PNC Bank 2014 Annual Report Download - page 219

A reconciliation between the statutory and effective tax rates
follows:
Table 144: Reconciliation of Statutory and Effective Tax
Rates
Year ended December 31 2014 2013 2012
Statutory tax rate 35.0% 35.0% 35.0%
Increases (decreases) resulting from
State taxes net of federal benefit 1.2 1.1 1.3
Tax-exempt interest (a) (2.2) (1.9) (2.3)
Life insurance (1.7) (1.7) (2.3)
Dividend received deduction (a) (1.5) (1.2) (1.6)
Tax credits (a) (4.4) (3.7) (4.6)
Other (a) (1.3) (1.7) .4
Effective tax rate 25.1% 25.9% 25.9%
(a) Amounts for 2013 and 2012 have been updated to reflect the first quarter 2014
adoption of ASU 2014-01 related to investments in low income housing tax credits.
The net operating loss carryforwards at December 31, 2014
and 2013 follow:
Table 145: Net Operating Loss Carryforwards and Tax
Credit Carryforwards
In millions
December 31
2014
December 31
2013
Net Operating Loss Carryforwards:
Federal $ 997 $1,116
State 2,594 2,958
Tax Credit Carryforwards:
Federal $ 35 $ 221
State 7 7
The federal net operating loss carryforwards expire in 2032.
The state net operating loss carryforwards will expire from
2015 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 2012
acquisition of RBC Bank (USA) and are subject to a federal
annual Section 382 limitation under the Internal Revenue
Code of 1986; and acquired state operating loss carryforwards
are subject to similar limitations that exist for state tax
purposes. The majority of the decrease to state net operating
loss carryforwards is attributable to the estimated utilization
on 2014 tax return filings. It is anticipated that the company
will be able to fully utilize its carryforwards for federal tax
purposes, but a valuation allowance of $65 million has been
recorded against certain state tax carryforwards as of
December 31, 2014. See Note 2 Acquisition and Divestiture
Activity in our 2013 Form 10-K for additional discussion of
our 2012 acquisition of RBC Bank (USA).
As of December 31, 2014, PNC had approximately $77 million
of earnings attributed to foreign subsidiaries that have been
indefinitely reinvested for which no incremental U.S. income
tax provision has been recorded. If a U.S. deferred tax liability
were to be recorded, the estimated tax liability on those
undistributed earnings would be approximately $24 million.
Retained earnings at both December 31, 2014 and
December 31, 2013 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.
PNC had unrecognized tax benefits of $77 million at
December 31, 2014 and $110 million at December 31, 2013.
At December 31, 2014, $64 million of unrecognized tax
benefits, if recognized, would favorably impact the effective
income tax rate.
A reconciliation of the beginning and ending balance of
unrecognized tax benefits is as follows:
Table 146: Change in Unrecognized Tax Benefits
In millions 2014 2013 2012
Balance of gross unrecognized tax benefits
at January 1 $110 $176 $209
Increases:
Positions taken during a prior period 11 23
Positions taken during the current period 1
Decreases:
Positions taken during a prior period (27) (22) (51)
Settlements with taxing authorities (1) (48) (1)
Reductions resulting from lapse of statute
of limitations (5) (7) (5)
Balance of gross unrecognized tax benefits
at December 31 $ 77 $110 $176
It is reasonably possible that the balance of 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
balance of unrecognized tax benefits could decrease by $54
million within the next twelve months.
Examinations are substantially completed for PNC’s
consolidated federal income tax returns for 2007 through 2010
and are effectively settled. The Internal Revenue Service
(IRS) is currently examining PNC’s 2011 through 2013
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 2004 through 2008.
The PNC Financial Services Group, Inc. – Form 10-K 201