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Income Taxes And Tax-Related Items | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes and Tax-Related Items | INCOME TAXES AND TAX-RELATED ITEMS The provision for income taxes is calculated as the sum of income taxes due for the current year and deferred taxes. Income taxes due for the current year are computed by applying federal and state tax statutes to current year taxable income. Deferred taxes arise from temporary differences between the income tax basis and financial accounting basis of assets and liabilities. Tax-related interest and penalties and foreign taxes are then added to the tax provision. The current and deferred components of the provision for income taxes were as follows:
(in millions) |  |  |  |  |
December 31 | 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |
Federal | $ | 296 |  |  | $ | 212 |  |  | $ | 171 |
Foreign | 6 |  |  | 5 |  |  | 5 |
State and local | 50 |  |  | 26 |  |  | 30 |
Total current | 352 |  |  | 243 |  |  | 206 |
Deferred: |  |  |  |  |
Federal | (24) |  |  | 62 |  |  | (73) |
State and local | (3) |  |  | 17 |  |  | (9) |
Total deferred | (27) |  |  | 79 |  |  | (82) |
Total | $ | 325 |  |  | $ | 322 |  |  | $ | 124 |
Income before income taxes of $1.5 billion for the year ended December 31, 2022 included $48 million of foreign taxable income. The provision for income taxes does not reflect the tax effects of unrealized gains and losses on investment securities available-for-sale, hedging transactions or the change in defined benefit pension and other postretirement plans adjustment included in accumulated other comprehensive (loss) income. Refer to Note 14 for additional information on accumulated other comprehensive (loss) income. A reconciliation of expected income tax expense at the federal statutory rate to the Corporation’s provision for income taxes and effective tax rate follows:
(dollar amounts in millions) | 2022 |  | 2021 |  | 2020
Years Ended December 31 | Amount |  | Rate |  | Amount |  | Rate |  | Amount |  | Rate
Tax based on federal statutory rate | $ | 310 |  |  | 21.0 | % |  | $ | 313 |  |  | 21.0 | % |  | $ | 130 |  |  | 21.0 | %
State income taxes | 36 |  |  | 2.5 |  |  | 35 |  |  | 2.4 |  |  | 18 |  |  | 2.9 |
Affordable housing and historic credits | (13) |  |  | (0.9) |  |  | (13) |  |  | (0.9) |  |  | (12) |  |  | (1.9) |
Bank-owned life insurance | (10) |  |  | (0.7) |  |  | (10) |  |  | (0.6) |  |  | (10) |  |  | (1.6) |
FDIC insurance expense | 6 |  |  | 0.4 |  |  | 5 |  |  | 0.3 |  |  | 7 |  |  | 1.1 |
Employee stock transactions | (3) |  |  | (0.2) |  |  | (3) |  |  | (0.2) |  |  | (1) |  |  | (0.2) |
Tax-related interest and penalties | — |  |  | — |  |  | — |  |  | — |  |  | (2) |  |  | (0.3) |
Other | (1) |  |  | (0.1) |  |  | (5) |  |  | (0.4) |  |  | (6) |  |  | (1.0) |
Provision for income taxes | $ | 325 |  |  | 22.0 | % |  | $ | 322 |  |  | 21.6 | % |  | $ | 124 |  |  | 20.0 | %
The liability for tax-related interest and penalties, included in accrued expenses and other liabilities on the Consolidated Balance Sheets, was $5 million and $6 million at December 31, 2022 and 2021, respectively. In the ordinary course of business, the Corporation enters into certain transactions that have tax consequences. From time to time, the Internal Revenue Service (IRS) may review and/or challenge specific interpretive tax positions taken by the Corporation with respect to those transactions. The Corporation believes that its tax returns were filed based upon applicable statutes, regulations and case law in effect at the time of the transactions. The IRS or other tax jurisdictions, an administrative authority or a court, if presented with the transactions, could disagree with the Corporation’s interpretation of the tax law. A reconciliation of the beginning and ending amount of net unrecognized tax benefits follows:
(in millions) | 2022 |  | 2021 |  | 2020
Balance at January 1 | $ | 18 |  |  | $ | 19 |  |  | $ | 17 |
(Decrease) increase as a result of tax positions taken during a prior period | (2) |  |  | 1 |  |  | 1 |
Increase as a result of tax positions taken during the current period | 3 |  |  | 3 |  |  | 2 |
Decreases related to settlements with tax authorities | (3) |  |  | (3) |  |  | (1) |
Reduction as a result of expiration of statute of limitations | — |  |  | (2) |  |  | — |
Balance at December 31 | $ | 16 |  |  | $ | 18 |  |  | $ | 19 |
After consideration of the effect of the federal tax benefit available on unrecognized state tax benefits, the total amount of unrecognized tax benefits which, if recognized, would affect the Corporation’s effective tax rate was approximately $13 million and $14 million at December 31, 2022 and 2021, respectively. The following tax years for significant jurisdictions remain subject to examination as of December 31, 2022:
Jurisdiction | Tax Years
Federal | 2019-2021
New York | 2018-2021
California | 2006-2007, 2018-2021
The Corporation expects to enter into a settlement agreement with the California Franchise Tax Board related to open years 2006 and 2007 that will result in a change in net unrecognized tax benefits within the next twelve months. As a result of the agreement, the Corporation anticipates a favorable change of approximately $4 million in tax and $3 million in interest and penalties. Based on current knowledge and probability assessment of various potential outcomes, the Corporation believes current tax reserves are adequate, and the amount of any potential incremental liability arising is not expected to have a material adverse effect on the Corporation’s consolidated financial condition or results of operations. Probabilities and outcomes are reviewed as events unfold, and adjustments to the reserves are made when necessary. During 2022, the Corporation received a favorable ruling from the Michigan Supreme Court in its petition to the state for its tax credit transfer regarding tax years 2008 through 2011. The Corporation has recorded a non-income tax benefit of $4 million, with the expectation of another $7 million to be recognized in the following year (amounts are not inclusive of interest.) The principal components of deferred tax assets and liabilities were as follows:
(in millions) |  |  |
December 31 | 2022 |  | 2021
Deferred tax assets: |  |  |
Allowance for depreciation | $ | — |  |  | $ | 7 |
Allowance for loan losses | 128 |  |  | 124 |
Deferred compensation | 84 |  |  | 71 |
Deferred loan origination fees and costs | 12 |  |  | 17 |
Net hedging losses | 290 |  |  | — |
Net unrealized losses on investment securities available-for-sale | 713 |  |  | 30 |
Operating lease liabilities | 85 |  |  | 74 |
Other temporary differences, net | 42 |  |  | 21 |
Total deferred tax assets before valuation allowance | 1,354 |  |  | 344 |
Valuation allowance | (5) |  |  | (5) |
Total deferred tax assets | 1,349 |  |  | 339 |
Deferred tax liabilities: |  |  |
Lease financing transactions | (31) |  |  | (49) |
Defined benefit plans | (123) |  |  | (198) |
Allowance for depreciation | (4) |  |  | — |
Net hedging gains | — |  |  | (17) |
Leasing Right of Use assets | (71) |  |  | (66) |
Total deferred tax liabilities | (229) |  |  | (330) |
Net deferred tax assets | $ | 1,120 |  |  | $ | 9 |
Deferred tax assets included $4 million and $3 million of federal foreign tax credit carryforwards at December 31, 2022 and 2021, respectively, expiring between 2028 and 2031. In addition, there were $2 million and $3 million of state net operating loss (NOL) carryforwards at December 31, 2022 and 2021, respectively, expiring between 2023 and 2041. The Corporation believes it is more likely than not that the benefit from federal foreign tax credits and certain state NOL carryforwards will not be realized and, accordingly, maintains a federal valuation allowance of $4 million and a state valuation allowance of $1 million at December 31, 2022, compared to a federal valuation of $3 million and a state valuation allowance of $2 million in the comparable period in 2021. For further information on the Corporation’s valuation policy for deferred tax assets, refer to Note 1.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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