JP Morgan Chase 2015 Annual Report Download - page 295

JPMorgan Chase & Co./2015 Annual Report 285
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.
Effective tax rate and expense
A reconciliation of the applicable statutory U.S. income tax
rate to the effective tax rate for each of the years ended
December 31, 2015, 2014 and 2013, is presented in the
following table.
Effective tax rate
Year ended December 31, 2015 2014 2013
Statutory U.S. federal tax rate 35.0% 35.0% 35.0%
Increase/(decrease) in tax rate
resulting from:
U.S. state and local income
taxes, net of U.S. federal
income tax benefit 1.5 2.7 2.2
Tax-exempt income (3.3) (3.1) (3.0)
Non-U.S. subsidiary earnings(a) (3.9) (2.0) (4.8)
Business tax credits (3.7) (3.3) (3.4)
Nondeductible legal expense 0.8 2.3 7.8
Tax audit resolutions (5.7) (1.4) (0.6)
Other, net (0.3) (1.0) (0.3)
Effective tax rate 20.4% 29.2% 32.9%
(a) Predominantly includes earnings of U.K. subsidiaries that are deemed
to be reinvested indefinitely.
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, 2015, 2014, and
2013.
Income tax expense/(benefit)
Year ended December 31,
(in millions) 2015 2014 2013
Current income tax expense/(benefit)
U.S. federal $ 3,160 $ 2,382 $ (654)
Non-U.S. 1,220 1,353 1,308
U.S. state and local 547 857 (4)
Total current income tax expense/
(benefit) 4,927 4,592 650
Deferred income tax expense/(benefit)
U.S. federal 1,213 3,890 7,216
Non-U.S. (95) 71 10
U.S. state and local 215 401 913
Total deferred income tax
expense/(benefit) 1,333 4,362 8,139
Total income tax expense $ 6,260 $ 8,954 $ 8,789
Total income tax expense includes $2.4 billion, $451
million and $531 million of tax benefits recorded in 2015,
2014, and 2013, respectively, as a result of tax audit
resolutions. In 2013, the relationship between current and
deferred income tax expense was largely driven by the
reversal of significant deferred tax assets as well as prior-
year tax adjustments and audit resolutions.
Tax effect of items recorded in stockholders’ equity
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 increase of $1.5 billion in 2015, a
decrease of $140 million in 2014, and an increase of $2.1
billion in 2013.
Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense for the
years ended December 31, 2015, 2014 and 2013.
Year ended December 31,
(in millions) 2015 2014 2013
U.S. $ 23,191 $ 23,422 $ 17,990
Non-U.S.(a) 7,511 7,277 8,685
Income before income tax expense $ 30,702 $ 30,699 $ 26,675
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
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. 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