Wells Fargo 2012 Annual Report Download - page 236

Note 21: Income Taxes (continued)
December 31,
2012 2011 2010
(in millions) Amount Rate Amount Rate Amount Rate
Statutory federal income tax expense and rate $ 9,800 35.0 % $ 8,160 35.0 % $ 6,545 35.0 %
Change in tax rate resulting from:
State and local taxes on income, net of
federal income tax benefit 856 3.1 730 3.1 586 3.1
Tax-exempt interest (414) (1.5) (334) (1.4) (283) (1.5)
Excludable dividends (132) (0.5) (247) (1.1) (258) (1.3)
Tax credits (815) (2.9) (735) (3.2) (577) (3.1)
Life insurance (524) (1.9) (222) (1.0) (223) (1.2)
Leveraged lease tax expense 347 1.2 272 1.2 461 2.5
Other (15) - (179) (0.7) 87 0.4
Effective income tax expense and rate $ 9,103 32.5 % $ 7,445 31.9 % $ 6,338 33.9 %
The lower effective tax rates for 2012 and 2011, as compared
to 2010, were primarily due to the realization, for tax purposes,
of tax benefits on previously written down investments. For 2012
this includes a tax benefit resulting from the surrender of
previously written-down Wachovia life insurance investments.
In addition, the 2011 effective tax rate was lower than the 2010
effective tax rate due to 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) 2012 2011
Balance at beginning of year $ 5,005 5,500
Additions:
For tax positions related to the current year 877 279
For tax positions related to prior years 491 255
Reductions:
For tax positions related to prior years (114) (358)
Lapse of statute of limitations (23) (75)
Settlements with tax authorities (167) (596)
Balance at end of year $ 6,069 5,005
Of the $6.1 billion of unrecognized tax benefits at
December 31, 2012, approximately $4.3 billion would, if
recognized, affect the effective tax rate. The remaining
$1.8 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. At December 31, 2012 and 2011, we have
accrued approximately $1.0 billion and $871 million for the
payment of interest and penalties, respectively. We recognized in
income tax expense in 2012 and 2011, interest and penalties of
$92 million and $32 million, respectively.
We are subject to U.S. federal income tax as well as income
tax in numerous state and foreign jurisdictions. We are routinely
examined by tax authorities in these various jurisdictions. The
IRS is currently examining the 2007 through 2010 consolidated
federal income tax returns of Wells Fargo & Company and its
subsidiaries. In addition, we are currently subject to examination
by various state, local and foreign taxing authorities. 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. Wachovia Corporation and its
subsidiaries are no longer subject to federal examination; with
few exceptions, they remain subject to state, local and foreign
income tax examinations for 2008.
We are also litigating or appealing various issues related to
our prior IRS examinations for the periods 1999 and 2003
through 2006. On December 1, 2011, we filed a Notice of Appeal
to the U.S. Court of Appeals for the Eighth Circuit relating to our
lease restructuring transaction and that case is still pending. 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. It is
possible that one or more of these examinations, appeals or
litigation may be resolved within the next twelve months
resulting in a decrease of up to $1.5 billion to our gross
unrecognized tax benefits.
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