
Note 14.	Income Taxes

The following table summarizes income (loss) before income taxes (in millions):



	Years Ended December 31,
	2013		2012		2011
U.S. income	$	637	$	732	$	610
Non-U.S. income	246		12		12
Income before income taxes	$	883	$	744	$	622

Income Tax Expense

The following table summarizes income tax expense (benefit) (in millions):



	Years Ended December 31,
	2013			2012			2011
Current income tax expense:
U.S. federal	$	67		$	254		$	156
U.S. state and local	5			23			28
Non-U.S.	66			1			2
Total current	138			278			186
Deferred income tax expense:
U.S. federal	176			(4		)	51
U.S. state and local	7			5			(1		)
Non-U.S.	(4		)	2			—
Total deferred	179			3			50
Total income tax provision	$	317		$	281		$	236

Provisions are made for estimated U.S. and non-U.S. income taxes, less available tax credits and deductions, which may be incurred on the remittance of our basis differences in investments in foreign subsidiaries not deemed to be indefinitely reinvested. Taxes have not been provided on basis differences in investments as a result of earnings in foreign subsidiaries which are deemed indefinitely reinvested of $115 million at December 31, 2013 and insignificant at December 31, 2012. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable.

Our effective income tax rate on income before income taxes differs from the U.S. statutory rate as follows:



	Years Ended December 31,
	2013		2012		2011
U.S. statutory tax rate	35.0	%	35.0	%	35.0	%
Foreign income taxed at other than 35%	(1.7	)	—		—
State and local income taxes	1.1		1.2		1.3
U.S. tax on non-U.S. earnings	(1.7	)	—		—
Valuation allowance	3.4		—		—
Other	(0.2	)	1.6		1.7
Effective tax rate	35.9	%	37.8	%	38.0	%

Deferred Income Tax Assets and Liabilities

Deferred income taxes and liabilities at December 31, 2013 and 2012 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the basis of such assets, liabilities, and equity as measured by tax laws, as well as tax loss and tax credit carryforwards.

The following table summarizes the components of temporary differences and carryforwards that give rise to deferred tax assets and liabilities (in millions):



	December 31, 2013			December 31, 2012
Deferred tax assets:
Net operating loss carryforward^(a)	$	254		$	24
Market value difference of loan portfolio	117			111
Purchase accounting adjustments – assets	41			30
Purchase accounting adjustments – liabilities	15			5
Borrowing costs	11			10
Accruals	131			11
Income tax benefits from uncertain tax positions	31			40
Other	90			24
Total deferred tax assets before valuation allowance	690			255
Less: valuation allowance	(104		)
Total deferred tax assets	586			255
Deferred tax liabilities:
Capitalized direct loan origination costs	18			17
Fee income	32			31
Depreciable assets	153			71
Intangible assets	40			12
Accrued commissions	28			—
Deferred acquisition costs/revenue	30			—
Other	13			17
Total deferred tax liabilities	314			148
Net deferred tax asset	$	272		$	107

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(a)	Includes tax-effected operating losses of $76 million expiring through 2034 and $177 million that may be carried forward indefinitely at December 31, 2013.

As of December 31, 2013, we retain valuation allowances against deferred tax assets of $28 million in the U.S. and $76 million in non-U.S. jurisdictions. The $28 million valuation allowance in the U.S. relates to a one-time cash dividend from a foreign subsidiary, for which we provided a $28 million valuation allowance on the portion of such credits that in management's judgment will not be utilized during the ten-year carry forward period. We have reflected in our financial statements $73 million of non-U.S. valuation allowances related to our international acquisitions.

Uncertain Tax Positions

The following table summarizes activity of unrecognized tax benefits (in millions):



	Years Ended December 31,
	2013			2012			2011
Beginning balance	$	53		$	48		$	128
International operations acquired amounts	71			—			—
Additions to prior years' tax positions	—			1			—
Reductions to prior years' tax positions	(1		)	(2		)	(91		)
Additions to current year tax positions	12			9			11
Reductions in tax positions due to lapse of statutory limitations	(3		)	—			—
Settlements	(1		)	(3		)	—
Translation adjustment	(1		)	—			—
Ending balance	$	130		$	53		$	48

At December 31, 2013, 2012 and 2011, there were $104 million, $28 million and $27 million of net unrecognized tax benefits that, if recognized, would favorably effect the effective tax rate.

We recognize accrued interest and penalties associated with uncertain tax positions as a component of the income tax provision. Accrued interest and penalties are included within the related tax liability line on the consolidated balance sheets.

In 2013, 2012 and 2011 we recorded income tax related interest expense (benefit) and penalties of $(7) million, $5 million and $3 million. The interest and penalty benefit in 2013 is due primarily to remeasurements, settlements and statute of limitations expirations. At December 31, 2013 and 2012 we had liabilities of $149 million and $37 million for income tax related interest and penalties.

At December 31, 2013, we believe that it is reasonably possible that the balance of the gross unrecognized tax benefits could decrease between $44 million to $51 million in the next twelve months due to settlements or the expiration of statutes of limitations.

Periodically we make deposits to taxing jurisdictions which reduce our unrecognized tax benefit balance, but are not reflected in the reconciliation above. The amount of deposits that reduce our unrecognized tax benefit liability in the consolidated balance sheets was $44 million at December 31, 2013 and was insignificant at December 31, 2012.

Other Matters

Since October 1, 2010, we have been included in GM's consolidated U.S. federal income tax returns. For taxable income we recognize in any period beginning on or after October 1, 2010, we are obligated to pay GM for our share of the consolidated U.S. federal and certain state tax liabilities. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. Under our tax sharing arrangement with GM for our U.S. operations, payments for the tax years 2010 through 2014 are deferred for four years from their original due date. Any difference between the amounts paid under our tax sharing arrangement with GM and our separate return basis used for financial reporting purposes is reported in our consolidated financial statements as additional paid-in capital. During 2013, we recorded a $1 million adjustment to additional paid-in capital. In addition, we recorded a $15 million adjustment related to the tax liability of a foreign subsidiary calculated on a separate return basis. The tax liability is offset with losses, from an affiliate of GM, outside of the GMF consolidated group. There is no obligation to pay any GM entity or taxing authority for the utilization of these non-GMF losses in tax year 2013. Therefore, the settlement of the tax liability of $15 million is reflected as an adjustment to additional paid-in capital on our consolidated financial statements.

Income tax returns are filed in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. We have open tax years from 2005 to 2013 with various tax jurisdictions. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and/or recognition of expenses, or the sustainability of income tax credits. Certain of our state and foreign tax returns are currently under examination in various jurisdictions.