Capital One 2005 Annual Report Download - page 96

Note 14
In
come Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the
ompany’ s deferred tax assets and liabilities as of December 31, 2005 and 2004 were as follows: C
December 31
2005 2004
Deferred tax assets:
Allowance for loan losses $ 450,463
$ 324,308
Unearned income 126,398 161,682
Stock incentive plan 23,745
64,493
Securities available for sale 45,092
8,536
Net operating losses 10,626 11,258
State taxes, net of federal benefit 31,146
35,134
Stock option expense 29,229
12,041
Rewards/ sweepstakes 43,059 40,157
Basis difference of securities 27,423
—
Basis difference of loans 124,134
—
Other 226,857
219,785
Subtotal 1,138,172 877,394
Valuation allowance (42,531) (29,125)
Total deferred tax assets 1,095,641 848,269
Deferred tax liabilities:
Securitizations 22,708 21,851
Deferred revenue 676,852 686,579
Foreign 45,817
(6,013)
Derivative instruments 22,928 (168)
Software in progress 25,527 31,028
Gain/(Loss) on fixed asset disposal 48,957
22,652
Prepaid advertisement 24,367 21,714
Basis difference of leasing 17,335 —
Core deposit intangibles 129,703
—
Other 88,551 32,295
Total deferred tax liabilities 1,102,745 809,938
Net deferred tax assets (liabilities) $ (7,104) $ 38,331
During 2005, the valuation allowance for certain loss and tax credits carryforwards increased by a net $13.4 million. The
valuation allowance increased due to a $4.4 million addition to the allowance for capital loss carryforwards, $3.3 million
addition to the valuation allowance for state net operating loss carryforwards and valuation allowances acquired through the
urchase of Hibernia of $7.8 million offset by a $2.1 million reduction in the allowance for tax credit carryforwards. p
At December 31, 2005, the Company had $20.9 million of net operating loss carryforwards for U.S. federal income taxes
purposes with a tax value of $7.3 million that expire on various dates from 2018 to 2020. The Company also has capital loss
carryforwards of $39.2 million with a tax value of $13.7 million that expire from 2006 to 2008. A valuation allowance of
$10.7 million has been established for these deferred tax assets. The Company has net operating loss carryforwards for state
purposes with a tax value of $3.3 million that expire from 2006 to 2026. A valuation allowance of $3.3 million has been
established for these deferred tax assets. The Corporation also had foreign net operating loss carryforwards of $1.4 million
with a tax value of $0.5 million that expire in 2015.
The Company provides income taxes on the undistributed earnings of non-U.S. subsidiaries except to the extent that such
earnings are indefinitely invested outside the United States. At December 31, 2005, all of the accumulated undistributed
earnings of non-U.S. subsidiaries were insignificant and have been indefinitely invested. In addition, the company has
evaluated the effect of the Foreign Earnings Repatriation Provision of the American Jobs Creation Act of 2004. Based upon
t is evaluation, the Company has determined that there is no effect on income tax expense or benefit. h
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