Bank of America 2006 Annual Report Download - page 146

Income Tax Expense for 2006, 2005 and 2004 varied from the
amount computed by applying the statutory income tax rate to Income
before Income Taxes. A reconciliation between the expected federal
income tax expense using the federal statutory tax rate of 35 percent to
the Corporation’s actual Income Tax Expense and resulting effective tax
rate for 2006, 2005 and 2004 are presented in the following table.
The IRS is currently examining the Corporation’s federal income tax
returns for the years 2000 through 2002. In addition, the federal income
tax returns of FleetBoston and certain other subsidiaries are currently
under examination for years ranging from 1997 through 2004 as well as
the federal income tax returns of MBNA for years ranging from 2001
through 2004. The Corporation’s current estimate of the resolution of
these various examinations is reflected in accrued income taxes; however,
final settlement of the examinations or changes in the Corporation’s esti-
mate may result in future income tax expense or benefit.
2006 2005 2004
(Dollars in millions) Amount Percent Amount Percent Amount Percent
Expected federal income tax expense $11,191 35.0% $8,568 35.0% $7,318 35.0%
Increase (decrease) in taxes resulting from:
Tax-exempt income, including dividends (630) (2.0) (605) (2.5) (526) (2.5)
State tax expense, net of federal benefit 547 1.7 495 2.0 429 2.1
Low income housing credits/other credits (537) (1.7) (423) (1.7) (352) (1.7)
Foreign tax differential (291) (0.9) (99) (0.4) (78) (0.4)
TIPRA – FSC/ETI 175 0.5 –– ––
Other 385 1.3 79 0.3 170 0.8
Total income tax expense $10,840 33.9% $8,015 32.7% $6,961 33.3%
Significant components of the Corporation’s net deferred tax liability at December 31, 2006 and 2005 are presented in the following table.
December 31
(Dollars in millions) 2006 2005
Deferred tax liabilities
Equipment lease financing $ 6,895 $ 6,455
Intangibles 1,198 506
Fee income 1,065 386
Mortgage servicing rights 787 632
Foreign currency 659 251
State income taxes 353 168
Fixed assets – 152
Loan fees and expenses – 142
Other 1,232 1,137
Gross deferred tax liabilities 12,189 9,829
Deferred tax assets
Allowance for credit losses 3,054 2,623
Security valuations 2,703 3,208
Available-for-sale securities 1,632 1,845
Accrued expenses 1,283 1,235
Employee compensation and retirement benefits 1,273 559
Foreign tax credit carryforward 117 169
Other 198 429
Gross deferred tax assets 10,260 10,068
Valuation allowance
(1)
(122) (253)
Total deferred tax assets, net of valuation allowance 10,138 9,815
Net deferred tax liabilities (2) $ 2,051 $14
(1) At December 31, 2006 and 2005, $43 million and $53 million of the valuation allowance related to gross deferred tax assets was attributable to the MBNA and FleetBoston mergers. Future recognition of the tax attributes
associated with these gross deferred tax assets would result in tax benefits being allocated to reduce Goodwill.
(2) The Corporation’s net deferred tax liabilities were adjusted during 2006 and 2005 to include $565 million and $279 million of net deferred tax liabilities related to business combinations accounted for under the purchase
method.
The valuation allowance at December 31, 2006 and 2005 is attribut-
able to deferred tax assets generated in certain state and foreign juris-
dictions for which management believes it is more likely than not that
realization of these assets will not occur. The decrease in the valuation
allowance primarily resulted from a remeasurement of certain state tempo-
rary differences against which valuation allowances had been recorded
and the conclusion of state tax examinations.
The foreign tax credit carryforward reflected in the table above repre-
sents foreign income taxes paid that are creditable against future U.S.
income taxes. If not used, these credits begin to expire after 2013 and
could fully expire after 2016.
The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA)
was signed into law in 2006. Among other things, TIPRA repealed certain
provisions of prior law relating to transactions entered into under the extra-
territorial income and foreign sales corporation regimes. The TIPRA repeal
results in an increase in the U.S. taxes expected to be paid on certain
portions of the income earned from such transactions after December 31,
2006. Accounting for the change in law resulted in the recognition of a
$175 million charge to Income Tax Expense during 2006.
The American Jobs Creation Act of 2004 (the Act) provides U.S.
companies with the ability to elect to apply a special one-time tax
deduction equal to 85 percent of certain earnings remitted from foreign
144 Bank of America 2006