Ally Bank 2012 Annual Report Download - page 173

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A reconciliation of the (benefit) provision for income taxes with the amounts at the statutory U.S. federal income tax rate is shown in the
following table.
Year ended December 31, ($ in millions) 2012 2011 2010
Statutory U.S. federal tax (benefit) expense $ (264) $ (333) $ 137
Change in tax resulting from
Effect of valuation allowance change (984) 339 (124)
State and local income taxes, net of federal income tax benefit (71) 7 2
Tax Credits (45) (3) —
Changes in unrecognized tax benefits (7) (5) 54
Foreign tax differential 231 (20)
Non-deductible expenses 64 8 4
Other, net 21 7 51
Tax (benefit) expense $ (1,284) $ 51 $ 104
As discussed in Note 1, on May 14, 2012, we deconsolidated ResCap for financial reporting purposes. For U.S. federal tax purposes,
however, ResCap will continue to be included in our consolidated return filing until ultimate disposition of our ownership in ResCap. Given
that the Debtors are disregarded entities for U.S. tax purposes, there should not be a reduction to our net deferred tax assets as a result of the
Bankruptcy filing.
Our income tax (benefit) expense from continuing operations has not naturally corresponded with our (loss) income from continuing
operations before income tax for the years ended December 31, 2012, 2011, and 2010, given we had U.S. and foreign valuation allowance
movements during those years. For 2012, consolidated income tax benefit from continuing operations of $1.3 billion is largely driven by a
release of a portion of our U.S. valuation allowance.
As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future
realization of deferred tax assets. As of December 31, 2012, we determined that positive evidence existed to conclude that it is more likely
than not that ordinary-in-character deferred tax assets are realizable, and therefore, we reduced the valuation allowance accordingly. Positive
evidence in this assessment consisted of forecasts of future taxable income that are sufficient to realize net operating loss carryforwards
before their expiration, coupled with our emergence from a cumulative three-year U.S. pretax loss (after removing the effects of non-recurring
charges and discontinued operations). Certain U.S. deferred tax assets remain offset with a valuation allowance as discussed below.
We believe it is more likely than not that the benefit for certain U.S. net operating loss, capital loss, and foreign tax credit carryforwards
will not be realized. In recognition of this risk, we have provided a valuation allowance of $1.6 billion on the deferred tax assets relating to
these carryforwards. In particular, the deferred tax assets and liabilities as of December 31, 2012, reflect the U.S. income tax effects of the
anticipated sale of entities held-for-sale at net book value. In concluding to maintain a valuation allowance against our capital loss
carryforwards, we considered the positive evidence that we have entered into agreements to sell our held-for-sale entities for amounts in
excess of book value. We also considered and ultimately weighted more heavily the negative evidence that we have historically had difficulty
generating significant capital gains; capital loss carryforwards have a relatively short carryforward period; the timing of disposal of the held-
for-sale entities is uncertain; and the disposal of the held-for-sale entities are subject to various levels of regulatory approval in numerous
countries. Successful completion during 2013 of the sales of entities currently held-for-sale may result in capital gains that would allow us to
realize capital loss carryforwards. A related reversal of valuation allowance on these deferred tax assets would be recognized as an income tax
benefit upon such utilization.
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K