Income Taxes

The components of income tax provision attributable to continuing operations were as follows:



	Years Ended December 31,
	2013			2012			2011
	(in millions)
Current income tax
Federal	$	549		$	229		$	250
State and local	24			25			21
Foreign	37			31			23
Total current income tax	610			285			294
Deferred income tax
Federal	(102		)	37			90
State and local	(10		)	15			1
Foreign	(6		)	(2		)	(8		)
Total deferred income tax	(118		)	50			83
Total income tax provision	$	492		$	335		$	377

The geographic sources of pretax income from continuing operations were as follows:



	Years Ended December 31,
	2013		2012		2011
	(in millions)
United States	$	1,640	$	1,161	$	1,350
Foreign	330		77		97
Total	$	1,970	$	1,238	$	1,447

The principal reasons that the aggregate income tax provision attributable to continuing operations is different from that computed by using the U.S. statutory rate of 35% were as follows:



	Years Ended December 31,
	2013		2012		2011
Tax at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Changes in taxes resulting from:
Dividend exclusion	(5.1	)	(5.9	)	(8.5	)
Low income housing tax credits	(2.7	)	(3.0	)	(1.1	)
Net income (loss) attributable to noncontrolling interests	(2.5	)	3.6		2.6
Foreign tax credits, net of addback	(0.9	)	(3.2	)	(2.2	)
Tax-exempt interest income	(0.9	)	(1.7	)	(1.3	)
State taxes, net of federal benefit	0.5		2.5		1.0
Taxes applicable to prior years	—		(2.5	)	0.2
Other, net	1.6		2.3		0.4
Income tax provision	25.0	%	27.1	%	26.1	%

The decrease in the Company’s effective tax rate in 2013 compared to 2012 is primarily the result of lower state taxes and the two prior period corrections described in Note 1. The increase in the Company’s effective tax rate in 2012 compared to 2011 primarily reflects higher state taxes and the impact of the two prior period corrections described in Note 1.

Accumulated earnings of certain foreign subsidiaries, which totaled $120 million at December 31, 2013, are intended to be permanently reinvested outside the United States. Accordingly, U.S. federal taxes, which would have aggregated $17 million, have not been provided on those earnings.

Deferred income tax assets and liabilities result from temporary differences between the assets and liabilities measured for GAAP reporting versus income tax return purposes. The significant components of the Company’s deferred income tax assets and liabilities, which are included net within other assets or other liabilities on the Consolidated Balance Sheets, were as follows:



	December 31,
	2013			2012
	(in millions)
Deferred income tax assets
Liabilities for future policy benefits and claims	$	918		$	1,320
Investment related	627			104
Deferred compensation	335			310
Investment impairments and write-downs	97			105
Loss carryovers and tax credit carryforwards	39			39
Other	61			54
Gross deferred income tax assets	2,077			1,932
Less: valuation allowance	(19		)	(16		)
Total deferred income tax assets	2,058			1,916
Deferred income tax liabilities
Deferred acquisition costs	749			701
Net unrealized gains on Available-for-Sale securities	352			708
Deferred sales inducement costs	145			142
Depreciation expense	138			164
Intangible assets	84			74
Other	113			82
Gross deferred income tax liabilities	1,581			1,871
Net deferred income tax assets	$	477		$	45

Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $39 million, net of federal benefit, which will expire beginning December 31, 2014.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits were as follows:



	2013			2012			2011
	(in millions)
Balance at January 1	$	116		$	184		$	75
Additions based on tax positions related to the current year	22			2			1
Additions for tax positions of prior years	74			25			95
Reductions for tax positions of prior years	(3		)	(83		)	(8		)
Settlements	—			(12		)	21
Balance at December 31	$	209		$	116		$	184

If recognized, approximately $62 million, $38 million and $38 million, net of federal tax benefits, of unrecognized tax benefits as of December 31, 2013, 2012, and 2011, respectively, would affect the effective tax rate.

It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. The Company estimates that the total amount of gross unrecognized tax benefits may decrease by $150 million to $160 million in the next 12 months due to resolution of Internal Revenue Service (“IRS”) examinations.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized a net increase of $6 million, a net reduction of $1 million, and a net increase of $66 million in interest and penalties for the years ended December 31, 2013, 2012, and 2011, respectively. At December 31, 2013 and 2012, the Company had a payable of $42 million and $36 million, respectively, related to accrued interest and penalties.

The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The IRS has completed its field examination of the 1997 through 2007 tax returns. However, for federal income tax purposes, these years, except for 2007, continue to remain open as a consequence of certain unagreed-upon issues. The IRS is in the process of completing its audits of the Company’s U.S. Income Tax Returns for 2008 through 2011. These audits are expected to be completed in 2014. The Company’s or certain of its subsidiaries’ state income tax returns are currently under examination by various jurisdictions for years ranging from 1997 through 2011 and remain open for all years after 2011. The Company filed its 2012 tax return in the third quarter of 2013, but the IRS has not yet begun its examination of 2012.

The items comprising other comprehensive income (loss) are presented net of the following income tax provision (benefit) amounts:



	Years Ended December 31,
	2013			2012			2011
	(in millions)
Net unrealized securities gains (losses)	$	(344	)	$	238		$	90
Net unrealized derivatives gains (losses)	—			4			(15		)
Defined benefit plans	24			(9		)	(28		)
Foreign currency translation	3			7			(1		)
Net income tax provision (benefit)	$	(317	)	$	240		$	46