Fifth Third Bank 2010 Annual Report Download - page 108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
106 Fifth Third Bancorp
lease transactions. This favorable settlement reduced income
tax expense (including interest) by $6 million and $55 million
for 2010 and 2009, respectively. The accrual of interest expense
for these items had an adverse impact on income tax expense
for 2008.
During 2009, the Bancorp notified the carrier of one of the
Bancorp’s policies of its intent to surrender a certain BOLI
policy and was therefore required to establish a deferred tax
asset relating to the difference between its financial reporting
and tax basis of its investment. As a result, income tax expense
for 2009 was favorably impacted by $106 million. Income tax
expense was adversely impacted in 2008 by $78 million relating
to the same BOLI policy.
The following table provides a summary of the Bancorp’s unrecognized tax benefits as of December 31:
($ in millions) 2010 2009
Tax positions that would impact the effective tax rate, if recognized $15 81
Tax positions where the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of the deductio
n
1 1
Unrecognized tax benefits $16 82
The following table provides a reconciliation of the beginning and ending amounts of the Bancorp’s unrecognized tax benefits:
($ in millions) 2010 2009 2008
Unrecognized tax benefits at January 1 $82 959 469
Gross increases for tax positions taken during prior period 4 16 496
Gross decreases for tax positions taken during prior period (23) (329) (8)
Gross increases for tax positions taken during current period 2 14
Settlements with taxing authorities (48) (563) -
Lapse of applicable statute of limitations (1) (2) (2)
Unrecognized tax benefits at December 31 $16 82 959
The Bancorp’s unrecognized tax benefits as of December 31,
2010 relate largely to U.S. state income tax exposures from taking
tax positions where the Bancorp believes it is likely that upon
examination a state will take a position contrary to the position
taken by the Bancorp.
Substantially all of the reduction of unrecognized tax benefits
during 2010 related to the settlement of the Bancorp’s dispute with
the IRS relating to the specific capital raising transaction
mentioned previously. Similarly, substantially all of the reduction
of unrecognized tax benefits during 2009 related to the settlement
of certain leveraged lease transactions with the IRS.
The Bancorp believes it is unlikely that its unrecognized tax
benefits will change by a material amount during the next 12
months.
Deferred income taxes are comprised of the following items at December 31:
($ in millions) 2010 2009
Deferred tax assets:
Allowance for loan & lease losses $1,051 1,312
Impairment reserves 144 145
Deferred compensation 136 147
Reserve for unfunded commitments 79 103
State net operating losses 66 81
Other 273 224
Total deferred tax assets $1,749 2,012
Deferred tax liabilities:
Lease financing $801 898
Investments in joint ventures and partnership interests 481 481
MSRs 190 191
Other comprehensive income 169 130
Bank premises and equipment 69 88
State deferred taxes 53 60
Other 130 138
Total deferred tax liabilities $1,893 1,986
Total net deferred tax (liability) asset ($144) 26
Deferred tax assets are included as a component of other assets in
the Consolidated Balance Sheets. Deferred tax liabilities are
included as a component of accrued taxes, interest and expenses in
the Consolidated Balance Sheets.
At December 31, 2010 and 2009, the Bancorp had recorded
deferred tax assets of $66 million and $81 million, respectively,
related to state net operating loss carryforwards. The deferred tax
assets relating to state net operating losses are presented net of
specific valuation allowances, primarily resulting from leasing
operations, of $25 million and $15 million at December 31, 2010
and 2009, respectively. If these carry forwards are not utilized, they
will expire in varying amounts through 2030. Additionally, at
December 31, 2010 and 2009, the Bancorp had federal general
business tax credit carryforwards of $45 million and $42 million,
respectively. If unused, these credit carryforwards will expire in
2030.
The Bancorp has determined that a valuation allowance is not
needed against the remaining deferred tax assets as of December
31, 2010 or 2009. The Bancorp considered all of the positive and
negative evidence available to determine whether it is more likely
than not that the deferred tax assets will ultimately be realized and,
based upon that evidence, the Bancorp believes it is more likely
than not that the deferred tax assets recorded at December 31,
2010 and 2009 will ultimately be realized. The Bancorp reached this
conclusion as the Bancorp has taxable income in the carryback
period and it is expected that the Bancorp’s remaining deferred tax