Wells Fargo 2013 Annual Report Download - page 255

December 31,
2013 2012 2011
(in millions) Amount Rate Amount Rate Amount Rate
Statutory federal income tax expense and rate $ 11,299 35.0 % $ 9,800 35.0 % $ 8,160 35.0 %
Change in tax rate resulting from:
State and local taxes on income, net of
federal income tax benefit 964 3.0 856 3.1 730 3.1
Tax-exempt interest (490) (1.5) (414) (1.5) (334) (1.4)
Excludable dividends (49) (0.2) (132) (0.5) (247) (1.1)
Tax credits (967) (3.0) (815) (2.9) (735) (3.2)
Life insurance (173) (0.5) (524) (1.9) (222) (1.0)
Leveraged lease tax expense 302 0.9 347 1.2 272 1.2
Other (481) (1.5) (15) - (179) (0.7)
Effective income tax expense and rate $ 10,405 32.2 % $ 9,103 32.5 % $ 7,445 31.9 %
The effective tax rate for 2013, included a net reduction in the
reserve for uncertain tax positions primarily due to settlements
with authorities regarding certain cross border transactions and
tax benefits recognized from the realization for tax purposes of a
previously written down investment. The 2012 effective tax rate
included a tax benefit resulting from the surrender of previously
written-down Wachovia life insurance investments. The 2011
effective tax rate included a decrease in tax expense associated
with leverage 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) 2013 2012
Balance at beginning of year $ 6,069 5,005
Additions:
For tax positions related to the current year 427 877
For tax positions related to prior years 283 491
Reductions:
For tax positions related to prior years (540) (114)
Lapse of statute of limitations (74) (23)
Settlements with tax authorities (637) (167)
Balance at end of year $ 5,528 6,069
Of the $5.5 billion of unrecognized tax benefits at
December 31, 2013, approximately $3.7 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, 2013 and 2012, we have
accrued approximately $832 million and $1.0 billion for the
payment of interest and penalties, respectively. We recognized in
income tax expense in 2013 and 2012, interest and penalties of
$69 million and $92 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 2012 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 and,
with limited exception, are no longer subject to state, local, and
foreign income tax examinations.
We are litigating or appealing various issues related to our
prior IRS examinations for the periods 1999 and 2003 through
2006, and we are appealing various issues related to IRS
examinations of Wachovia’s 2003 through 2008 tax years. We
have paid the IRS the contested income tax and interest
associated with these issues and refund claims have been filed
for the respective years. On August 22, 2013, the U.S. Court of
Appeals for the Eighth Circuit affirmed the adverse decision of
the trial court in our lease restructuring transaction and on
October 29, 2013, the Eighth Circuit denied our petition for
rehearing. We are considering whether to file a petition for
certiorari to the U.S. Supreme Court. 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.
253