Fifth Third Bank 2011 Annual Report Download - page 126

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
124 Fifth Third Bancorp
20. INCOME TAXES
The Bancorp and its subsidiaries file a consolidated federal income tax return. The following is a summary of applicable income taxes included in
the Consolidated Statements of Income for the years ended December 31:
($ in millions) 2011 2010 2009
Current income tax expense (benefit):
U.S. Federal income taxes $ 82 (5) (157)
State and local income taxes 14 16 6
Foreign income taxes - - (3)
Total current tax expense (benefit) 96 11 (154)
Deferred income tax expense (benefit):
U.S. Federal income taxes 411 165 190
State and local income taxes 26 11 (8)
Foreign income taxes - - 2
Total deferred income tax expense 437 176 184
A
pplicable income tax expense $ 533 187 30
The following is a reconciliation between the statutory U.S. Federal income tax rate and the Bancorp’s effective tax rate for the years ended
December 31:
($ in millions) 2011 2010 2009
Statutory tax rate 35.0 %35.0 35.0
Increase (decrease) resulting from:
State taxes, net of federal benefit 1.4 1.8 (0.1)
Tax-exempt income (1.4) (3.6) (18.7)
Credits (7.3) (14.1) (14.6)
Goodwill - - 8.7
Interest to taxing authority, net of tax - (0.8) (7.6)
Other changes in unrecognized tax benefits - (1.8) -
Unrealized stock-based compensation benefits 1.3 2.5 0.6
Other, net 0.1 0.8 0.6
Effective tax rate 29.1 %19.8 3.9
Tax-exempt income in the rate reconciliation table includes interest
on municipal bonds, interest on tax-exempt lending,
income/charges on life insurance policies held by the Bancorp, and
certain gains on sales of leases that are exempt from federal
taxation.
During 2010, the Bancorp settled its outstanding dispute with
the IRS relating to a specific capital raising transaction. This
favorable settlement reduced income tax expense (including
interest) by $19 million. During 2009, the Bancorp settled its
outstanding dispute with the IRS relating to certain leveraged lease
transactions. This favorable settlement reduced income tax expense
(including interest) by $6 million and $55 million for 2010 and 2009,
respectively.
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 $106 million.
The following table provides a summary of the Bancorp’s unrecognized tax benefits as of December 31:
($ in millions) 2011 2010
Tax positions that would impact the effective tax rate, if recognized $14 15
Tax positions where the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of the deduction - 1
Unrecognized tax benefits $14 16
The following table provides a reconciliation of the beginning and ending amounts of the Bancorp’s unrecognized tax benefits:
($ in millions) 2011 2010 2009
Unrecognized tax benefits at January 1 $ 16 82 959
Gross increases for tax positions taken during prior period 1 4 16
Gross decreases for tax positions taken during prior period (2) (23) (329)
Gross increases for tax positions taken during current period - 2 1
Settlements with taxing authorities - (48) (563)
Lapse of applicable statute of limitations (1) (1) (2)
Unrecognized tax benefits at December 31 $ 14 16 82
The Bancorp’s unrecognized tax benefits as of December 31, 2011
and 2010 relate largely to 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.
While it is reasonably possible that the amount of the