Comerica 2009 Annual Report Download - page 134

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Deferred Compensation Plan
The Corporation offers an optional deferred compensation plan under which certain employees may make
an irrevocable election to defer incentive compensation and/or a portion of base salary until retirement or
separation from the Corporation. The employee may direct deferred compensation into one or more deemed
investment options. Although not required to do so, the Corporation invests actual funds into the deemed
investments as directed by employees, resulting in a deferred compensation asset, recorded in ‘‘other short-term
investments’’ on the consolidated balance sheets that offsets the liability to employees under the plan, recorded
in ‘‘accrued expenses and other liabilities.’’ The earnings from the deferred compensation asset are recorded in
‘‘interest on short-term investments’’ and ‘‘other noninterest income’’ and the related change in the liability to
employees under the plan is recorded in ‘‘salaries’’ expense on the consolidated statements of income.
Note 20 — Income Taxes and Tax-Related Items
The provision (benefit) for federal income taxes is computed by applying the statutory federal income tax
rate to income (loss) before income taxes as reported in the consolidated financial statements after deducting
non-taxable items, principally income on bank-owned life insurance, and deducting tax credits related to
investments in low income housing partnerships. Tax interest, state and foreign taxes are then added to the
federal tax provision.
In the ordinary course of business, the Corporation enters into certain transactions that have tax
consequences. From time to time, the Internal Revenue Service (IRS) questions and/or challenges the tax
position taken by the Corporation with respect to those transactions. The Corporation believes that its tax
returns were filed based upon applicable statutes, regulations and case law in effect at the time of the
transactions. The IRS, an administrative authority or a court, if presented with the transactions, could disagree
with the Corporation’s interpretation of the tax law. After evaluating the risks and opportunities, the best
outcome may result in a settlement. The ultimate outcome for each position is not known.
On January 1, 2007, the Corporation adopted new income tax guidance related to accounting for
uncertainty in income taxes. On December 31, 2009, the Corporation had net unrecognized tax benefits of less
than $0.5 million compared to net unrecognized tax benefits of $70 million at December 31, 2008. After
consideration of the effect of the federal tax benefit available on unrecognized state tax benefits, the total
amount of unrecognized tax benefits that, if recognized, would affect the Corporation’s effective tax rate was
approximately $32 million at December 31, 2009 and $56 million at December 31, 2008. Accrued interest and
penalties were $19 million and $85 million at December 31, 2009 and 2008, respectively.
The Corporation recognized a benefit of approximately $19 million in 2009 in interest and penalties on
income tax liabilities included in the ‘‘provision (benefit) for income taxes’’ on the consolidated statements of
income, compared with expense of approximately $8 million in 2008 and $5 million in 2007. The 2009 interest
and penalties on income tax liabilities includes an $18 million reduction of interest due to anticipated refunds
due from the IRS. The 2007 interest and penalties on income tax liabilities were net of a $9 million reduction of
interest resulting from settlement with the IRS on a refund claim.
The amount of interest and penalties accrued at December 31, 2009 included interest for unrecognized tax
benefits in addition to interest accrued for structured leasing transactions that are expected to be paid in the first
quarter 2010. The Corporation engaged in certain types of structured leasing transactions that the IRS
disallowed. In the third quarter 2008 the IRS issued a settlement offer which the Corporation subsequently
accepted. The settlement resolved all tax issues associated with structured leasing transactions.
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