Bank of America 2007 Annual Report Download - page 162

Note 18 – Income Taxes
The components of income tax expense for 2007, 2006 and 2005 were as follows:
(Dollars in millions) 2007 2006 2005
Current income tax expense
Federal $5,210 $ 7,398 $5,229
State
681 796 676
Foreign
804 796 415
Total current expense
6,695 8,990 6,320
Deferred income tax expense (benefit)
Federal (710) 1,807 1,577
State
(18) 45 85
Foreign
(25) (2) 33
Total deferred expense (benefit)
(753) 1,850 1,695
Total income tax expense (1) $5,942 $10,840 $8,015
(1) Does not reflect the deferred tax effects of unrealized gains and losses on AFS debt and marketable equity securities, foreign currency translation adjustments, derivatives, and employee benefit plan adjustments that are
included in accumulated OCI. As a result of these tax effects, accumulated OCI decreased $5.0 billion in 2007 and increased $378 million and $2.9 billion in 2006 and 2005, respectively. Also, does not reflect tax benefits
associated with the Corporation’s employee stock plans which increased common stock and additional paid-in capital $251 million, $674 million and $416 million in 2007, 2006 and 2005, respectively. Goodwill was reduced
$47 million, $195 million and $22 million in 2007, 2006 and 2005, respectively, reflecting certain tax benefits attributable to exercises of employee stock options issued by MBNA and FleetBoston which had vested prior to
the merger dates.
Income tax expense for 2007, 2006 and 2005 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 2007, 2006 and 2005 are presented in the following table.
As a result of the Tax Increase Prevention and Reconciliation Act of
2005 (TIPRA) and the American Jobs Creation Act of 2004 (the AJCA), the
Corporation’s non-U.S. based commercial aircraft leasing business no
longer qualified for a reduced U.S. tax rate. Accounting for the change in
law resulted in the discrete recognition of a $175 million charge to income
tax expense during 2006. However, the AJCA modified the anti-deferral
provisions associated with the active leasing of aircraft operated predom-
inantly outside the U.S. The restructuring of the Corporation’s non-U.S.
based commercial aircraft leasing business in compliance with the provi-
sions of the AJCA resulted in a one-time income tax benefit of $221 mil-
lion in 2007.
2007 2006 2005
(Dollars in millions) Amount Percent Amount Percent Amount Percent
Expected federal income tax expense $7,323 35.0% $11,191 35.0% $8,568 35.0%
Increase (decrease) in taxes resulting from:
Tax-exempt income, including dividends
(683) (3.3) (630) (2.0) (605) (2.5)
Low income housing credits/other credits
(590) (2.8) (537) (1.7) (423) (1.7)
Foreign tax differential
(485) (2.3) (291) (0.9) (99) (0.4)
State tax expense, net of federal benefit
431 2.1 547 1.7 495 2.0
Non-U.S. leasing – TIPRA/AJCA
(221) (1.1) 175 0.5 – –
Other
167 0.8 385 1.3 79 0.3
Total income tax expense $5,942 28.4% $10,840 33.9% $8,015 32.7%
The Corporation adopted the provisions of FIN 48 on January 1,
2007. FIN 48 clarifies the accounting and reporting for income taxes
where interpretation of the tax law may be uncertain. As a result of the
adoption of FIN 48, the Corporation recognized a $198 million increase in
the UTB balance, reducing retained earnings by $146 million and increas-
ing goodwill by $52 million. The beginning UTB balance of $2.7 billion
reconciles to the December 31, 2007 balance in the following table.
Reconciliation of the Change in Unrecognized Tax Benefits
(Dollars in millions)
Balance, January 1, 2007 $2,667
Increases related to positions taken during prior years 67
Increases related to positions taken during the current year 456
Positions acquired or assumed in business combinations 328
Decreases related to positions taken during prior years (227)
Settlements (108)
Expiration of statute of limitations (88)
Balance, December 31, 2007 $3,095
160 Bank of America 2007