Regions Bank 2012 Annual Report Download - page 205

realization of its net deferred tax asset. Additional positive evidence supporting the realization of the deferred tax
assets at December 31, 2012 includes the reversal of taxable temporary differences that will offset approximately
$812 million of the gross deferred tax asset and generation of taxable income for the two prior tax years.
The Company believes that a portion of the state net operating loss carryforwards and state tax credit
carryforwards will not be realized due to the length of certain state carryforward periods. Accordingly, a
valuation allowance has been established in the amount of $70 million against such benefits at December 31,
2012 compared to $32 million at December 31, 2011. The valuation allowance increase of $38 million was due
to multiple factors including: forecasted pre-tax income, including the timing of such forecasted income;
forecasted taxable income, including the timing of various temporary differences; the implementation of planning
strategies, if any; and the length of the state statutory carryforward period.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTBs”) is as follows:
2012 2011 2010
(In millions)
Balance at beginning of year (1) ................................................ $ 94 $93 $ 81
Additions based on tax positions related to the current year ...................... 24 6 9
Additions based on tax positions taken in a prior period ......................... 11 10 32
Reductions based on tax positions taken in a prior period ....................... (63) (10) (29)
Settlements ............................................................ (11) (3) —
Expiration of statute of limitations ......................................... — (2) —
Balance at end of year ....................................................... $ 55 $94 $ 93
(1) The unrecognized tax benefit table was corrected to reflect an additional $55 million in the beginning
balance of 2010. As a result of the settlement of an Internal Revenue Service examination in 2012, it was
determined that this amount was more appropriately reflected as an unrecognized tax benefit. The disclosure
relating to the 2011 and 2010 impact on the effective tax rate upon the release of unrecognized tax benefits,
as discussed below, has been similarly adjusted. The Company has determined that the effect of this
adjustment is immaterial to disclosures in prior periods.
During 2012, the Company reached an agreement with the Internal Revenue Service (“IRS”) that effectively
settled the IRS examinations for the tax years 2007, 2008 and 2009. The Revenue Agent’s Report was issued in
2010, which included proposed adjustments that decreased and increased taxable income. In 2011, the Company
filed a protest with the IRS Appeals Division regarding a proposed adjustment to change the timing of certain
deductions. During 2012, the Company reached a resolution on this proposed adjustment and the examination
was settled. This settlement resulted in a $61 million reduction in income tax expense. At this time, the Company
has no expectation that the settlement related to any of the protested adjustments will be reexamined. All federal
tax years subsequent to the above years are open to examination.
With few exceptions, the Company is no longer subject to state and local income tax examinations for tax
years before 2008. Currently, there are disputed tax positions taken in previously filed tax returns with certain
states, including positions regarding investment and intellectual property subsidiaries. The Company continues to
evaluate these positions and intends to defend proposed adjustments made by these tax authorities. The Company
does not anticipate that the ultimate resolution of these examinations will result in a material change to its
business, financial position, results of operations or cash flows.
As a result of the potential resolution of certain federal and state income tax positions, it is reasonably
possible that the UTBs could decrease as much as $22 million during the next twelve months, since resolved
items will be removed from the balance whether their resolution results in payment or recognition in earnings.
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