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Income Taxes And Tax-Related Items
 9 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
Income Taxes and Tax-Related Items INCOME TAXES AND TAX-RELATED ITEMSNet unrecognized tax benefits were $13 million and $16 million at September 30, 2023 and December 31, 2022, respectively. The Corporation anticipates that a final settlement of state tax issues will result in a change of $6 million to net unrecognized tax benefits within the next twelve months. Included in accrued expenses and other liabilities on the Consolidated Balance Sheets was a liability for tax-related interest and penalties of $1 million and $5 million at September 30, 2023 and December 31, 2022, respectively. These changes were primarily driven by a state settlement received in the first quarter of 2023.
Net deferred tax assets were $1.4 billion at September 30, 2023, compared to $1.1 billion at December 31, 2022. The increase of $269 million in net deferred tax assets resulted primarily from an increase to deferred tax assets related to hedging losses and an increase in the allowance for loan losses, partially offset by a decrease in deferred compensation. Included in deferred tax assets at September 30, 2023 were $2 million of state net operating loss (NOL) carryforwards and $5 million of federal foreign tax carryforwards, compared to $2 million and $4 million, respectively, at December 31, 2022. State NOL carryforwards expire between 2023 and 2041 and federal foreign tax credit carryforwards expire between 2028 and 2032. The Corporation believes that 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, increased its federal valuation allowance from $4 million at December 31, 2022 to $5 million at September 30, 2023. The Corporation maintained a state valuation allowance of $1 million at both September 30, 2023 and December 31, 2022. The determination regarding valuation allowance was based on evidence of loss carryback capacity, projected future reversals of existing taxable temporary differences to absorb the deferred tax assets and assumptions made regarding future events.
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) or other tax jurisdictions may review and/or challenge specific interpretive tax positions taken by the Corporation with respect to those transactions. The Corporation believes 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.
Based on current knowledge and probability assessment of various potential outcomes, the Corporation believes that 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.