Capital One 2012 Annual Report Download - page 252

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of the end of December 31, 2012, we had federal net operating loss carry-forwards and losses in excess of
IRS limitations of $517 million attributable to ING Groep that expire from 2018 to 2032. Under IRS rules, the
Company’s ability to utilize these losses against future income is limited to $ 317 million per year. We have state
operating loss carryforwards with a net tax value of $138 million that expire from 2012 to 2032. We have a
foreign net operating loss carryforward of $66 million that expires in 2021. We have a foreign tax credit
carryforward of $25 million that expires in 2022.
The valuation allowance was increased by $34 million, partially attributable to acquired ING valuation
allowances, and to adjust the tax benefit of certain state deferred tax assets and net operating loss carryforwards
to the amount 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.
December 31,
(Dollars in millions) 2012 2011
Original Issue discount:
OID—late fees ................................................................ $1,225 $ 487
OID—all other ................................................................ 1,377 1,169
Gross original issue discount .................................................... 2,602 1,656
Net deferred tax liability ........................................................ $ 957 $ 596
The accounting guidance for income taxes clarifies the accounting for uncertainty in income taxes, and prescribes
a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. The guidance also provides rules on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
We recognize accrued interest and penalties related to income taxes as a component of income tax expense.
During 2012, 2011 and 2010, $3 million, $(39) million and $(62) million, respectively, of net interest and
penalties was included in income tax expense. The accrued balance of interest and penalties related to
unrecognized tax benefits is presented in the table below.
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