In the table above, U.S. federal current tax expense and U.S. federal deferred tax benefit in 2018 includes the impact of the Tax Cuts and Jobs Act (Tax Legislation).

The table below presents a reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate.



	Year Ended December

		2020		2019		2018
U.S. federal statutory income tax rate		21.0%		21.0%		21.0%
State and local taxes, net of U.S. federal benefit		3.1		2.9		2.0
Settlement of employee share-based awards		(1.0	)	(0.6	)	(2.2	)
Non-U.S. operations		(2.4	)	(3.6	)	(0.7	)
Tax credits		(1.2	)	(1.8	)	(1.4	)
Tax-exempt income, including dividends		(0.6	)	(1.0	)	(0.6	)
Tax Legislation		–		–		(3.9	)
Non-deductible legal expenses		5.6		2.1		1.2
Other		(0.3	)	1.0		0.8
Effective income tax rate		24.2%		20.0%		16.2%

In the table above,

Non-U.S.

operations include the impact of the Base Erosion and Anti-Abuse Tax and Global Intangible Low Taxed Income (GILTI).

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities. These temporary differences result in taxable or deductible amounts in future years and are measured using the tax rates and laws that will be in effect when such differences are expected to reverse. Valuation allowances are established to reduce deferred tax assets to the amount that more likely than not will be realized and primarily relate to the ability to utilize losses in various tax jurisdictions. Tax assets are included in other assets and tax liabilities are included in other liabilities.

The table below presents information about deferred tax assets and liabilities, excluding the impact of netting within tax jurisdictions.



	As of December

$ in millions		2020		2019
Deferred tax assets
Compensation and benefits		$1,609		$1,351
ASC 740 asset related to unrecognized tax benefits		200		279
Non-U.S. operations		737		472
Net operating losses		510		411
Occupancy-related		138		135
Other comprehensive income-related		282		407
Tax credits carryforward		34		59
Operating lease liabilities		618		637
Allowance for credit losses		1,054		433
Other, net		333		160
Subtotal		5,515		4,344
Valuation allowance		(551	)	(467	)
Total deferred tax assets		$4,964		$3,877
Deferred tax liabilities
Depreciation and amortization		$1,153		$1,022
Unrealized gains		1,120		1,196
Operating lease right-of-use assets		581		595
Total deferred tax liabilities		$2,854		$2,813

The firm has recorded deferred tax assets of $510 million as of December 2020 and $411 million as of December 2019, in connection with U.S. federal, state and local and foreign net operating loss carryforwards. The firm also recorded a valuation allowance of $79 million as of both December 2020 and December 2019, related to these net operating loss carryforwards.

As of December 2020, the U.S. federal net operating loss carryforward was $1.00 billion, the state and local net operating loss carryforward was $1.07 billion, and the foreign net operating loss carryforward was $1.06 billion. If not utilized, the U.S. federal

the state and local, and foreign net operating loss carryforwards will begin to expire in 2021. If these carryforwards expire, they will not have a material impact on the firm’s results of operations. As of December 2020, the firm has recorded deferred tax assets of $14 million in connection with general business credit carryforwards and $20 million in connection with state and local tax credit carryforwards. If not utilized, the general business credit carryforward will begin to expire in 2021 and the state and local tax credit carryforward will begin to expire in 2023. As of December 2020, the firm did not have any foreign tax credit carryforwards.

As of both December 2020 and December 2019, the firm had no U.S. capital loss carryforwards and no related net deferred income tax assets. As of December 2020, the firm had deferred tax assets of $258 million in connection with foreign capital loss carryforwards and a valuation allowance of $258 million related to these capital loss carryforwards.

The valuation allowance increased by $84 million during 2020 and increased by $222 million during 2019. The increases in both 2020 and 2019 were primarily due to an increase in deferred tax assets from which the firm does not expect to realize any benefit.

The firm permanently reinvested eligible earnings of certain foreign subsidiaries. As of both December 2020 and December 2019, all U.S. taxes were accrued on these subsidiaries’ distributable earnings, substantially all of which resulted from the Tax Legislation repatriation tax and GILTI.

Unrecognized Tax Benefits

The firm recognizes tax positions in the consolidated financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the consolidated financial statements.

The accrued liability for interest expense related to income tax matters and income tax penalties was $129 million as of December 2020 and $198 million as of December 2019. The firm recognized interest expense and income tax penalties of $41 million for 2020, $60 million for 2019 and $18 million for 2018. It is reasonably possible that unrecognized tax benefits could change significantly during the twelve months subsequent to December 2020 due to potential audit settlements. However, at this time it is not possible to estimate any potential change.

The table below presents the changes in the liability for unrecognized tax benefits, which is included in other liabilities.



	Year Ended or as of December

$ in millions		2020		2019		2018
Beginning balance		$1,445		$1,051		$ 665
Increases based on current year tax positions		164		131		197
Increases based on prior years’ tax positions		209		441		232
Decreases based on prior years’ tax positions		(205	)	(54	)	(39	)
Decreases related to settlements		(367	)	(125	)	(3	)
Exchange rate fluctuations		5		1		(1	)
Ending balance		$1,251		$1,445		$1,051
Related deferred income tax asset		200		279		152
Net unrecognized tax benefit		$1,051		$1,166		$ 899

Regulatory Tax Examinations

The firm is subject to examination by the U.S. Internal Revenue Service (IRS) and other taxing authorities in jurisdictions where the firm has significant business operations, such as the United Kingdom, Japan, Hong Kong and various states, such as New York. The tax years under examination vary by jurisdiction. The firm does not expect completion of these audits to have a material impact on the firm’s financial condition, but it may be material to operating results for a particular period, depending, in part, on the operating results for that period.

The table below presents the earliest tax years that remain subject to examination by major jurisdiction.



Jurisdiction			As of December 2020
U.S. Federal			2011
New York State and City			2015
United Kingdom			2017
Japan			2015
Hong Kong			2014

The firm has been accepted into the Compliance Assurance Process program by the IRS for each of the tax years from 2013 through 2020 and submitted an application for 2021. This program allows the firm to work with the IRS to identify and resolve potential U.S. Federal tax issues before the filing of tax returns. The fieldwork for tax years 2011 through 2017 has been completed. During 2020, the firm reached an agreement with the IRS on certain items related to tax years through 2017, which did not have a material impact on the effective tax rate. The final resolution of the audit for tax years 2011 through 2017 is not expected to have a material impact on the effective tax rate. The 2018 and 2019 tax years remain subject to post-filing review.

During 2020, New York State and City examinations (excluding GS Bank USA) of 2011 through 2014 were completed. The resolution of these examinations did not have a material impact on the effective tax rate. New York State and City examinations for GS Bank USA through 2014 were completed in 2016. New York State and City examinations of 2015 through 2018 are expected to commence in 2021.

All years, including and subsequent to the years in the table above, remain open to examination by the taxing authorities. The firm believes that the liability for unrecognized tax benefits it has established is adequate in relation to the potential for additional assessments.