Morgan Stanley 2015 Annual Report Download - page 245

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Significant Components of the Deferred Tax Assets and Liabilities Balance.
At December 31,
2015
At December 31,
2014
(dollars in millions)
Gross deferred tax assets:
Tax credits and loss carryforwards ........................................... $ 1,987 $ 3,833
Employee compensation and benefit plans ..................................... 3,514 3,715
Valuation and liability allowances ........................................... 846 661
Valuation of inventory, investments and receivables ............................. 738 586
Other .................................................................. 35 —
Total deferred tax assets ............................................... 7,120 8,795
Deferred tax assets valuation allowance ................................... 139 34
Deferred tax assets after valuation allowance ............................... $ 6,981 $ 8,761
Gross deferred tax liabilities:
Non-U.S. operations ...................................................... $ 269 $ 925
Fixed assets ............................................................. 716 565
Other .................................................................. — 65
Total deferred tax liabilities ............................................. $ 985 $ 1,555
Net deferred tax assets ................................................. $ 5,996 $ 7,206
The Company had tax credit carryforwards for which a related deferred tax asset of $1,647 million and $3,740 million was
recorded at December 31, 2015 and December 31, 2014, respectively. These carryforwards are subject to annual limitations
on utilization, with a significant amount scheduled to expire in 2020, if not utilized.
The Company believes the recognized net deferred tax asset (after valuation allowance) of $5,996 million at December 31,
2015 is more likely than not to be realized based on expectations as to future taxable income in the jurisdictions in which it
operates.
The Company had $10,209 million and $7,364 million of cumulative earnings at December 31, 2015 and December 31,
2014, respectively, attributable to foreign subsidiaries for which no U.S. provision has been recorded for income tax that
could occur upon repatriation. Accordingly, $893 million and $841 million of deferred tax liabilities were not recorded with
respect to these earnings at December 31, 2015 and December 31, 2014, respectively. The increase in indefinitely reinvested
earnings is attributable to regulatory and other capital requirements in foreign jurisdictions.
Unrecognized Tax Benefits.
The total amount of unrecognized tax benefits was approximately $1.8 billion, $2.2 billion and $4.1 billion at December 31,
2015, December 31, 2014 and December 31, 2013, respectively. Of this total, approximately $1.1 billion, $1.0 billion and
$1.4 billion, respectively (net of federal benefit of state issues, competent authority and foreign tax credit offsets), represent
the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods.
Interest and penalties related to unrecognized tax benefits are classified as provision for income taxes. The Company
recognized $18 million, $(35) million and $50 million of interest expense (benefit) (net of federal and state income tax
benefits) in the consolidated statements of income for 2015, 2014 and 2013, respectively. Interest expense accrued at
December 31, 2015, December 31, 2014 and December 31, 2013 was approximately $122 million, $258 million and $293
million, respectively, net of federal and state income tax benefits. The decrease as of December 31, 2015 is primarily
attributable to a balance sheet reclassification related to certain multi-year tax authority examinations. Penalties related to
unrecognized tax benefits for the years mentioned above were immaterial.
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