Fifth Third Bank 2012 Annual Report Download - page 134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
132 Fifth Third Bancorp
19. 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) 2012 2011 2010
Current income tax expense (benefit):
U.S. Federal income taxes $ 327 82 (5)
State and local income taxes 38 14 16
Total current tax expense 365 96 11
Deferred income tax expense
U.S. Federal income taxes 252 411 165
State and local income taxes 19 26 11
Total deferred income tax expense 271 437 176
A
pplicable income tax expense $ 636 533 187
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) 2012 2011 2010
Statutory tax rate 35.0 %35.0 35.0
Increase (decrease) resulting from:
State taxes, net of federal benefit 1.7 1.4 1.8
Tax-exempt income (2.1) (1.4) (3.6)
Credits (6.7) (7.3) (14.1)
Interest to taxing authority, net of tax - - (0.8)
Other changes in unrecognized tax benefits - - (1.8)
Unrealized stock-based compensation benefits 0.8 1.3 2.5
Other, net 0.1 0.1 0.8
Effective tax rate 28.8 %29.1 19.8
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 $6 million for 2010.
The following table provides a summary of the Bancorp’s unrecognized tax benefits as of December 31:
($ in millions) 2012 2011
Tax positions that would impact the effective tax rate, if recognized $18 14
Tax positions where the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of the deduction - -
Unrecognized tax benefits $18 14
The following table provides a reconciliation of the beginning and ending amounts of the Bancorp’s unrecognized tax benefits:
($ in millions) 2012 2011 2010
Unrecognized tax benefits at January 1 $ 14 16 82
Gross increases for tax positions taken during prior period 6 1 4
Gross decreases for tax positions taken during prior period (3) (2) (23)
Gross increases for tax positions taken during current period 2 - 2
Settlements with taxing authorities - - (48)
Lapse of applicable statute of limitations (1) (1) (1)
Unrecognized tax benefits at December 31 $ 18 14 16
The Bancorp’s unrecognized tax benefits as of December 31, 2012
and 2011 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.
While it is reasonably possible that the amount of the
unrecognized tax benefit with respect to certain of the Bancorp’s
uncertain tax positions could increase or decrease during the next 12
months, the Bancorp believes it is unlikely that its unrecognized tax
benefits will change by a material amount during the next 12
months.