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1.0.0.3 false Income taxes false 1 $ false false Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 USDEPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 2 Income taxes [Abstract] 0 us-gaap_IncomeTaxExpenseBenefitAbstract us-gaap true na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false No definition available. false 3 Income taxes 1 us-gaap_IncomeTaxDisclosureTextBlock us-gaap true na duration string No definition available. false false false false false false false false false 1 false false 0 0   <div style="font-family: Helvetica,Arial,sans-serif"> <div style="position: relative"> <div align="left" style="font-size: 12pt; margin-top: 12pt"><b>Note 27 – Income taxes</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">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, 2009, 2008 and 2007. </div> <div align="center"> <table style="font-size: 8pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left">Year ended December 31, (in millions)</td> <td> </td> <td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2">2008</td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2">2007</td> <td> </td> </tr>   <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Current income tax expense </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">U.S. federal </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>4,698</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">395</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,805</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Non-U.S. </div></td> <td> </td> <td> </td> <td align="right"><b>2,368</b></td> <td> </td> <td> </td> <td> </td> <td align="right">1,009</td> <td> </td> <td> </td> <td> </td> <td align="right">2,985</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">U.S. state and local </div></td> <td> </td> <td> </td> <td align="right"><b>971</b></td> <td> </td> <td> </td> <td> </td> <td align="right">307</td> <td> </td> <td> </td> <td> </td> <td align="right">343</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px"><b>Total current income tax expense</b> </div></td> <td> </td> <td> </td> <td align="right"><b>8,037</b></td> <td> </td> <td> </td> <td> </td> <td align="right">1,711</td> <td> </td> <td> </td> <td> </td> <td align="right">6,133</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Deferred income tax expense/ (benefit) </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">U.S. federal </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(2,867</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(3,015</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">1,122</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Non-U.S. </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(454</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td> </td> <td align="right">1</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(185</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">U.S. state and local </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(301</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td> </td> <td align="right">377</td> <td> </td> <td> </td> <td> </td> <td align="right">370</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px"><b>Total deferred income tax expense/(benefit)</b> </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(3,622</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(2,637</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">1,307</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Total income tax expense/ (benefit) before extraordinary gain</b> </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>4,415</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(926</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">7,440</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 2px solid #000000"> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Total income tax expense includes $280 million, $55 million and $74 million of tax benefits recorded in 2009, 2008 and 2007, respectively, as a result of tax audit resolutions. </div> </div> <div style="position: relative"> <div align="left" style="font-size: 10pt; margin-top: 6pt">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 table also does not reflect the cumulative tax effects of initially implementing new accounting pronouncements in 2007. The tax effect of all items recorded directly to stockholders’ equity resulted in a decrease of $3.7 billion in 2009 and an increase in stockholders’ equity of $3.0 billion and $159 million in 2008 and 2007, respectively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">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 2008, as part of JPMorgan Chase’s periodic 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 determined that the undistributed earnings of certain of its subsidiaries, for which U.S. federal income taxes had been provided, will be indefinitely reinvested to fund the 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. This determination resulted in the release of deferred tax liabilities and the recognition of an income tax benefit of $1.1 billion associated with these undistributed earnings. For 2009, pretax earnings of approximately $2.8 billion were generated that will be indefinitely reinvested in these subsidiaries. At December 31, 2009, the cumulative amount of undistributed pretax earnings in these subsidiaries approximated $15.7 billion. If the Firm were to record a deferred tax liability associated with these undistributed earnings, the amount would be $3.6 billion at December 31, 2009. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The tax expense applicable to securities gains and losses for the years 2009, 2008 and 2007 was $427 million, $608 million, and $60 million, respectively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">A reconciliation of the applicable statutory U.S. income tax rate to the effective tax rate for each of the years ended December 31, 2009, 2008 and 2007, is presented in the following table. </div> <div align="center"> <table style="font-size: 8pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left">Year ended December 31,</td> <td> </td> <td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2">2008</td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2">2007</td> <td> </td> </tr>   <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Statutory U.S. federal tax rate </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>35.0</b></td> <td nowrap="nowrap"><b>%</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">35.0</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">35.0</td> <td nowrap="nowrap">%</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Increase/(decrease) in tax rate resulting from: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">U.S. state and local income taxes, net of U.S. federal income tax benefit </div></td> <td> </td> <td> </td> <td align="right"><b>2.7</b></td> <td> </td> <td> </td> <td> </td> <td align="right">16.0</td> <td> </td> <td> </td> <td> </td> <td align="right">2.0</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Tax-exempt income </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(3.9</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(14.8</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(2.4</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Non-U.S. subsidiary earnings </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(1.7</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(53.6</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1.1</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Business tax credits </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(5.5</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(24.5</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(2.5</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Bear Stearns equity losses </div></td> <td> </td> <td> </td> <td align="right"><b>—</b></td> <td> </td> <td> </td> <td> </td> <td align="right">5.7</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Other, net </div></td> <td> </td> <td> </td> <td align="right"><b>0.9</b></td> <td> </td> <td> </td> <td> </td> <td align="right">2.8</td> <td> </td> <td> </td> <td> </td> <td align="right">1.6</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Effective tax rate</b> </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>27.5</b></td> <td nowrap="nowrap"><b>%</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(33.4</td> <td nowrap="nowrap">)%</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">32.6</td> <td nowrap="nowrap">%</td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr>  </table> </div> </div> <div align="center"> <table style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="47%"></td> <td width="5%"></td> <td width="47%"></td> </tr>   <tr valign="bottom">  <td align="left" valign="top"></td> <td></td> <td align="right" valign="top"></td> </tr> <tr valign="bottom"> <td align="left" valign="top"></td> <td></td> <td align="right" valign="top"></td> </tr>  </table> </div>   </div>  <div style="font-family: Helvetica,Arial,sans-serif"> <div style="position: relative"> <div align="left" style="font-size: 10pt; margin-top: 6pt">Deferred income tax expense/(benefit) results from differences between assets and liabilities measured for financial reporting versus income-tax return purposes. The significant components of deferred tax assets and liabilities are reflected in the following table as of December 31, 2009 and 2008. </div> <div align="center"> <table style="font-size: 8pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left">December 31, (in millions)</td> <td> </td> <td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2">2008</td> <td> </td> </tr>   <tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Deferred tax assets</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Allowance for loan losses </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>12,376</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">8,029</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Employee benefits </div></td> <td> </td> <td> </td> <td align="right"><b>4,424</b></td> <td> </td> <td> </td> <td> </td> <td align="right">4,841</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Allowance for other than loan losses </div></td> <td> </td> <td> </td> <td align="right"><b>3,995</b></td> <td> </td> <td> </td> <td> </td> <td align="right">3,686</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Non-U.S. operations </div></td> <td> </td> <td> </td> <td align="right"><b>1,926</b></td> <td> </td> <td> </td> <td> </td> <td align="right">2,504</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Tax attribute carryforwards </div></td> <td> </td> <td> </td> <td align="right"><b>912</b></td> <td> </td> <td> </td> <td> </td> <td align="right">1,383</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Fair value adjustments<sup style="font-size: 85%; vertical-align: text-top">(a)</sup> </div></td> <td> </td> <td> </td> <td align="right"><b>—</b></td> <td> </td> <td> </td> <td> </td> <td align="right">2,565</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px"><b>Gross deferred tax assets</b> </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>23,633</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">23,008</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Deferred tax liabilities</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Depreciation and amortization </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>4,832</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,681</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Leasing transactions </div></td> <td> </td> <td> </td> <td align="right"><b>2,054</b></td> <td> </td> <td> </td> <td> </td> <td align="right">1,895</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Non-U.S. operations </div></td> <td> </td> <td> </td> <td align="right"><b>1,338</b></td> <td> </td> <td> </td> <td> </td> <td align="right">946</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Fee income </div></td> <td> </td> <td> </td> <td align="right"><b>670</b></td> <td> </td> <td> </td> <td> </td> <td align="right">1,015</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Fair value adjustments<sup style="font-size: 85%; vertical-align: text-top">(a)</sup> </div></td> <td> </td> <td> </td> <td align="right"><b>328</b></td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Other, net </div></td> <td> </td> <td> </td> <td align="right"><b>147</b></td> <td> </td> <td> </td> <td> </td> <td align="right">202</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px"><b>Gross deferred tax liabilities</b> </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>9,369</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">8,739</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Valuation allowance </div></td> <td> </td> <td> </td> <td align="right"><b>1,677</b></td> <td> </td> <td> </td> <td> </td> <td align="right">1,266</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Net deferred tax asset</b> </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>12,587</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">13,003</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top: 2px solid #000000"> </td> </tr>  </table> </div> <div align="left"> <div style="font-size: 3pt; margin-top: 3pt; width: 18%; border-top: 0px solid #000000">  </div> </div> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt; text-align: left"> <tr> <td width="3%"></td> <td width="1%"></td> <td width="96"></td> </tr> <tr valign="top"> <td nowrap="nowrap" align="left">(a)</td> <td> </td> <td>Includes fair value adjustments related to AFS securities, cash flows hedging activities and other portfolio investments.</td> </tr> </table> <div align="left" style="font-size: 10pt; margin-top: 6pt">JPMorgan Chase has recorded deferred tax assets of $912 million at December 31, 2009, in connection with U.S. federal, state and local and non-U.S. subsidiary net operating loss carryforwards. At December 31, 2009, the U.S. federal net operating loss carryforward was approximately $1.2 billion, the state and local net operating loss carryforwards were approximately $4.4 billion and the non-U.S. subsidiary net operating loss carryforward was $768 million. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">If not utilized, the U.S. federal net operating loss carryforward will expire in 2027 and the state and local net operating loss carryforwards will expire in years 2026, 2027 and 2028. The non-U.S. subsidiary net operating loss carryforward has an unlimited carryforward period. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">A valuation allowance has been recorded for losses associated with non-U.S. subsidiaries and certain portfolio investments, and certain state and local tax benefits. The increase in the valuation allowance from 2008 was predominantly related to non-U.S. subsidiaries. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">At December 31, 2009, 2008 and 2007, JPMorgan Chase’s unrecognized tax benefits, excluding related interest expense and penalties, were $6.6 billion, $5.9 billion and $4.8 billion, respectively, of which $3.5 billion, $2.9 billion and $1.3 billion, respectively, if recognized, would reduce the annual effective tax rate. As JPMorgan Chase is presently under audit by a number of tax authorities, it is reasonably possible that unrecognized tax benefits could significantly change over the next 12 months, which could also significantly impact JPMorgan Chase’s quarterly and annual effective tax rates. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2009, 2008 and 2007. </div> </div> <div style="position: relative"> <div align="center"> <table style="font-size: 8pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left"><b>Unrecognized tax benefits</b></td> <td> </td> <td nowrap="nowrap" align="right" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left">Year ended December 31, (in millions)</td> <td> </td> <td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2">2008</td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2">2007</td> <td> </td> </tr>   <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at January 1, </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>5,894</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,811</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,677</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Increases based on tax positions related to the current period </div></td> <td> </td> <td> </td> <td align="right"><b>584</b></td> <td> </td> <td> </td> <td> </td> <td align="right">890</td> <td> </td> <td> </td> <td> </td> <td align="right">434</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Decreases based on tax positions related to the current period </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(6</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(109</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(241</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Increases associated with the Bear Stearns merger </div></td> <td> </td> <td> </td> <td align="right"><b>—</b></td> <td> </td> <td> </td> <td> </td> <td align="right">1,387</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Increases based on tax positions related to prior periods </div></td> <td> </td> <td> </td> <td align="right"><b>703</b></td> <td> </td> <td> </td> <td> </td> <td align="right">501</td> <td> </td> <td> </td> <td> </td> <td align="right">903</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Decreases based on tax positions related to prior periods </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(322</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1,386</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(791</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Decreases related to settlements with taxing authorities </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(203</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(181</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(158</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Decreases related to a lapse of applicable statute of limitations </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(42</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(19</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(13</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Balance at December 31,</b> </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>6,608</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">5,894</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,811</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 2px solid #000000"> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Pretax interest expense and penalties related to income tax liabilities recognized in income tax expense were $154 million ($101 million after-tax) in 2009; $571 million ($346 million after-tax) in 2008; and $516 million ($314 million after-tax) in 2007. Included in accounts payable and other liabilities at December 31, 2009 and 2008, in addition to the Firm’s liability for unrecognized tax benefits, was $2.4 billion and $2.3 billion, respectively, for income tax-related interest and penalties, of which the penalty component was insignificant. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">JPMorgan Chase is subject to ongoing tax examinations by the tax authorities of the various jurisdictions in which it operates, including U.S. federal, state and local, and non-U.S. jurisdictions. The Firm’s consolidated federal income tax returns are presently under examination by the Internal Revenue Service (“IRS”) for the years 2003, 2004 and 2005. The consolidated federal income tax returns of Bear Stearns for the years ended November 30, 2003, 2004 and 2005, are also under examination. Both examinations are expected to conclude in 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The IRS audits of the consolidated federal income tax returns of JPMorgan Chase for the years 2006, 2007 and 2008, and for Bear Stearns for the years ended November 30, 2006, November 30, 2007, and for the period December 1, 2007, through May 30, 2008, are expected to commence in 2010. Administrative appeals are pending with the IRS relating to prior periods that were examined. For 2002 and prior years, refund claims relating to income and credit adjustments, and to tax attribute carrybacks, for JPMorgan Chase and its predecessor entities, including Bank One, have been filed. Amended returns to reflect refund claims primarily attributable to net operating losses and tax credit carrybacks will be filed for the final Bear Stearns U.S. federal consolidated tax return for the period December 1, 2007, through May 30, 2008, and for prior years. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On January 1, 2007, the Firm adopted FASB guidance which addresses the recognition and measurement of tax positions taken or expected to be taken, and also guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure, to all of its income tax positions, resulting in a $436 million cumulative effect increase to retained earnings, a reduction in goodwill of $113 million and a $549 million decrease in the liability for income taxes. </div> </div> <div align="center"> <table style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="47%"></td> <td width="5%"></td> <td width="47%"></td> </tr>   <tr valign="bottom">  <td align="left" valign="top"></td> <td></td> <td align="right" valign="top"></td> </tr> <tr valign="bottom"> <td align="left" valign="top"></td> <td></td> <td align="right" valign="top"></td> </tr>  </table> </div>   </div>  <div style="font-family: Helvetica,Arial,sans-serif"> <div align="left" style="font-size: 12pt; margin-top: 0pt"> <b> </b> </div> <div style="position: relative"> <div align="left" style="font-size: 10pt; margin-top: 6pt">The following table presents the U.S. and non-U.S. components of income before income tax expense/(benefit) and extraordinary gain for the years ended December 31, 2009, 2008 and 2007. </div> <div align="center"> <table style="font-size: 8pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left">Year ended December 31, (in millions)</td> <td> </td> <td nowrap="nowrap" align="right" colspan="2"><b>2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2">2008</td> <td> </td> <td> </td> <td nowrap="nowrap" align="right" colspan="2">2007</td> <td> </td> </tr>   <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">U.S. </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>6,263</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(2,094</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">13,720</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Non-U.S.<sup style="font-size: 85%; vertical-align: text-top">(a) </sup> </div></td> <td> </td> <td> </td> <td align="right"><b>9,804</b></td> <td> </td> <td> </td> <td> </td> <td align="right">4,867</td> <td> </td> <td> </td> <td> </td> <td align="right">9,085</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Income before income tax expense/(benefit) and extraordinary gain</b> </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>16,067</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,773</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">22,805</td> <td> </td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 2px solid #000000"> </td> </tr>  </table> </div> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt; text-align: left"> <tr> <td width="3%"></td> <td width="1%"></td> <td width="96"></td> </tr> <tr valign="top"> <td nowrap="nowrap" align="left">(a)</td> <td> </td> <td>For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S.</td> </tr> </table> </div> </div>  <!-- Begin Block Tagged Note false false No definition available. 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