Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We use an asset-and-liability approach to account for income taxes. Our objective is to recognize the amount of taxes payable or refundable for the current year through charges or credits to the current tax provision, and to recognize deferred tax assets and liabilities for future tax consequences of temporary differences between amounts reported in our consolidated financial statements and their respective tax bases. The measurement of tax assets and liabilities is based on enacted tax laws and applicable tax rates. The effects of a tax position on our consolidated financial statements are recognized when we believe it is more likely than not that the position will be sustained. A valuation allowance is established if it is considered more likely than not that all or a portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction.

The following table presents the components of income tax expense (benefit) for the periods indicated:

	Years Ended December 31,
(In millions)	2023		2022		2021
Current:
Federal	$	160	$	161	$	172
State	79		112		142
Non-U.S.	317		342		326
Total current expense	556		615		640
Deferred:
Federal	(77)		(16)		(98)
State	(63)		(2)		(61)
Non-U.S.	(44)		(44)		(3)
Total deferred expense (benefit)	(184)		(62)		(162)
Total income tax expense (benefit)	$	372	$	553	$	478

The following table presents a reconciliation of the U.S. statutory income tax rate to our effective tax rate based on income before income tax expense for the periods indicated:

	Years Ended December 31,
	2023		2022		2021
U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
Changes from statutory rate:
State taxes, net of federal benefit	2.4		3.1		2.2
Tax-exempt income	(1.5)		(1.0)		(1.1)
Business tax credits(1)	(3.6)		(4.0)		(4.1)
Foreign tax differential	(0.6)		—		0.1
Foreign tax credit (benefits)/ limitations(2)	(2.0)		(0.1)		(1.9)
Change in Valuation Allowance	(0.2)		(2.0)		—
Other, net	0.6		(0.4)		(1.1)
Effective tax rate	16.1	%	16.6	%	15.1	%

(1) Business tax credits include research, low-income housing, production and investment tax credits.

(2) Foreign tax credit (benefits)/limitations includes the period expense for global intangible low-taxed income (GILTI).

Undistributed indefinitely reinvested earnings of certain foreign subsidiaries amounted to approximately $7.2 billion at December 31, 2023. As a result, no provision has been recorded for state and local or foreign withholding income taxes. If a distribution were to occur, we would be subject to state, local and to foreign withholding tax. It is expected that any distribution will be exempt from federal income tax. Although the foreign withholding tax is generally creditable against U.S. federal income tax, certain credit utilization limitations may result in a net cost.

The following table presents significant components of our gross deferred tax assets and gross deferred tax liabilities as of the dates indicated:

	December 31,
(In millions)	2023		2022
Deferred tax assets:
Other amortizable assets	$	265	$	267
Tax credit carryforwards	673		530
Lease obligations	236		198
Deferred compensation	104		127
Restructuring charges and other reserves	224		118
NOL and other carryforwards	167		152
Pension plan	24		18
Foreign currency translation	51		74
Unrealized losses on investment securities, net	352		750
Total deferred tax assets	2,096		2,234
Valuation allowance for deferred tax assets	(200)		(160)
Deferred tax assets, net of valuation allowance	$	1,896	$	2,074
Deferred tax liabilities:
Fixed and intangible assets	$	574	$	597
Investment basis differences	40		188
Right-of-use Assets	214		163
Other	68		21
Total deferred tax liabilities	$	896	$	969

The table below summarizes the deferred tax assets, carryforwards and related valuation allowances recognized as of December 31, 2023:

(In millions)	Deferred Tax Asset		Valuation Allowance		Expiration
Other amortizable assets	$	265	$	(104)	None, 2024
Tax credits	673		—		2041-2043
NOLs - Non-U.S.	144		(76)		2026-2042, None
NOLs - U.S.	20		(17)		2024-2042, None
Other carryforwards	3		(3)		None

Management considers the valuation allowance adequate to reduce the total deferred tax assets to an aggregate amount that will more likely than not be realized. Management has determined that a valuation allowance is not required for the remaining deferred tax assets because it is more likely than not that there will be sufficient taxable income of the appropriate nature within the carryforward periods to realize these assets.

At December 31, 2023, 2022 and 2021, the gross unrecognized tax benefits, excluding interest, were $237 million, $285 million and $252 million, respectively. Of this, the amounts that would reduce the effective tax rate, if recognized, are $197 million, $272 million and $243 million, respectively. The reduction in the effective tax rate includes the federal benefit for unrecognized state tax benefits.

The following table presents activity related to unrecognized tax benefits as of the dates indicated:

	December 31,
(In millions)	2023		2022		2021
Beginning balance	$	285	$	252	$	308
Decrease related to agreements with tax authorities	(32)		(4)		(130)
Increase related to tax positions taken during current year	39		48		50
Increase/(Decrease) related to tax positions taken during prior years	(34)		8		42
Decreases related to a lapse of the applicable statute of limitations	(21)		(19)		(18)
Ending balance	$	237	$	285	$	252

It is reasonably possible that of the $237 million of unrecognized tax benefits as of December 31, 2023, up to $113 million could decrease within the next 12 months due to agreements with tax authorities and the expiration of statutes of limitations. Management believes that we have sufficient accrued liabilities as of December 31, 2023 for tax exposures and related interest expense.

Income tax expense included related interest and penalties of approximately $7 million, $8 million and $6 million in 2023, 2022 and 2021, respectively. Total accrued interest and penalties were approximately $21 million, $15 million and $9 million as of December 31, 2023, 2022 and 2021, respectively.