Income Taxes

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



	Years Ended December 31,
	2015			2014			2013
	(in millions)
Current income tax
Federal	$	509		$	248		$	549
State and local	36			33			24
Foreign	41			36			37
Total current income tax	586			317			610
Deferred income tax
Federal	(124		)	202			(102		)
State and local	(4		)	30			(10		)
Foreign	(3		)	(4		)	(6		)
Total deferred income tax	(131		)	228			(118		)
Total income tax provision	$	455		$	545		$	492

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



	Years Ended December 31,
	2015		2014		2013
	(in millions)
United States	$	1,710	$	1,858	$	1,640
Foreign	432		689		330
Total	$	2,142	$	2,547	$	1,970

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 in 2014.

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,
	2015		2014		2013
Tax at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Changes in taxes resulting from:
Net income attributable to noncontrolling interests	(2.0	)	(5.2	)	(2.5	)
Dividend exclusion	(6.7	)	(4.7	)	(5.1	)
Low income housing tax credits	(3.0	)	(2.1	)	(2.7	)
Foreign tax credits, net of addback	(2.1	)	(2.0	)	(0.9	)
State taxes, net of federal benefit	—		1.6		0.5
Tax-exempt interest income	—		(0.7	)	(0.9	)
Taxes applicable to prior years	—		(0.2	)	—
Other, net	0.1		(0.3	)	1.6
Income tax provision	21.3	%	21.4	%	25.0	%

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.

Accumulated earnings of certain foreign subsidiaries, which totaled $272 million at December 31, 2015, are intended to be permanently reinvested outside the United States. Accordingly, U.S. federal taxes, which would have aggregated $63 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,
	2015		2014
	(in millions)
Deferred income tax assets
Liabilities for policyholder account balances, future policy benefits and claims	$	1,391	$	1,292
Deferred compensation	384		350
Investment related	118		83
Postretirement benefits	56		—
Loss carryovers and tax credit carryforwards	—		25
Other	87		102
Gross deferred income tax assets	2,036		1,852
Less: valuation allowance	11		20
Total deferred income tax assets	2,025		1,832
Deferred income tax liabilities
Deferred acquisition costs	730		738
Net unrealized gains on Available-for-Sale securities	233		424
Depreciation expense	169		131
Deferred sales inducement costs	125		128
Intangible assets	113		96
Goodwill	66		—
Other	18		101
Gross deferred income tax liabilities	1,454		1,618
Net deferred income tax assets	$	571	$	214

Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $16 million, net of federal benefit, which will expire beginning December 31, 2016. 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 of $11 million has been established.

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



	2015			2014			2013
	(in millions)
Balance at January 1	$	242		$	209		$	116
Additions based on tax positions related to the current year	18			17			22
Additions for tax positions of prior years	48			35			74
Reductions for tax positions of prior years	(147		)	(19		)	(3		)
Balance at December 31	$	161		$	242		$	209

If recognized, approximately $57 million, $57 million and $62 million, net of federal tax benefits, of unrecognized tax benefits as of December 31, 2015, 2014, and 2013, 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 $90 million to $100 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 $3 million, $6 million, and $6 million in interest and penalties for the years ended December 31, 2015, 2014, and 2013, respectively. At December 31, 2015 and 2014, the Company had a payable of $51 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, tax years 1997 through 2006, 2008, and 2009 remain open for 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.