Annual report pursuant to Section 13 and 15(d)

Income Taxes (Tables)

v3.10.0.1
Income Taxes (Tables)
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Schedule of Components of Income Tax Expense (Benefit) The components of income tax expense for 2018, 2017 and 2016 are presented in the table below.
 
 
 
 
 
 
Income Tax Expense
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
2018
 
2017
 
2016
Current income tax expense
 

 
 

 
 

U.S. federal
$
816

 
$
1,310

 
$
302

U.S. state and local
1,377

 
557

 
120

Non-U.S. 
1,203

 
939

 
984

Total current expense
3,396

 
2,806

 
1,406

Deferred income tax expense
 

 
 

 
 

U.S. federal
2,579

 
7,238

 
5,416

U.S. state and local
240

 
835

 
(279
)
Non-U.S. 
222

 
102

 
656

Total deferred expense
3,041

 
8,175

 
5,793

Total income tax expense
$
6,437

 
$
10,981

 
$
7,199

Schedule of Effective Income Tax Rate Reconciliation A reconciliation of the expected U.S. federal income tax expense, calculated by applying the federal statutory tax rate, to the Corporation’s actual income tax expense, and the effective tax rates for 2018, 2017 and 2016 are presented in the table below.
On December 22, 2017, the President signed into law the Tax Act which made significant changes to federal income tax law including, among other things, reducing the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of the Corporation’s non-U.S. business activities. The impact on net income in 2017 was $2.9 billion, driven by $2.3 billion in income tax expense, largely from a lower valuation of certain U.S. deferred tax assets and liabilities. The change in the statutory tax rate also impacted the Corporation’s tax-advantaged energy investments, resulting in a downward valuation adjustment of $946 million recorded in other income and a related income tax benefit of $347 million, which when netted against the $2.3 billion, resulted in a net impact on income tax expense of $1.9 billion. The Corporation has completed its analysis and accounting under Staff Accounting Bulletin No. 118 for the effects of the Tax Act.
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of Income Tax Expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
(Dollars in millions)
2018
 
2017
 
2016
Expected U.S. federal income tax expense
$
7,263

 
21.0
 %
 
$
10,225

 
35.0
 %
 
$
8,757

 
35.0
 %
Increase (decrease) in taxes resulting from:
 
 
 
 
 
 
 
 
 
 
 
State tax expense, net of federal benefit
1,367

 
4.0

 
881

 
3.0

 
420

 
1.7

Affordable housing/energy/other credits
(1,888
)
 
(5.5
)
 
(1,406
)
 
(4.8
)
 
(1,203
)
 
(4.8
)
Tax-exempt income, including dividends
(413
)
 
(1.2
)
 
(672
)
 
(2.3
)
 
(562
)
 
(2.2
)
Share-based compensation
(257
)
 
(0.7
)
 
(236
)
 
(0.8
)
 

 

Nondeductible expenses
302

 
0.9

 
97

 
0.3

 
180

 
0.7

Changes in prior-period UTBs, including interest
144

 
0.4

 
133

 
0.5

 
(328
)
 
(1.3
)
Rate differential on non-US earnings
98

 
0.3

 
(272
)
 
(0.9
)
 
(307
)
 
(1.2
)
Tax law changes (1)

 

 
2,281

 
7.8

 
348

 
1.4

Other
(179
)
 
(0.6
)
 
(50
)
 
(0.2
)
 
(106
)
 
(0.5
)
Total income tax expense
$
6,437

 
18.6
 %
 
$
10,981

 
37.6
 %
 
$
7,199

 
28.8
 %

(1) 
Amounts for 2016 are for non-U.S. tax law changes.
Reconciliation of Change in Unrecognized Tax Benefits (1) 
Amounts for 2016 are for non-U.S. tax law changes.
The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the following table.
 
 
 
 
 
 
Reconciliation of the Change in Unrecognized Tax Benefits
 
 
 
 
 
 
(Dollars in millions)
2018
 
2017
 
2016
Balance, January 1
$
1,773

 
$
875

 
$
1,095

Increases related to positions taken during the current year
395

 
292

 
104

Increases related to positions taken during prior years 
406

 
750

 
1,318

Decreases related to positions taken during prior years
(371
)
 
(122
)
 
(1,091
)
Settlements
(6
)
 
(17
)
 
(503
)
Expiration of statute of limitations

 
(5
)
 
(48
)
Balance, December 31
$
2,197

 
$
1,773

 
$
875

Summary of Income Tax Examinations
 
 
 
 
Tax Examination Status
 
 
 
 
 
 
 
 
Years under
Examination (1)
 
Status at December 31 2018
United States
2012 – 2013
 
IRS Appeals
United States
2014 – 2016
 
Field examination
New York
2015
 
Field examination
United Kingdom
2017
 
To begin in 2019
(1) 
All tax years subsequent to the years shown remain subject to examination.
Schedule of Deferred Tax Assets and Liabilities Significant components of the Corporation’s net deferred tax assets and liabilities at December 31, 2018 and 2017 are presented in the following table.
 
 
 
 
Deferred Tax Assets and Liabilities
 
 
 
 
 
December 31
(Dollars in millions)
2018
 
2017
Deferred tax assets
 

 
 

Net operating loss carryforwards
$
7,993

 
$
8,506

Allowance for credit losses
2,400

 
2,598

Accrued expenses
1,875

 
2,021

Available-for-sale securities
1,854

 
510

Security, loan and debt valuations
1,818

 
2,939

Employee compensation and retirement benefits
1,564

 
1,705

Credit carryforwards
623

 
1,793

Other
1,037

 
1,034

Gross deferred tax assets
19,164

 
21,106

Valuation allowance
(1,569
)
 
(1,644
)
Total deferred tax assets, net of valuation allowance
17,595

 
19,462

 
 

 
 

Deferred tax liabilities
 
 
 
Equipment lease financing
2,684

 
2,492

Fixed assets
1,104

 
840

Tax credit investments
940

 
734

Other
2,126

 
2,771

Gross deferred tax liabilities
6,854

 
6,837

Net deferred tax assets, net of valuation allowance
$
10,741

 
$
12,625

Schedule of Operating Loss Carryforwards The table below summarizes the deferred tax assets and related valuation allowances recognized for the net operating loss (NOL) and tax credit carryforwards at December 31, 2018.
 
 
 
 
 
 
 
 
Net Operating Loss and Tax Credit Carryforward Deferred Tax Assets
 
 
 
 
 
 
 
 
(Dollars in millions)
Deferred
Tax Asset
 
Valuation
Allowance
 
Net
Deferred
Tax Asset
 
First Year
Expiring
Net operating losses - U.S. 
$
592

 
$

 
$
592

 
After 2027
Net operating losses - U.K. (1)
5,294

 

 
5,294

 
None
Net operating losses - other non-U.S. 
633

 
(517
)
 
116

 
Various
Net operating losses - U.S. states (2)
1,474

 
(517
)
 
957

 
Various
General business credits
612

 

 
612

 
After 2038
Foreign tax credits
11

 
(11
)
 

 
n/a
(1) 
Represents U.K. broker-dealer net operating losses that may be carried forward indefinitely.
(2) 
The net operating losses and related valuation allowances for U.S. states before considering the benefit of federal deductions were $1.9 billion and $654 million.
n/a = not applicable
Summary of Tax Credit Carryforwards The table below summarizes the deferred tax assets and related valuation allowances recognized for the net operating loss (NOL) and tax credit carryforwards at December 31, 2018.
 
 
 
 
 
 
 
 
Net Operating Loss and Tax Credit Carryforward Deferred Tax Assets
 
 
 
 
 
 
 
 
(Dollars in millions)
Deferred
Tax Asset
 
Valuation
Allowance
 
Net
Deferred
Tax Asset
 
First Year
Expiring
Net operating losses - U.S. 
$
592

 
$

 
$
592

 
After 2027
Net operating losses - U.K. (1)
5,294

 

 
5,294

 
None
Net operating losses - other non-U.S. 
633

 
(517
)
 
116

 
Various
Net operating losses - U.S. states (2)
1,474

 
(517
)
 
957

 
Various
General business credits
612

 

 
612

 
After 2038
Foreign tax credits
11

 
(11
)
 

 
n/a
(1) 
Represents U.K. broker-dealer net operating losses that may be carried forward indefinitely.
(2) 
The net operating losses and related valuation allowances for U.S. states before considering the benefit of federal deductions were $1.9 billion and $654 million.
n/a = not applicable