Capital One 2015 Annual Report Download - page 216

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
197 Capital One Financial Corporation (COF)
The following table presents the accrued balance of tax, interest and penalties related to unrecognized tax benefits:
Table 18.5: Reconciliation of the Change in Unrecognized Tax Benefits
(Dollars in millions)
Gross
Unrecognized
Tax Benefits
Accrued
Interest and
Penalties
Gross Tax,
Interest and
Penalties
Balance as of January 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 114 $ 39 $ 153
Additions for tax positions related to prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2 11
Reductions for tax positions related to prior years due to IRS and other settlements . . . . . (16) (5) (21)
Balance as of December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 107 $ 36 $ 143
Additions for tax positions related to prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 8 46
Reductions for tax positions related to prior years due to IRS and other settlements . . . . . (15) (11) (26)
Balance as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 130 $ 33 $ 163
Portion of balance at December 31, 2015 that, if recognized, would impact the effective
income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85 $ 21 $ 106
We are subject to examination by the IRS and other tax authorities in certain countries and states in which we operate. The tax
years subject to examination vary by jurisdiction. During 2015, the IRS continued examining the Company’s federal income tax
returns for the tax years 2012 and 2013. These examinations are expected to be completed in 2016.
The Company entered into the IRS Compliance Assurance Process (“CAP”) for the Company’s 2014 federal income tax return.
The CAP examination process was substantially completed in 2015 prior to the filing of the Company’s 2014 federal income tax
return. The Company has continued in the CAP examination process for the 2015 tax year, with a similar expectation that the IRS
examination will be substantially completed prior to the filing of its 2015 federal income tax return in 2016. The Company has
also been accepted into CAP for 2016. It is reasonably possible that further adjustments to the Company’s unrecognized tax benefits
may be made within twelve months of the reporting date as a result of the above-referenced pending matters. At this time, an
estimate of the potential change to the amount of unrecognized tax benefits cannot be made.
As of December 31, 2015, U.S. income taxes and foreign withholding taxes have not been provided on approximately $1.5 billion
of unremitted earnings of subsidiaries operating outside the U.S., in accordance with the guidance for accounting for income taxes
in special areas. These earnings are considered by management to be invested indefinitely. Upon repatriation of these earnings,
we could be subject to both U.S. income taxes (subject to possible adjustment for foreign tax credits) and withholding taxes payable
to various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability and foreign withholding
tax on these unremitted earnings is not practicable at this time because such liability is dependent upon circumstances existing if
and when remittance occurs.
As of December 31, 2015, U.S. income taxes of approximately $107 million have not been provided for approximately $287
million of previously acquired thrift bad debt reserves created for tax purposes as of December 31, 1987. These amounts, acquired
as a result of the merger with North Fork Bancorporation, Inc. (“North Fork”) and the acquisition of Chevy Chase Bank, F.S.B.
(“CCB”), are subject to recapture in the unlikely event that CONA, as successor to North Fork and CCB, makes distributions in
excess of earnings and profits, redeems its stock, or liquidates.