INCOME TAXES

We recognize income tax‑related penalties in the Provision for/(Benefit from) income taxes on our consolidated income statement. We recognize accrued interest expense related to unrecognized tax benefits in Automotive interest income and other income/(loss), net and Financial Services other income/(loss), net on our consolidated income statement.

Valuation of Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted tax rates that will apply in the years in which we expect the temporary differences to be recovered or paid.

Our accounting for deferred tax consequences represents our best estimate of the likely future tax consequences of events that have been recognized on our financial statements or tax returns and their future probability. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, we record a valuation allowance.

NOTE 21. INCOME TAXES (Continued)

Components of Income Taxes

Components of income taxes excluding discontinued operations, cumulative effects of changes in accounting principles, other comprehensive income, and equity in net results of affiliated companies accounted for after-tax, for the years ended December 31 were as follows:



	2014			2013			2012
Income before income taxes, excluding equity in net results of affiliated companies accounted for after-tax (in millions)
U.S.	$	4,484		$	6,537		$	6,557
Non-U.S.	(1,417		)	(566		)	493
Total	$	3,067		$	5,971		$	7,050
Provision for/(Benefit from) income taxes (in millions)
Current
Federal	$	(2	)	$	(19	)	$	4
Non-U.S.	389			453			393
State and local	(22		)	(40		)	3
Total current	365			394			400
Deferred
Federal	334			(346		)	1,925
Non-U.S.	186			328			(126		)
State and local	271			(511		)	(173		)
Total deferred	791			(529		)	1,626
Total	$	1,156		$	(135	)	$	2,026
Reconciliation of effective tax rate
U.S. statutory rate	35.0		%	35.0		%	35.0		%
Non-U.S. tax rates under U.S. rates	(2.3		)	(1.4		)	(1.6		)
State and local income taxes	5.2			1.1			0.1
General business credits	(10.9		)	(5.9		)	0.3
Dispositions and restructurings	5.2			(26.0		)	(1.7		)
U.S. tax on non-U.S. earnings	5.5			(2.0		)	(1.0		)
Prior year settlements and claims	(3.7		)	(0.2		)	(1.8		)
Tax-exempt income	(9.7		)	(5.9		)	(3.9		)
Enacted change in tax rates	1.6			3.0			1.7
Valuation allowances	13.0			(0.8		)	1.6
Other	(1.2		)	0.8			—
Effective rate	37.7		%	(2.3		)%	28.7		%

Included in “Dispositions and restructurings” for 2013, is the recognition of deferred tax assets for investments in our European operations. We do not recognize deferred tax assets related to stock investments in affiliates until it becomes apparent they will be realized in the foreseeable future. In the fourth quarter of 2013, we restructured certain of our European affiliates. We made tax elections to include the operating results of these affiliates in our U.S. tax returns. As a result, we realized tax benefits related to stock investments in these European affiliates and recorded deferred tax assets of $1.5 billion.

NOTE 21. INCOME TAXES (Continued)

At December 31, 2014, $4.3 billion of non-U.S. earnings are considered indefinitely reinvested in operations outside the United States, for which deferred taxes have not been provided. Repatriation of these earnings in their entirety would result in a residual U.S. tax liability of about $200 million. Our measure of the amount of non-U.S. earnings considered indefinitely reinvested in operations outside of the United States reflects accumulated earnings determined under U.S. tax law. The reduction in these indefinitely reinvested earnings from year-end 2013 is primarily due to a change in our methodology for measuring currency gains and losses in computing the earnings of our European operations under U.S. tax law.

Components of Deferred Tax Assets and Liabilities

The components of deferred tax assets and liabilities at December 31 were as follows (in millions):



	2014			2013
Deferred tax assets
Employee benefit plans	$	5,898		$	5,060
Net operating loss carryforwards	2,624			2,364
Tax credit carryforwards	6,745			5,720
Research expenditures	1,754			2,236
Dealer and dealers’ customer allowances and claims	2,510			2,106
Other foreign deferred tax assets	298			1,567
Allowance for credit losses	155			143
All other	1,806			2,691
Total gross deferred tax assets	21,790			21,887
Less: valuation allowances	(1,604		)	(1,633		)
Total net deferred tax assets	20,186			20,254
Deferred tax liabilities
Leasing transactions	2,050			1,138
Deferred income	1,624			2,075
Depreciation and amortization (excluding leasing transactions)	1,967			2,430
Finance receivables	647			723
Other foreign deferred tax liabilities	352			311
All other	477			707
Total deferred tax liabilities	7,117			7,384
Net deferred tax assets/(liabilities)	$	13,069		$	12,870

At December 31, 2014, we have a valuation allowance of $1.6 billion primarily for deferred tax assets related to our South America operations.

Operating loss carryforwards for tax purposes were $7.2 billion at December 31, 2014, resulting in a deferred tax asset of $2.6 billion. There is no expiration date for $6 billion of these losses. The remaining losses begin to expire in 2015, though a substantial portion expire beyond 2017. Tax credits available to offset future tax liabilities are $6.8 billion. A substantial portion of these credits have a remaining carryforward period of 10 years or more. Tax benefits of operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances.

NOTE 21. INCOME TAXES (Continued)

Other

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 were as follows (in millions):



	2014			2013
Beginning balance	$	1,564		$	1,547
Increase – tax positions in prior periods	38			128
Increase – tax positions in current period	250			45
Decrease – tax positions in prior periods	(172		)	(24		)
Settlements	(372		)	(79		)
Lapse of statute of limitations	(6		)	(54		)
Foreign currency translation adjustment	(16		)	1
Ending balance	$	1,286		$	1,564

The amount of unrecognized tax benefits that would affect the effective tax rate if recognized were $1.2 billion at December 31, 2014 and 2013.

Examinations by tax authorities have been completed through 2004 in Germany, 2007 in Canada and the United Kingdom, and 2009 in the United States. Although examinations have been completed in these jurisdictions, limited transfer pricing disputes exist for years dating back to 1996.

We recorded on our consolidated income statement $96 million, $11 million, and $9 million in tax-related net interest income for the years ended December 31, 2014, 2013, and 2012. As of December 31, 2014 and 2013, we had recorded a net receivable of $23 million and a net payable of $83 million, respectively, for tax-related interest.

We paid income taxes of $467 million, $538 million, and $344 million in 2014, 2013, and 2012, respectively.