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Income Taxes
9 Months Ended
Sep. 30, 2015
Income Tax Disclosure [Abstract]  
Income Taxes [Text Block]
Income Taxes
The Company’s effective tax rate on income from continuing operations was 24.1% and 21.6% for the three months ended September 30, 2015 and 2014, respectively. The Company’s effective tax rate on income from continuing operations was 23.0% and 22.2% for the nine months ended September 30, 2015 and 2014, respectively. The Company’s effective tax rates for the three months and nine months ended September 30, 2015 are lower than the statutory rate as a result of tax preferred items including the dividends received deduction and low income housing tax credits.
Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $17 million, net of federal benefit, which will expire beginning December 31, 2015 and a state AMT credit carryforward of $1 million, which has no expiration.
The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Included in deferred tax assets is a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but not yet for tax return purposes. Under current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which the capital losses are recognized for tax purposes. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business. Consideration is given to, among other things in making this determination, (i) future taxable income exclusive of reversing temporary differences and carryforwards, (ii) future reversals of existing taxable temporary differences, (iii) taxable income in prior carryback years, and (iv) tax planning strategies. 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. The valuation allowance was $12 million at September 30, 2015 and $20 million at December 31, 2014.
As of September 30, 2015 and December 31, 2014, the Company had $239 million and $242 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $57 million, net of federal tax benefits, of unrecognized tax benefits at both September 30, 2015 and December 31, 2014, 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 primarily 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 $1 million and $3 million in interest and penalties for the three months and nine months ended September 30, 2015, respectively. The Company recognized a net increase of $1 million and $4 million in interest and penalties for the three months and nine months ended September 30, 2014, respectively. At September 30, 2015 and December 31, 2014, the Company had a payable of $52 million and $48 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.