PNC Bank 2011 Annual Report Download - page 197

A reconciliation between the statutory and effective tax rates
follows:
Reconciliation of Statutory and Effective Tax Rates
Year ended December 31 2011 2010 2009
Statutory tax rate 35.0% 35.0% 35.0%
Increases (decreases) resulting from
State taxes net of federal benefit .4 .8 1.2
Tax-exempt interest (1.7) (1.3) (1.2)
Life insurance (2.0) (1.8) (1.9)
Dividend received deduction (1.6) (1.4) (1.2)
Tax credits (5.1) (4.3) (5.4)
IRS letter ruling and settlements (2.5)
Other (.5) 1.0 .4
Effective tax rate 24.5% 25.5% 26.9%
The net operating loss carryforwards at December 31, 2011
and 2010 follow:
Net Operating Loss Carryforwards and Tax Credit
Carryforwards
In millions
December 31
2011
December 31
2010
Net Operating Loss Carryforwards:
Federal $30 $54
State 1,460 1,600
Valuation allowance – State 14 21
Tax Credit Carryforwards:
Federal $ 112
State 3
The federal net operating loss carryforwards expire from 2027
to 2028. The state net operating loss carryforwards will expire
from 2012 to 2031. The majority of the tax credit
carryforwards expire in 2031.
At December 31, 2011 and 2010, there were no undistributed
earnings of non-US subsidiaries for which deferred US
income taxes had not been provided.
Retained earnings at both December 31, 2011 and 2010
included $117 million in allocations for bad debt deductions
of former thrift subsidiaries for which no income tax has been
provided. Under current law, if certain subsidiaries use these
bad debt reserves for purposes other than to absorb bad debt
losses, they will be subject to Federal income tax at the
current corporate tax rate.
We had unrecognized tax benefits of $209 million at
December 31, 2011 and $238 million at December 31, 2010.
At December 31, 2011, $100 million of unrecognized tax
benefits, if recognized, would favorably impact the effective
income tax rate.
A reconciliation of the beginning and ending balance of the
liability for unrecognized tax benefits is as follows:
Changes in Liability for Unrecognized Tax Benefits
In millions 2011 2010 2009
Balance of gross unrecognized tax benefits
at January 1 $238 $227 $257
Increases:
Positions taken during a prior period 65 76 22
Positions taken during the current period 126
Decreases:
Positions taken during a prior period (62) (49) (39)
Settlements with taxing authorities (10) (13) (34)
Reductions resulting from lapse of statute
of limitations (23) (3) (5)
Balance of gross unrecognized tax benefits
at December 31 $209 $238 $227
It is reasonably possible that the liability for unrecognized tax
benefits 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 unrecognized tax benefits could decrease by $81
million within the next twelve months.
Examinations are complete for PNC’s consolidated federal
income tax returns through 2006 having no outstanding
unresolved issues. The Internal Revenue Service (IRS) is
currently examining PNC’s 2007 and 2008 returns. National
City’s consolidated federal income tax returns through 2007
have been audited by the IRS. Certain adjustments remain
under review by the IRS Appeals division for years 2003
through 2007. The IRS is currently examining National City’s
2008 return.
PNC files tax returns in most states and some non-U.S.
jurisdictions each year and is under continuous examination
by various state taxing authorities.
With few exceptions, we are no longer subject to state and
local and non-U.S. income tax examinations by taxing
authorities for periods before 2003. For all open audits, any
potential adjustments have been considered in establishing our
reserve for uncertain tax positions as of December 31, 2011.
Our policy is to classify interest and penalties associated with
income taxes as income tax expense. For 2011, we had a
benefit of $33 million of gross interest and penalties
decreasing income tax expense. The total accrued interest and
penalties at December 31, 2011 and December 31, 2010 was
$81 million and $113 million, respectively.
188 The PNC Financial Services Group, Inc. – Form 10-K