PNC Bank 2012 Annual Report Download - page 237

A reconciliation between the statutory and effective tax rates
follows:
Table 149: Reconciliation of Statutory and Effective Tax
Rates
Year ended December 31 2012 2011 2010
Statutory tax rate 35.0% 35.0% 35.0%
Increases (decreases) resulting from
State taxes net of federal benefit 1.3 .4 .8
Tax-exempt interest (2.4) (1.7) (1.3)
Life insurance (2.3) (2.0) (1.8)
Dividend received deduction (1.7) (1.6) (1.4)
Tax credits (6.5) (5.1) (4.3)
IRS letter ruling and settlements (2.5)
Other .5 (0.5) 1.0
Effective tax rate 23.9% 24.5% 25.5%
The net operating loss carryforwards at December 31, 2012
and 2011 follow:
Table 150: Net Operating Loss Carryforwards and Tax
Credit Carryforwards
In millions
December 31
2012
December 31
2011
Net Operating Loss Carryforwards:
Federal $1,698 $ 30
State 2,468 1,460
Valuation allowance – State 54 14
Tax Credit Carryforwards:
Federal $ 29 $ 112
State 4 3
The federal net operating loss carryforwards expire from 2027
to 2032. The state net operating loss carryforwards will expire
from 2013 to 2031. The majority of the tax credit
carryforwards expire in 2032.
The federal net operating loss carryforwards and tax credit
carryforwards above are substantially from the acquisition of
RBC Bank (USA) and are subject to a federal annual
Section 382 limitation of $119 million under the Internal
Revenue Code of 1986, as amended; and acquired state
operating loss carryforwards of $1.3 billion are subject to
similar limitations that exist for state tax purposes. The
company also has built-in-loss carryforwards remaining at
December 31, 2012 of approximately $277 million from that
same acquisition which are subject to the same annual
limitation. It is anticipated that the company will be able to
fully utilize its carryforwards for federal tax purposes, but a
valuation allowance has been recorded against certain state tax
carryforwards as reflected above.
At December 31, 2012 and 2011, 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, 2012 and 2011
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.
The Company had unrecognized tax benefits of $176 million
at December 31, 2012 and $209 million at December 31,
2011. At December 31, 2012, $98 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:
Table 151: Changes in Liability for Unrecognized Tax
Benefits
In millions 2012 2011 2010
Balance of gross unrecognized tax benefits
at January 1 $209 $238 $227
Increases:
Positions taken during a prior period 23 65 76
Positions taken during the current period 1 1
Decreases:
Positions taken during a prior period (51) (62) (49)
Settlements with taxing authorities (1) (10) (13)
Reductions resulting from lapse of statute
of limitations (5) (23) (3)
Balance of gross unrecognized tax benefits
at December 31 $176 $209 $238
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 $110
million within the next twelve months.
Examinations are substantially completed for PNC’s
consolidated federal income tax returns for 2007 and 2008 and
there are no outstanding unresolved issues. The Internal
Revenue Service (IRS) is currently examining PNC’s 2009
and 2010 returns. National City’s consolidated federal income
tax returns through 2008 have been audited by the IRS.
Certain adjustments remain under review by the IRS Appeals
Division for years 2003 through 2008.
218 The PNC Financial Services Group, Inc. – Form 10-K