Wells Fargo 2011 Annual Report Download - page 222

Note 21: Income Taxes (continued)
December 31,
2011
2010
2009
(in millions)
Amount
Rate
Amount
Rate
Amount
Rate
Statutory federal income tax expense and rate
$
8,160
35.0
%
$
6,545
35.0
%
$
6,162
35.0
%
Change in tax rate resulting from:
State and local taxes on income, net of
federal income tax benefit
730
3.1
586
3.1
468
2.7
Tax-exempt interest
(334)
(1.4)
(283)
(1.5)
(260)
(1.5)
Excludable dividends
(247)
(1.1)
(258)
(1.3)
(253)
(1.4)
Tax credits
(735)
(3.2)
(577)
(3.1)
(533)
(3.0)
Life insurance
(222)
(1.0)
(223)
(1.2)
(257)
(1.5)
Leveraged lease tax expense
272
1.2
461
2.5
400
2.3
Other (1)
(179)
(0.7)
87
0.4
(396)
(2.3)
Effective income tax expense and rate
$
7,445
31.9
%
$
6,338
33.9
%
$
5,331
30.3
%
(1) Includes other deductible dividends of $(57) million for 2011, $(33) million for 2010, and $(29) million for 2009.
The effective tax rate for 2011 decreased primarily due to tax
benefits from the realization for tax purposes of a previously
written down investment, a decrease in tax expense associated
with leveraged leases, as well as tax benefits related to charitable
donations of appreciated securities.
The change in unrecognized tax benefits follows:
Year ended
December 31,
(in millions)
2011
2010
Balance at beginning of year
$
5,500
4,921
Additions:
For tax positions related to the current year
279
579
For tax positions related to prior years
255
301
Reductions:
For tax positions related to prior years
(358)
(111)
Lapse of statute of limitations
(75)
(148)
Settlements with tax authorities
(596)
(42)
Balance at end of year
$
5,005
5,500
Of the $5.0 billion of unrecognized tax benefits at
December 31, 2011, approximately $3.3 billion would, if
recognized, affect the effective tax rate. The remaining
$1.7 billion of unrecognized tax benefits relates to income tax
positions on temporary differences.
We recognize interest and penalties as a component of
income tax expense. As of December 31, 2011 and 2010, we have
accrued approximately $871 million and $870 million for the
payment of interest and penalties, respectively. We recognized in
income tax expense in 2011 and 2010, interest and penalties of
$32 million and $45 million, respectively.
We are subject to U.S. federal income tax as well as income
tax in numerous state and foreign jurisdictions. With few
exceptions, Wells Fargo and its subsidiaries are not subject to
federal, state, local and foreign income tax examinations for
taxable years prior to 2007; and Wachovia Corporation and its
subsidiaries are not subject to federal, state, local and foreign
income tax examinations for taxable years prior to 2006.
We are routinely examined by tax authorities in various
jurisdictions. The IRS is currently examining the 2007 through
2010 consolidated federal income tax returns of Wells Fargo &
Company and its subsidiaries. We are also litigating or appealing
various issues related to our prior IRS examinations for the
periods 1999 and 2003 through 2006. For Wachovia’s 2003
through 2008 tax years, we are appealing various issues related
to their IRS examinations. We have paid the IRS the contested
income tax associated with these issues and refund claims have
been filed for the respective years. In addition, we are currently
subject to examination by various state, local and foreign taxing
authorities. While it is possible that one or more of these
examinations may be resolved within the next twelve months, we
do not anticipate that there will be a significant impact to our
unrecognized tax benefits as a result of these examinations.
During 2010, we filed a Notice of Appeal to the U.S. Court of
Appeals for the Federal Circuit in connection with the adverse
judgment of the U.S. Court of Federal Claims related to certain
leveraged lease transactions that we entered into between 1997
and 2002. On April 15, 2011, the Federal Circuit affirmed the
decision of the Court of Federal Claims. There was no adverse
financial statement impact resulting from the Federal Circuit’s
decision.
On September 30, 2011, we received an adverse decision from
the U.S. District Court for the District of Minnesota in WFC
Holdings Corp. v. United States, a case involving a lease
restructuring transaction. There was no adverse financial
statement impact from the decision. On December 1, 2011, we
filed a Notice of Appeal to the U.S. Court of Appeals for the
Eighth Circuit.
We estimate that our unrecognized tax benefits will not
change significantly during the next 12 months.
220