Bank of America 2008 Annual Report Download - page 176

As of December 31, 2008 and 2007, the balance of the Corporation’s
UTBs which would, if recognized, affect the Corporation’s effective tax
rate was $2.6 billion (reflective of the January 1, 2009 adoption of SFAS
141R) and $1.8 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 may impact goodwill
if recognized during the initial measurement period for the acquisition. As
of December 31, 2008 and 2007, the portion of the UTB balance that
could impact goodwill if recognized in the future was $117 million and
$577 million.
The table below summarizes the status of significant U.S. federal
examinations for the Corporation and various acquired subsidiaries as of
December 31, 2008:
Company Years under examination
Status at
December 31, 2008
Bank of America Corporation 2000-2002 In Appeals process
Bank of America Corporation 2003-2005 Field examination
FleetBoston 1997-2000 In Appeals process
FleetBoston 2001-2004 Field examination
LaSalle 2003-2005 In Appeals process
Countrywide 2005-2006 Field examination
Countrywide 2007 Field examination
With the exception of the examinations of the 2003 through 2005 tax
years for the Corporation and the 2007 tax year for Countrywide, and
except as noted below, it is reasonably possible that all above examina-
tions will be concluded during 2009.
During 2008, the Internal Revenue Service (IRS) announced a settle-
ment initiative related to lease-in, lease-out (LILO) and sale-in, lease-out
(SILO) leveraged lease transactions. Pursuant to the settlement initiative,
the Corporation received offers to settle its LILOs and SILOs and
accepted these offers, which impact the years in Appeals and under
examination for the Corporation and FleetBoston. According to the terms
of the settlement initiative, an acceptance will not be binding until a clos-
ing agreement is executed by both parties, which is expected during
2009. The Corporation revised the assumptions used in accounting for
the projected cash flows of the relevant leases to reflect its expectation
of receiving the tax treatment proposed in the leasing settlement ini-
tiative. As a result of prior remittances, the Corporation does not expect
to pay any additional tax and interest related to the settlement initiative.
Upon the execution of a closing agreement for the settlement ini-
tiative, the Corporation’s remaining unagreed proposed adjustment for
the 2000 through 2002 tax years is the disallowance of foreign tax cred-
its related to certain structured investment transactions. The Corporation
continues to believe the crediting of these foreign taxes against U.S.
income taxes was appropriate. Except with respect to the foreign tax
credit issue, management believes it is reasonably possible that the
2000 through 2002 examinations can be concluded within the next
twelve months.
Considering all federal examinations, it is reasonably possible that the
UTB balance will decrease by as much as $650 million during the next
twelve months, since resolved items would be removed from the balance
whether their resolution resulted in payment or recognition.
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
material change to the Corporation’s financial position.
During 2008 and 2007, the Corporation recognized within income tax
expense, $147 million and $161 million of interest and penalties, net of
tax. As of December 31, 2008 and 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 posi-
tions, was $677 million and $573 million.
Significant components of the Corporation’s net deferred tax assets
and liabilities at December 31, 2008 and 2007 are presented in the fol-
lowing table.
December 31
(Dollars in millions) 2008 2007
Deferred tax assets
Allowance for credit losses $ 8,042 $ 4,056
Security and loan valuations 5,590 3,673
Employee compensation and retirement
benefits 2,409 1,541
Accrued expenses 2,271 1,307
Net operating loss carryforwards 1,263 –
Available-for-sale securities 1,149 –
State income taxes 279 –
Other 1,987 73
Gross deferred tax assets 22,990 10,650
Valuation allowance
(1)
(272) (148)
Total deferred tax assets, net of valuation
allowance 22,718 10,502
Deferred tax liabilities
Equipment lease financing 5,720 6,875
Mortgage servicing rights 3,404 859
Intangibles 1,712 2,015
Fee income 1,637 1,445
Available-for-sale securities – 3,836
State income taxes – 347
Other 1,549 1,667
Gross deferred liabilities 14,022 17,044
Net deferred tax assets (liabilities) (2) $ 8,696 $ (6,542)
(1) At December 31, 2008 $115 million of the valuation allowance related to gross deferred tax assets was
attributable to the Countrywide merger. In accordance with SFAS 141R, tax attributes associated with
these gross deferred tax assets could result in tax benefits to reduce goodwill during a portion of 2009.
(2) The Corporation’s net deferred tax assets (liabilities) were adjusted during 2008 and 2007 to include
$3.5 billion of net deferred tax assets and $226 million of net deferred tax liabilities related to business
combinations.
The valuation allowance at December 31, 2008 and 2007 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 certain state deferred tax assets
acquired in the Countrywide merger.
At December 31, 2008 and 2007, federal income taxes had not been
provided on $6.5 billion and $5.8 billion of undistributed earnings of for-
eign subsidiaries, earned prior to 1987 and after 1997 that have been
reinvested for an indefinite period of time. If the earnings were dis-
tributed, an additional $1.1 billion and $925 million of tax expense, net
of credits for foreign taxes paid on such earnings and for the related for-
eign withholding taxes, would have resulted as of December 31, 2008
and 2007.
174 Bank of America 2008