Bank of America 2009 Annual Report Download - page 198

Income tax expense (benefit) for 2009, 2008 and 2007 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 (benefit) and resulting effec-
tive tax rate for 2009, 2008 and 2007 is presented in the following table.
2009 2008 2007
(Dollars in millions) Amount Percent Amount Percent Amount Percent
Expected federal income tax expense $ 1,526 35.0% $1,550 35.0% $7,323 35.0%
Increase (decrease) in taxes resulting from:
State tax expense (benefit), net of federal effect (42) (1.0) 27 0.6 431 2.1
Tax-exempt income, including dividends (863) (19.8) (631) (14.3) (683) (3.3)
Foreign tax differential (709) (16.3) (192) (4.3) (485) (2.3)
Low income housing credits/other credits (668) (15.3) (722) (16.3) (590) (2.8)
Change in U.S. federal valuation allowance (650) (14.9) –– ––
Loss on certain foreign subsidiary stock (595) (13.7) –– ––
Non-U.S. leasing — restructuring – –– – (221) (1.1)
Leveraged lease tax differential 59 1.4 216 4.9 148 0.7
Changes in prior period UTBs (including interest) 87 2.0 169 3.8 143 0.7
Other (61) (1.4) 3 0.1 (124) (0.6)
Total income tax expense (benefit) $(1,916) (44.0)% $ 420 9.5% $5,942 28.4%
The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the following table.
Reconciliation of the Change in Unrecognized Tax Benefits
(Dollars in millions) 2009 2008 2007
Beginning balance $3,541 $3,095 $2,667
Increases related to positions taken during prior years 791 688 67
Increases related to positions taken during the current year 181 241 456
Positions acquired or assumed in business combinations 1,924 169 328
Decreases related to positions taken during prior years (554) (371) (227)
Settlements (615) (209) (108)
Expiration of statute of limitations (15) (72) (88)
Ending balance $5,253 $3,541 $3,095
As of December 31, 2009, 2008 and 2007, the balance of the Corpo-
ration’s UTBs which would, if recognized, affect the Corporation’s effec-
tive tax rate was $4.0 billion, $2.6 billion and $1.8 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 por-
tion of gross foreign UTBs that would be offset by tax reductions in other
jurisdictions.
The Corporation is under examination by the IRS and other tax author-
ities in countries and states in which it has significant business oper-
ations. The table below summarizes the status of significant U.S. federal
examinations (unless otherwise noted) for the Corporation and various
acquired subsidiaries as of December 31, 2009.
Years under
examination
(1)
Status at
December 31, 2009
Bank of America Corporation 2000-2002 In Appeals process
Bank of America Corporation 2003-2005 Field examination
Merrill Lynch – U.S. 2004 In Appeals process
Merrill Lynch – U.S. 2005-2007 Field examination
Merrill Lynch – U.K. 2007 Field examination
FleetBoston 1997-2000 In Appeals process
FleetBoston 2001-2004 Field examination
LaSalle 2003-2005 Field examination
Countrywide 2005-2006 Field examination
Countrywide 2007 Field examination
(1) All tax years in material jurisdictions subsequent to the above years remain open to examination.
In addition to the above examinations, the Corporation is in the proc-
ess 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.
With the exception of the 2003 through 2005 tax years of Bank of
America and the issues for which protests have been filed for Bank of
America and Merrill Lynch as described below, it is reasonably possible
that all above U.S. federal examinations will be concluded during the next
twelve months.
During 2008, the IRS announced a settlement initiative related to
lease-in, lease-out (LILO) and sale-in, lease-out (SILO) leveraged lease
transactions. The Corporation executed closing agreements under this
settlement initiative in late 2009 for all of these transactions for Bank of
America Corporation and predecessor companies. Determinations of final
tax and interest are expected to be finalized by the end of the first quarter
of 2010. As a result of prior remittances, the Corporation does not expect
to pay additional tax and interest related to the settlement initiative.
The remaining unagreed proposed adjustment for Bank of America
Corporation for 2000 through 2002 tax years is the disallowance of for-
eign tax credits related to certain structured investment transactions. The
Corporation continues to believe the crediting of these foreign taxes
against U.S. income taxes was appropriate and has filed a protest to that
effect with the Appeals Office.
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
196 Bank of America 2009