Income Taxes

The following table is an analysis of the effective tax rate:



	Years Ended December 31,
(Dollars in millions)	2019		2018		2017
Federal income tax rate	21	%	21	%	35	%
Net tax effects of:
State income taxes, net of federal income tax benefit	(13	)	7		5
Goodwill impairment	(45	)	—		—
Tax-exempt interest income	2		(1	)	(1	)
Losses from LIHC investments	4		(2	)	(3	)
Amortization of LIHC investments	(20	)	12		14
Tax credits	40		(25	)	(21	)
FDIC insurance premiums	(2	)	1		—
Valuation allowance release	1		—		—
Effects of US tax law change	—		(2	)	(8	)
State tax refunds	—		(5	)	—
Other	—		(1	)	1
Effective tax rate	(12	)%	5	%	22	%

On December 22, 2017, the Tax Cuts & Jobs Act was signed into law reducing the federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of the reduction in the corporate income tax rate, the Company revalued its net deferred tax liabilities at December 31, 2017, resulting in a one-time tax benefit of $101 million.

The components of income tax expense were as follows:



	Years Ended December 31,
(Dollars in millions)	2019			2018			2017
Current income tax expense:
Federal	$	191		$	195		$	257
State	154			89			21
Foreign	1			10			(4		)
Total current expense	346			294			274
Deferred income tax expense (benefit):
Federal	(202		)	(173		)	(49		)
State	(61		)	(64		)	52
Foreign	(1		)	(5		)	22
Total deferred expense	(264		)	(242		)	25
Total income tax expense	$	82		$	52		$	299

The components of the Company's net deferred tax balances as of December 31, 2019 and 2018 were as follows:



	December 31,
(Dollars in millions)	2019		2018
Deferred tax assets:
Tax credits and net operating loss carryforwards	$	499	$	448
Allowance for credit losses	312		251
Accrued expense, net	143		159
Unrealized losses on pension and postretirement benefits	233		260
Unrealized net losses on securities available for sale	32		132
Fair value adjustments for valuation of FDIC covered assets	40		53
Unrealized gains/losses on cash flow hedges	41		78
Other	30		—
Total deferred tax assets	1,330		1,381
Deferred tax liabilities:
Leasing and renewable energy	515		619
Intangible assets	17		59
Pension liabilities	373		365
Other	—		10
Total deferred tax liabilities	905		1,053
Net deferred tax asset (liability)	$	425	$	328

At December 31, 2019, the U.S. federal tax credit carryforwards were $458 million, and if not utilized, began to expire in 2035. The Company has $77 million of federal net operating loss carryforwards of which $60 million are subject to separate return loss limitation rules and if not utilized begin to expire in tax year 2032. The Company also has $17 million of acquired net operating losses subject to IRC Section 382 limitation rules for which $13 million were generated post-tax reform and can be carried forward indefinitely and $4 million if not utilized begin to expire in 2036. The company has $50 million of apportioned gross state net operating loss carryforwards ($4 million tax effected net of federal benefit), and if not utilized begin to expire in 2030. The state tax credits carryforward net of federal benefit was $33 million and can be carried forward indefinitely. The Company's AMT Credit carryforward was $13 million which can be carried forward indefinitely and is also subject to rules under separate return limitation years. Additionally, as a result of the Tax Cuts and Jobs Act, the AMT credit carryforward can generally be used to offset regular income tax liability in fiscal years 2019 through 2021. Any remaining amount is generally fully refundable by fiscal year 2022.

Deferred tax assets are evaluated for realization based on the existence of sufficient taxable income of the appropriate character. The Company released $5 million of valuation allowance to recognize the deferred tax assets related to the acquisition of First State Investments (US) LLC. Management determined it was more likely than not that such acquired deferred tax assets would be realized. Management has determined that no valuation allowance is required.

The following table reflects the changes in gross unrecognized tax benefits:



	Years Ended December 31,
(Dollars in millions)	2019			2018			2017
Balance, beginning of year	$	127		$	56		$	11
Gross increases as a result of tax positions taken during prior periods	1			72			45
Gross decreases as a result of tax positions taken during prior periods	—			—			—
Gross increases as a result of tax positions taken during current period	—			—			2
Gross decrease as a result of closed audit years or settlements	(2		)	(1		)	(2		)
Balance, end of year	$	126		$	127		$	56

The amount of unrecognized tax positions that would affect the effective tax rate, if recognized, was $99 million, $98 million and $33 million at December 31, 2019, 2018 and 2017, respectively.

The Company recognizes interest and penalties as a component of income tax expense. As of December 31, 2019, we accrued $3 million in interest and $3 million in penalties. It is reasonably possible that certain tax positions will be resolved within the next 12 months, which would decrease the Company's balance of total unrecognized tax benefits by $22 million with 2018 and 2019 filings.

The Company is subject to U.S. federal income tax as well as various state and foreign income taxes. With limited exception, the Company is not open to examination for periods before 2015 by U.S. federal taxing authorities and 2014 by state taxing authorities.