JP Morgan Chase 2012 Annual Report Download - page 293

JPMorgan Chase & Co./2012 Annual Report 303
Note 26 – Income taxes
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items of
income and expense are realized. JPMorgan Chase’s
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established to reduce deferred tax assets to the amount the
Firm expects to realize.
Due to the inherent complexities arising from the nature of
the Firm’s businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm’s final tax-related assets and liabilities may ultimately
be different from those currently reported.
The components of income tax expense/(benefit) included
in the Consolidated Statements of Income were as follows
for each of the years ended December 31, 2012, 2011, and
2010.
Income tax expense/(benefit)
Year ended December 31,
(in millions) 2012 2011 2010
Current income tax expense
U.S. federal $ 3,225 $ 3,719 $ 4,001
Non-U.S. 1,782 1,183 2,712
U.S. state and local 1,496 1,178 1,744
Total current income tax expense 6,503 6,080 8,457
Deferred income tax expense/(benefit)
U.S. federal 2,238 2,109 (753)
Non-U.S. (327) 102 169
U.S. state and local (781) (518) (384)
Total deferred income tax expense/
(benefit) 1,130 1,693 (968)
Total income tax expense $ 7,633 $ 7,773 $ 7,489
Total income tax expense includes $200 million, $76
million and $485 million of tax benefits recorded in 2012,
2011, and 2010, respectively, as a result of tax audit
resolutions.
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders’ equity and certain tax benefits associated
with the Firm’s employee stock-based compensation plans.
The tax effect of all items recorded directly to stockholders’
equity resulted in a decrease of $1.9 billion in 2012, and
increases of $927 million and $1.8 billion in 2011 and
2010, respectively.
U.S. federal income taxes have not been provided on the
undistributed earnings of certain non-U.S. subsidiaries, to
the extent that such earnings have been reinvested abroad
for an indefinite period of time. During 2012, as part of
JPMorgan Chase’s ongoing review of the business
requirements and capital needs of certain of its non-U.S.
subsidiaries and their associated U.S. parent, the Firm
determined that the undistributed earnings of certain of its
subsidiaries would no longer be indefinitely reinvested. This
determination resulted in the establishment of deferred tax
liabilities and the recognition of an income tax expense of
$80 million associated with prior years’ undistributed
earnings. Based on JPMorgan Chase’s ongoing review of the
business requirements and capital needs of its non-U.S.
subsidiaries, combined with the formation of specific
strategies and steps taken to fulfill these requirements and
needs, the Firm has determined that the undistributed
earnings of certain of its subsidiaries would be indefinitely
reinvested to fund current and future growth of the related
businesses. As management does not intend to use the
earnings of these subsidiaries as a source of funding for its
U.S. operations, such earnings will not be distributed to the
U.S. in the foreseeable future. For 2012, pretax earnings of
approximately $3.1 billion were generated and will be
indefinitely reinvested in these subsidiaries. At
December 31, 2012, the cumulative amount of
undistributed pretax earnings in these subsidiaries
approximated $25.1 billion. If the Firm were to record a
deferred tax liability associated with these undistributed
earnings, the amount would be approximately $5.7 billion
at December 31, 2012.
Tax expense applicable to securities gains and losses for the
years 2012, 2011 and 2010 was $822 million, $617
million, and $1.1 billion, respectively.