PNC Bank 2009 Annual Report Download - page 158

As of December 31, 2009 and 2008, we had a liability for
uncertain tax positions excluding interest and penalties of
$227 million and $257 million, respectively. A reconciliation
of the beginning and ending balance of unrecognized tax
benefits is as follows:
Changes in Unrecognized Tax Benefits
In millions 2009 2008 2007
Balance of gross unrecognized tax
benefits at January 1 $257 $57 $49
Increases:
Positions taken during a prior period 22 203(a) 52(b)
Positions taken during the current
period 26 1
Decreases:
Positions taken during a prior period (39) (3) (2)
Settlements with taxing authorities (34) (39)
Reductions resulting from lapse of
statute of limitations (5) (4)
Balance of gross unrecognized tax
benefits at December 31 $227 $257 $ 57
(a) Includes $202 million acquired from National City.
(b) Includes $42 million acquired from Mercantile.
December 31, 2009 – In millions 2009
Unrecognized tax benefits related to:
Acquired companies within measurement period:
Permanent differences $5
Other:
Temporary differences 37
Permanent differences 185
Total $227
Any changes in the amounts of unrecognized tax benefits
related to temporary differences would result in a
reclassification to deferred tax liability; any changes in the
amounts of unrecognized tax benefits related to other
permanent differences (per above table) would result in an
adjustment to income tax expense and therefore our effective
tax rate. The unrecognized tax benefits related to other
permanent items above that if recognized would affect the
effective tax rate is $162 million. This is less than the total
amount of unrecognized tax benefit related to permanent
differences because a portion of those unrecognized benefits
relate to state tax matters.
It is reasonably possible that the liability for uncertain tax
positions could increase or decrease in the next twelve months
due to completion of tax authorities’ exams or the expiration
of statutes of limitations. Management estimates that the
liability for uncertain tax positions could decrease by $44
million within the next twelve months.
The consolidated federal income tax returns of The PNC
Financial Services Group, Inc. and subsidiaries through 2003
have been audited by the Internal Revenue Service (IRS) and
we have resolved all disputed matters through the IRS appeals
division. The IRS is currently examining the 2004 through
2006 consolidated federal income tax returns of The PNC
Financial Services Group, Inc. and subsidiaries and we expect
that examination to conclude, with all adjustments being
agreed to, in the first half of 2010. We expect the IRS to begin
its examination of our 2007 and 2008 consolidated federal
income tax returns during 2010.
The consolidated federal income tax returns of National City
through 2004 have been audited by the IRS and we have
resolved all matters through the IRS Appeals division. The
formal closing agreement is not yet executed. The IRS has
completed field examination of the 2005 through 2007
consolidated federal income tax returns of National City and
unresolved issues will be appealed. We expect the 2008
federal income tax return to begin being audited later in 2010.
California, Delaware, District of Columbia, Florida, Illinois,
Indiana, Maryland, Missouri, New Jersey, New York, and
New York City are principally where we were subject to state
and local income tax. Audits currently in process for these
states include: California (2003-2005), Illinois (2004-2007),
Indiana (2004-2007), Missouri (2003-2005), New York (2001-
2006), and New York City (2005-2007). In the ordinary
course of business we are routinely subject to audit by the
taxing authorities of states and at any given time a number of
audits will be in process. The years remaining open under the
statute of limitations for assessing income taxes is 2006 or
2007 and later for most state and local jurisdictions.
Our policy is to classify interest and penalties associated with
income taxes as income tax expense. For 2009, we had net
recoveries of $24 million of gross interest and penalties
reducing income tax expense. The total accrued interest and
penalties at December 31, 2009 and December 31, 2008 was
$144 million and $164 million, respectively.
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