Bank of America 2010 Annual Report Download - page 225

Income tax expense (benefit) for 2010, 2009 and 2008 varied from the
amount computed by applying the statutory income tax rate to income (loss)
before income taxes. A reconciliation between the expected U.S. federal
income tax expense using the federal statutory tax rate of 35 percent to the
Corporation’s actual income tax expense (benefit) and resulting effective tax
rate for 2010, 2009 and 2008 is presented in the table below.
(Dollars in millions) Amount Percent Amount Percent Amount Percent
2010 2009 2008
Expected U.S. federal income tax expense (benefit) $ (463) 35.0% $ 1,526 35.0% $1,550 35.0%
Increase (decrease) in taxes resulting from:
State tax expense (benefit), net of federal effect
233 (17.6) (42) (1.0) 27 0.6
Goodwill impairment and other
4,508 (341.0) –– ––
U.K. corporate tax rate reduction
392 (29.7) –– ––
Nondeductible expenses
99 (7.5) 69 1.6 79 1.8
Leveraged lease tax differential
98 (7.4) 59 1.4 216 4.9
Change in federal deferred tax asset valuation allowance
(1,657) 125.4 (650) (14.9) – –
Tax-exempt income, including dividends
(981) 74.2 (863) (19.8) (631) (14.3)
Low income housing credits/other credits
(732) 55.4 (668) (15.3) (722) (16.3)
Non-U.S. tax differential
(190) 14.4 (709) (16.3) (192) (4.3)
Changes in prior period UTBs (including interest)
(349) 26.4 87 2.0 169 3.8
Loss on certain non-U.S. subsidiary stock
–– (595) (13.7) – –
Other
(43) 3.2 (130) (3.0) (76) (1.7)
Total income tax expense (benefit) $ 915 (69.2)% $(1,916) (44.0)% $ 420 9.5%
The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the table below.
Reconciliation of the Change in Unrecognized Tax Benefits
(Dollars in millions) 2010 2009 2008
Beginning balance $5,253 $3,541 $3,095
Increases related to positions taken during prior years
755 791 688
Increases related to positions taken during the current year
172 181 241
Positions acquired or assumed in business combinations
– 1,924 169
Decreases related to positions taken during prior years
(657) (554) (371)
Settlements
(305) (615) (209)
Expiration of statute of limitations
(49) (15) (72)
Ending balance $5,169 $5,253 $3,541
At December 31, 2010, 2009 and 2008, the balance of the Corporation’s
UTBs which would, if recognized, affect the Corporation’s effective tax rate
was $3.4 billion, $4.0 billion and $2.6 billion, respectively. 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 the portion of gross non-U.S. UTBs that would be offset
by tax reductions in other jurisdictions.
The Corporation is under examination by the IRS and other tax authorities
in countries and states in which it has significant business operations. The
table below summarizes the status of significant examinations for the Cor-
poration and various acquired subsidiaries as of December 31, 2010.
Years under
examination
(1)
Status at
December 31,
2010
Bank of America Corporation – U.S.
(2)
2001 – 2004 In Appeals process
Bank of America Corporation – U.S. 2005 – 2009 Field examination
Bank of America Corporation – New York 1999 – 2004 Field examination
Merrill Lynch – U.S. 2004 In Appeals process
Merrill Lynch – U.S. 2005 – 2008 Field examination
Merrill Lynch – U.K. 2008 Field examination
Merrill Lynch – Japan 2007 – 2009 Field examination
Merrill Lynch – New York 2007 – 2008 Field examination
FleetBoston – U.S. 1997 – 2004 In Appeals process
LaSalle – U.S. 2006 – 2007 Field examination
(1)
All tax years subsequent to the years shown remain open to examination.
(2)
The 2001-2002 years in Appeals process relate to the separate returns of a subsidiary.
In addition to the above examinations, the Corporation is in the process of
appealing an adverse decision by the U.S. Tax Court with respect to a 1987
Merrill Lynch transaction. The income tax associated with this matter has
been remitted and is included in the UTB balance above.
The IRS proposed adjustments for two issues in the audit of Merrill Lynch
for the tax year 2004 which have been protested to the Appeals Office. The
issues involve eligibility for the dividends received deduction and foreign tax
credits with respect to a structured investment transaction. The Corporation
also intends to protest any adjustments the IRS proposes for these same
issues in tax years 2005 through 2007. The IRS has proposed similar
adjustments in the Bank of America Corporation audit cycles currently in
the Appeals process and is expected to propose further adjustments disal-
lowing foreign tax credits related to certain structured investment transac-
tions. The Corporation intends to protest these adjustments in all relevant tax
years.
The Corporation files income tax returns in more than 100 state and
non-U.S. jurisdictions each year and is under continuous examination by
various state and non-U.S. taxing authorities. While many of these examina-
tions are resolved every year, the Corporation does not anticipate that res-
olutions occurring within the next twelve months will result in a material
change to the Corporation’s financial position.
Considering all U.S. federal and non-U.S. examinations, it is reasonably
possible that the UTB balance will decrease by as much as $1.0 billion during
the next twelve months, since resolved items will be removed from the
balance whether their resolution resulted in payment or recognition.
Bank of America 2010 223