
Year Ended December 31,	2020		2019		2018
	(in millions)
Provision (benefit) for income taxes	$	(42)	$	157	$	266
Income tax expense (benefit) included in common equity related to:
Unrealized gains (losses) on investment securities	274		128		(68)
Unrealized gains (losses) on fair value option liabilities attributable to our own credit spread	8		(98)		103
Unrealized gains (losses) on derivatives designated as cash flow hedges	23		3		12
Employer accounting for post-retirement plans	(1)		(5)		3

Cumulative effect adjustment to initially apply new accounting guidance for stranded tax effects resulting from Tax Legislation(1)	—		—		91
Total income taxes	$	262	$	185	$	407

(1)Reflects the adoption of new accounting guidance in 2018 which resulted in a cumulative effect adjustment as of January 1, 2018 to reclassify the stranded tax effects resulting from the change in the Federal corporate income tax rate from accumulated other comprehensive income (loss) to retained earnings.


Year Ended December 31,	2020		2019		2018
	(in millions)
Current:
Federal	$	(45)	$	(3)	$	68
State and local	(9)		35		41
Foreign	(13)		16		6
Total current	(67)		48		115
Deferred	25		109		151
Provision (benefit) for income taxes	$	(42)	$	157	$	266

The following table provides an analysis of the difference between effective rates based on the provision for income taxes attributable to pretax income (loss) and the statutory U.S. Federal income tax rate:


Year Ended December 31,	2020				2019				2018
	(dollars are in millions)
Tax expense (benefit) at the U.S. Federal statutory income tax rate	$	(206)	(21.0)	%	$	57	21.0	%	$	123	21.0	%
Increase (decrease) in rate resulting from:
State and local taxes, net of Federal benefit	(2)		(.2)		23		8.5		40		6.8
Adjustment of Federal tax rate used to value deferred taxes(1)	—		—		—		—		(31)		(5.3)

Non-deductible FDIC assessment fees	15		1.5		5		1.9		27		4.6
Non-deductible goodwill impairment(2)	165		16.8		77		28.5		—		—
Other non-deductible / non-taxable items(3)	9		.9		—		—		107		18.3
Items affecting prior periods(4)	3		.3		7		2.6		(1)		(.2)
Uncertain tax positions	(8)		(.8)		5		1.9		6		1.1

Low income housing and other tax credit investments	(14)		(1.4)		(13)		(4.8)		(5)		(.9)


Other	(4)		(.4)		(4)		(1.5)		—		—
Provision (benefit) for income taxes	$	(42)	(4.3)	%	$	157	58.1	%	$	266	45.4	%

(2)For 2020, the amount represents non-deductible goodwill impairment related to our previously separate Retail Banking and Wealth Management and Private Banking businesses. For 2019, the amount represents non-deductible goodwill impairment related to our previously separate Retail Banking and Wealth Management business.

(4)For 2020, the amount primarily relates to prior year State audit settlements, partially offset by changes in estimates as a result of filing the 2019 Federal and State income tax returns. For 2019, the amount primarily relates to changes in estimates as a result of filing the 2018 Federal income tax return and a reduction in a State and local capital loss carryback claim, partially offset by prior year State audit adjustments.


At December 31,	2020		2019
	(in millions)
Deferred tax assets:
Allowance for credit losses	$	245	$	153

Accrued expenses	108		76



Interests in real estate mortgage investment conduits(1)	158		181
Unrealized losses on investment securities	—		36

Capitalized costs(2)	501		595
Lease liabilities	152		190

Other	268		285
Total deferred tax assets	1,432		1,516
Valuation allowance	—		(8)
Total deferred tax assets, net of valuation allowance	1,432		1,508
Deferred tax liabilities:
Lease ROU assets	127		172

Unrealized gains on investment securities	237		—


Other	57		36
Total deferred tax liabilities	421		208
Net deferred tax asset	$	1,011	$	1,300

(1)Real estate mortgage investment conduits ("REMICs") are investment vehicles that hold commercial and residential mortgages in trust and issue securities representing an undivided interest in these mortgages. HSBC Bank USA holds portfolios of noneconomic residual interests in a number of REMICs. This item represents tax basis in such interests which has accumulated as a result of tax rules requiring the recognition of income related to such noneconomic residuals.


	2020		2019		2018
	(in millions)
Balance at January 1,	$	30	$	24	$	17
Additions based on tax positions related to the current year	—		—		2

Additions for tax positions of prior years	—		7		6
Reductions for tax positions of prior years	(1)		(1)		—
Reductions related to settlements with taxing authorities	(9)		—		(1)
Balance at December 31,	$	20	$	30	$	24

The total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate was $16 million, $24 million and $19 million at December 31, 2020, 2019 and 2018, respectively. Included in the unrecognized tax benefits are certain items the recognition of which would not affect the effective tax rate, such as the tax effect of temporary differences and the amount of State taxes that would be deductible for U.S. Federal tax purposes. It is reasonably possible that there could be a change in the amount of our unrecognized tax benefits within the next 12 months due to settlements or statutory expirations in various State and local tax jurisdictions.

It is our policy to recognize accrued interest related to uncertain tax positions in interest expense in the consolidated statement of income (loss) and to recognize penalties, if any, related to uncertain tax positions as a component of other expenses in the consolidated statement of income (loss). Accruals for the payment of interest associated with uncertain tax positions totaled $5 million, $10 million and $7 million at December 31, 2020, 2019 and 2018, respectively. Our accrual for the payment of interest associated with uncertain tax positions decreased by $5 million during 2020 and increased by $3 million during 2019.

Deferred tax assets and liabilities are recognized for the future tax consequences related to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, for State net operating losses and for State tax credits. Our net deferred tax assets, including deferred tax liabilities, totaled $1,011 million and $1,300 million at December 31, 2020 and 2019, respectively.

See Note 2, "Summary of Significant Accounting Policies and New Accounting Pronouncements," for further discussion regarding our accounting policy relating to the evaluation, recognition and measurement of both the HNAH Group's and HSBC USA's deferred tax assets and liabilities. In evaluating the need for a valuation allowance at December 31, 2020, it has been determined that HNAH Group projections of future taxable income from U.S. operations based on management approved business plans provide sufficient and appropriate support for the recognition of our net deferred tax assets. In 2020, we utilized the valuation allowance previously carried against State capital loss carryforwards that have now expired.

We remain subject to State and local income tax examinations for years 2010 and forward. We are currently under audit by various State and local tax jurisdictions. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law and the closing of statute of limitations. Such adjustments are reflected in the tax provision.

At December 31, 2020, for State tax purposes, we had apportioned and pre-tax effected net operating loss carryforwards of $13 million which expire as follows: $1 million in 2025 - 2029 and $12 million in 2030 and beyond.