million of previously acquired thrift bad debt reserves created for tax purposes as of December 31, 1987. These amounts, acquired as a result of previous mergers and acquisitions, are subject to recapture in the unlikely event that CONA, as the successor to the merged and acquired entities, makes distributions in excess of earnings and profits, redeems its stock or liquidates.