JP Morgan Chase 2010 Annual Report Download - page 154

Management’s discussion and analysis
154 JPMorgan Chase & Co./2010 Annual Report
Income taxes
JPMorgan Chase is subject to the income tax laws of the various
jurisdictions in which it operates, including U.S. federal, state and
local and non-U.S. jurisdictions. These laws are often complex and
may be subject to different interpretations. To determine the finan-
cial statement impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax benefits,
JPMorgan Chase must make assumptions and judgments about
how to interpret and apply these complex tax laws to numerous
transactions and business events, as well as make judgments
regarding the timing of when certain items may affect taxable
income in the U.S. and non-U.S. tax jurisdictions.
JPMorgan Chase’s interpretations of tax laws around the world are
subject to review and examination by the various taxing authorities in
the jurisdictions where the Firm operates, and disputes may occur
regarding its view on a tax position. These disputes over interpreta-
tions with the various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems of the tax
jurisdictions in which the Firm operates. JPMorgan Chase regularly
reviews whether it may be assessed additional income taxes as a
result of the resolution of these matters, and the Firm records addi-
tional reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax laws, legal
interpretations and tax planning strategies. It is possible that revisions
in the Firm’s estimate of income taxes may materially affect the Firm’s
results of operations in any reporting period.
The Firm’s provision for income taxes is composed of current and
deferred taxes. Deferred taxes arise from differences between assets
and liabilities measured for financial reporting versus income tax
return purposes. Deferred tax assets are recognized if, in manage-
ment’s judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets in con-
nection with certain net operating losses. The Firm performs regular
reviews to ascertain whether deferred tax assets are realizable.
These reviews include management’s estimates and assumptions
regarding future taxable income, which also incorporates various
tax planning strategies, including strategies that may be available
to utilize net operating losses before they expire. In connection with
these reviews, if it is determined that a deferred tax asset is not
realizable, a valuation allowance is established. The valuation
allowance may be reversed in a subsequent reporting period if the
Firm determines that, based on revised estimates of future taxable
income or changes in tax planning strategies, it is more likely than
not that all or part of the deferred tax asset will become realizable.
As of December 31, 2010, management has determined it is more
likely than not that the Firm will realize its deferred tax assets, net
of the existing valuation allowance.
The Firm adjusts its unrecognized tax benefits as necessary when
additional information becomes available. Uncertain tax positions
that meet the more-likely-than-not recognition threshold are meas-
ured to determine the amount of benefit to recognize. An uncertain
tax position is measured at the largest amount of benefit that
management believes is more likely than not to be realized upon
settlement. It is possible that the reassessment of JPMorgan
Chase’s unrecognized tax benefits may have a material impact on
its effective tax rate in the period in which the reassessment occurs.
For additional information on income taxes, see Note 27 on pages
271-273 of this Annual Report.