Income Taxes

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



	Years Ended December 31,
	2014			2013			2012
	(in millions)
Current income tax
Federal	$	248		$	549		$	229
State and local	33			24			25
Foreign	36			37			31
Total current income tax	317			610			285
Deferred income tax
Federal	202			(102		)	37
State and local	30			(10		)	15
Foreign	(4		)	(6		)	(2		)
Total deferred income tax	228			(118		)	50
Total income tax provision	$	545		$	492		$	335

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



	Years Ended December 31,
	2014		2013		2012
	(in millions)
United States	$	1,858	$	1,640	$	1,161
Foreign	689		330		77
Total	$	2,547	$	1,970	$	1,238

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,
	2014		2013		2012
Tax at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Changes in taxes resulting from:
Net income (loss) attributable to noncontrolling interests	(5.2	)	(2.5	)	3.6
Dividend exclusion	(4.7	)	(5.1	)	(5.9	)
Low income housing tax credits	(2.1	)	(2.7	)	(3.0	)
Foreign tax credits, net of addback	(2.0	)	(0.9	)	(3.2	)
State taxes, net of federal benefit	1.6		0.5		2.5
Tax-exempt interest income	(0.7	)	(0.9	)	(1.7	)
Taxes applicable to prior years	(0.2	)	—		(2.5	)
Other, net	(0.3	)	1.6		2.3
Income tax provision	21.4	%	25.0	%	27.1	%

The decrease in the Company’s effective tax rate in 2014 compared to 2013 is primarily the result of an increase in net income attributable to noncontrolling interests and an increase in foreign tax credits, as well as a $17 million benefit in 2014 related to the completion of an Internal Revenue Service (“IRS”) audit. The decrease in the Company’s effective tax rate in 2013 compared to 2012 is primarily the result of lower state taxes as well as two prior period corrections. During 2012, the Company completed a review of its deferred tax balances. As part of the review, the Company discovered tax return errors for prior years which were corrected. The net impact of the review resulted in a decrease of income tax expense of $16 million. Additionally in 2012, the Company made a correction for a tax item, which resulted in a $32 million decrease to net income attributable to Ameriprise Financial. The Company had received incomplete data from a third party service provider for securities lending activities that resulted in the miscalculation of the Company’s dividend received deduction and foreign tax credit. The Company resolved the data issue and stopped the securities lending that negatively impacted its tax position.

Accumulated earnings of certain foreign subsidiaries, which totaled $180 million at December 31, 2014, are intended to be permanently reinvested outside the United States. Accordingly, U.S. federal taxes, which would have aggregated $40 million, have not been provided on those earnings.

In December 2014, the Company received IRS approval for a change in accounting method related to variable annuity hedging. Accordingly, the Company began using the approved method of accounting in the fourth quarter of 2014. The change to the approved method increased deferred tax expense and current tax receivables with a corresponding decrease to current tax expense and deferred tax assets of approximately $300 million.

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,
	2014		2013
	(in millions)
Deferred income tax assets
Liabilities for policyholder account balances, future policy benefits and claims	$	1,292	$	918
Deferred compensation	350		335
Investment related	83		724
Loss carryovers and tax credit carryforwards	25		39
Other	102		61
Gross deferred income tax assets	1,852		2,077
Less: valuation allowance	20		19
Total deferred income tax assets	1,832		2,058
Deferred income tax liabilities
Deferred acquisition costs	738		749
Net unrealized gains on Available-for-Sale securities	424		352
Depreciation expense	131		138
Deferred sales inducement costs	128		145
Intangible assets	96		84
Other	101		113
Gross deferred income tax liabilities	1,618		1,581
Net deferred income tax assets	$	214	$	477

Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $25 million, net of federal benefit, which will expire beginning December 31, 2015. Based on analysis of the Company’s tax position, management believes it is more likely than not that the Company will not realize certain state deferred tax assets and state net operating losses and therefore a valuation allowance has been established.

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



	2014			2013			2012
	(in millions)
Balance at January 1	$	209		$	116		$	184
Additions based on tax positions related to the current year	17			22			2
Additions for tax positions of prior years	35			74			25
Reductions for tax positions of prior years	(19		)	(3		)	(83		)
Settlements	—			—			(12		)
Balance at December 31	$	242		$	209		$	116

If recognized, approximately $57 million, $62 million and $38 million, net of federal tax benefits, of unrecognized tax benefits as of December 31, 2014, 2013, and 2012, 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 $170 million to $180 million in the next 12 months due to resolution of 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 increase of $6 million, and a net reduction of $1 million in interest and penalties for the years ended December 31, 2014, 2013, and 2012, respectively. At December 31, 2014 and 2013, the Company had a payable of $48 million and $42 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 2011 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 currently auditing the Company’s U.S. Income Tax Returns for 2012 and 2013. 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 2012 and remain open for all years after 2012.

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



	Years Ended December 31,
	2014			2013			2012
	(in millions)
Net unrealized securities gains (losses)	$	69		$	(344	)	$	238
Net unrealized derivatives gains	—			—			4
Defined benefit plans	(13		)	24			(9		)
Foreign currency translation	(18		)	3			7
Net income tax provision (benefit)	$	38		$	(317	)	$	240