Bank of America 2007 Annual Report Download - page 163

As of December 31, 2007 and January 1, 2007, the balance of the
Corporation’s UTBs which would, if recognized, affect the Corporation’s
effective tax rate was $1.8 billion and $1.5 billion. Included in the UTB
balance are some items the recognition of which would not affect the
effective tax rate, such as the tax effect of certain temporary differences,
the portion of gross state UTBs that would be offset by the tax benefit of
the associated federal deduction and UTBs related to acquired entities
that will impact goodwill if recognized. Once SFAS 141R is effective,
beginning January 1, 2009, any change in the UTBs related to acquired
entities that occurs beyond the measurement period will not impact good-
will but will instead be recognized in earnings. The portion of the
December 31, 2007 UTB balance that, if recognized after the adoption of
SFAS 141R, would impact the effective tax rate was $577 million.
During 2007, the IRS completed the examination phase of the audit
of the Corporation’s federal income tax returns for the years 2000 through
2002 and issued Revenue Agent’s Reports (RAR) to the Corporation.
Included in these RARs were proposed adjustments to disallow certain
foreign tax credits and to recharacterize certain leveraged leases referred
to by the IRS as “SILOs.” The Corporation filed protests of these proposed
adjustments as well as certain other of the RAR adjustments with the
Appeals office of the IRS. The Corporation believes the crediting of the
Corporation’s foreign taxes against U.S. income taxes was appropriate.
Further, the Corporation believes the tax treatment of the SILO position as
true leases for U.S. income tax purposes is supported by the relevant
facts and tax authorities. However, final determination of the audit or
changes in the Corporation’s estimate may result in future income tax
expense or benefit. The Corporation’s federal income tax returns for the
years 2003 and 2004 remain under examination by the IRS. In addition,
the federal income tax returns of FleetBoston are currently under examina-
tion for the years 1997 through March 31, 2004. Upon the final determi-
nation of each of the above audits, the UTB balance will decrease, since
resolved items would be removed from the balance whether their reso-
lution resulted in payment or recognition. The Corporation does not expect
these matters to be concluded within the next twelve months.
The federal income tax returns of LaSalle are currently under examina-
tion for the years 2003 through 2005. The Corporation anticipates that it
is reasonably possible that the final determination of these audits will
occur during 2008 and does not anticipate that such resolution would
result in a material change to the Corporation’s financial position.
Finally, the audit of the federal income tax returns of MBNA for the
tax years 2001 through 2004 was completed during 2007.
All tax years subsequent to the above years remain open to examina-
tion.
The Corporation files income tax returns in more than 100 state and
foreign jurisdictions each year and is under continuous examination by
various state and foreign taxing authorities. While many of these examina-
tions are resolved every year, the Corporation does not anticipate that
resolutions occurring within the next twelve months would result in a mate-
rial change to the Corporation’s financial position.
During 2007, the Corporation recognized $161 million, net of taxes,
of interest and penalties within income tax expense. As of December 31,
2007 and January 1, 2007, the Corporation’s accrual for interest and
penalties that related to income taxes, net of taxes and remittances,
including applicable interest on certain leveraged lease positions, was
$573 million and $769 million. The decrease during 2007 primarily
resulted from remittances to the IRS to stop the potential accrual of inter-
est on certain items relating to the above examinations.
Significant components of the Corporation’s net deferred tax liability
at December 31, 2007 and 2006 are presented in the following table.
December 31
(Dollars in millions) 2007 2006
Deferred tax liabilities
Equipment lease financing $ 6,875 $ 6,895
Available-for-sale securities 3,836 –
Intangibles 2,015 1,198
Fee income 1,445 1,065
Mortgage servicing rights 859 787
State income taxes 347 353
Foreign currency 47 659
Other 1,620 1,232
Gross deferred tax liabilities 17,044 12,189
Deferred tax assets
Allowance for credit losses 4,056 3,054
Security valuations 3,673 2,703
Employee compensation and retirement benefits 1,541 1,273
Accrued expenses 1,307 1,283
Available-for-sale securities – 1,632
Foreign tax credit carryforward – 117
Other 73 198
Gross deferred tax assets 10,650 10,260
Valuation allowance
(1)
(148) (122)
Total deferred tax assets, net of valuation
allowance 10,502 10,138
Net deferred tax liabilities (2) $ 6,542 $ 2,051
(1) At December 31, 2007 and 2006, $37 million and $43 million of the valuation allowance related to gross
deferred tax assets was attributable to the U.S. Trust Corporation, MBNA and FleetBoston mergers.
Future recognition, if occurring prior to the adoption of SFAS 141R, 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 2007 and 2006 to include $226 million
and $565 million of net deferred tax liabilities related to business combinations.
The valuation allowance at December 31, 2007 and 2006 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 change in the valuation
allowance primarily resulted from current year losses in foreign juris-
dictions offset by the remeasurement of certain state temporary differ-
ences against which valuation allowances had been recorded.
At December 31, 2007 and 2006, federal income taxes had not
been provided on $5.8 billion and $4.4 billion of undistributed earnings of
foreign subsidiaries, earned prior to 1987 and after 1997 that have been
reinvested for an indefinite period of time. If the earnings were distributed,
an additional $925 million and $573 million of tax expense, net of credits
for foreign taxes paid on such earnings and for the related foreign with-
holding taxes, would have resulted as of December 31, 2007 and 2006.
Bank of America 2007 161