Capital One 2011 Annual Report Download - page 243

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS—(Continued)
During 2011, 2010 and 2009, our income tax expense was reduced by $50 million, $110 million and $62 million,
respectively, due to the resolution of certain tax issues and audits for prior years with the Internal Revenue
Service (“IRS”). This reduction represented the release of previous accruals for potential audit and litigation
adjustments which were subsequently settled or eliminated and further refinement of existing tax exposures.
Significant components of our deferred tax assets and liabilities as of December 31, 2011 and 2010 were as
follows:
December 31,
(Dollars in millions) 2011 2010
Deferred tax assets:
Allowance for loan and lease losses ............................................... $1,480 $1,950
Rewards & sweepstakes programs ................................................ 612 525
Representation & warranty reserve ................................................ 355 302
Security & loan valuations ...................................................... 351 383
Deferred compensation & employee benefits ........................................ 322 281
Net unrealized losses on derivatives ............................................... 129 90
Unearned income .............................................................. 39 85
Net operating loss and tax credit carryforwards ...................................... 126 181
Other foreign deferred taxes ..................................................... 15 50
Other assets .................................................................. 279 194
Subtotal ..................................................................... 3,708 4,041
Valuation allowance ........................................................... (89) (130)
Total deferred tax assets ........................................................ 3,619 3,911
Deferred tax liabilities:
Original issue discount ......................................................... 596 574
Core deposit and other intangibles ................................................ 291 348
Fixed assets & leases ........................................................... 167 112
Other liabilities ............................................................... 249 162
Total deferred tax liabilities ..................................................... 1,303 1,196
Net deferred tax assets .......................................................... $2,316 $2,715
We have state net operating loss carryforwards with a tax value of $153 million that expire from 2012 to 2031.
We have foreign net operating loss carryforward of $93 million that expires in 2021. We have a foreign tax credit
carryforward of $1 million that expires in 2021.
The valuation allowance was decreased by $41 million to adjust the tax benefit of certain state deferred tax assets
and net operating loss carryforwards to the amount that we have determined is more likely than not to be
realized.
The deferred tax liability for original issue discount represents interchange, late fees, cash advance fees and
overlimit fees. These items are generally treated as original issue discount (“OID”) for tax purposes and
recognized over the life of the related credit card receivables. These items are recognized in the income statement
as income in the year earned. For income statement purposes, late fees are reported as interest income, and
interchange, cash advance fees and overlimit fees are reported as non-interest income.
223