PNC Bank 2015 Annual Report Download - page 212

A reconciliation between the statutory and effective tax rates
follows:
Table 127: Reconciliation of Statutory and Effective Tax
Rates
Year ended December 31 2015 2014 2013
Statutory tax rate 35.0% 35.0% 35.0%
Increases (decreases) resulting from
State taxes net of federal benefit 1.4 1.2 1.1
Tax-exempt interest (2.3) (2.2) (1.9)
Life insurance (1.7) (1.7) (1.7)
Dividend received deduction (1.7) (1.5) (1.2)
Tax credits (3.9) (4.4) (3.7)
Other (2.0)(a) (1.3) (1.7)
Effective tax rate 24.8% 25.1% 25.9%
(a) Includes tax benefits associated with settlement of acquired entity tax contingencies.
The net operating loss carryforwards at December 31, 2015
and 2014 follow:
Table 128: Net Operating Loss Carryforwards and Tax
Credit Carryforwards
In millions
December 31
2015
December 31
2014
Net Operating Loss Carryforwards:
Federal $ 878 $ 997
State $2,272 $2,594
Tax Credit Carryforwards:
Federal $ 64 $ 35
State $ 3 $ 7
The federal net operating loss carryforwards expire in 2032.
The state net operating loss carryforwards will expire from
2016 to 2035. The majority of the tax credit carryforwards
expire in 2032.
All federal and most state net operating loss and credit
carryforwards are from acquired entities and utilization is
subject to various statutory limitations. It is anticipated that
the company will be able to fully utilize its carryforwards for
federal tax purposes, but a valuation allowance of $61 million
has been recorded against certain state tax carryforwards as of
December 31, 2015. If select uncertain tax positions were
successfully challenged by a state, the state net operating
losses listed above could be reduced by $60 million.
As of December 31, 2015, PNC had approximately $110
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 $34
million.
Retained earnings at both December 31, 2015 and
December 31, 2014 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 $26 million at
December 31, 2015 and $77 million at December 31, 2014. At
December 31, 2015, these unrecognized tax benefits, if
recognized, would favorably impact the effective income tax
rate by $20 million.
A reconciliation of the beginning and ending balance of
unrecognized tax benefits is as follows:
Table 129: Change in Unrecognized Tax Benefits
In millions 2015 2014 2013
Balance of gross unrecognized tax benefits at
January 1 $ 77 $110 $176
Increases:
Positions taken during a prior period 17 11
Decreases:
Positions taken during a prior period (9) (27) (22)
Settlements with taxing authorities (52) (1) (48)
Reductions resulting from lapse of statute
of limitations (7) (5) (7)
Balance of gross unrecognized tax benefits at
December 31 $ 26 $ 77 $110
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 $4
million within the next twelve months.
PNC is subject to U.S. federal income tax as well as income
tax in most states and some foreign jurisdictions.
Examinations were completed for PNC’s consolidated federal
income tax returns for 2007 through 2010 and National City’s
consolidated federal income tax returns through 2008 and
were settled with the IRS. The IRS is currently examining
PNC’s consolidated federal income tax returns for 2011
through 2013. In addition, we are under continuous
examinations by various state taxing authorities. With few
exceptions, we are no longer subject to state and local and
foreign income tax examinations by taxing authorities for
periods before 2010. For all open audits, any potential
adjustments have been considered in establishing our
unrecognized tax benefits as of December 31, 2015.
Our policy is to classify interest and penalties associated with
income taxes as income tax expense. For 2015, we had a
194 The PNC Financial Services Group, Inc. – Form 10-K