Fifth Third Bank 2012 Annual Report Download - page 135

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
133 Fifth Third Bancorp
Deferred income taxes are comprised of the following items at December 31:
($ in millions) 2012 2011
Deferred tax assets:
Allowance for loan and lease losses $649 789
Deferred compensation 105 119
Impairment reserves 74 102
Reserves 63 70
Reserve for unfunded commitments 47 63
State net operating losses 33 63
Other 191 216
Total deferred tax assets $1,162 1,422
Deferred tax liabilities:
Lease financing $844 853
Investments in joint ventures and partnership interests 470 468
Other comprehensive income 202 253
MSRs 162 173
Bank premises and equipment 108 95
State deferred taxes 64 74
Other 155 130
Total deferred tax liabilities $2,005 2,046
Total net deferred tax liability $(843) (624)
At December 31, 2012 and 2011, the Bancorp had recorded
deferred tax assets of $33 million and $63 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 $20 million and $34 million at December 31, 2012
and 2011, respectively. If these carryforwards are not utilized, they
will expire in varying amounts through 2030. Additionally, at
December 31, 2011, the Bancorp had federal general business tax
credit carryforwards of $5 million that were fully utilized in 2012.
The Bancorp has determined that a valuation allowance is not
needed against the remaining deferred tax assets as of December 31,
2012 or 2011. 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, 2012 and
2011 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
assets will be realized through the reversal of its existing taxable
temporary differences and its projected future taxable income.
The IRS concluded its audit for 2008 and 2009 during the first
quarter of 2012. As a result, all issues have been resolved with the
IRS through 2009. The IRS is currently examining the Bancorp’s
2010 and 2011 federal income tax returns. The statute of limitations
for the Bancorp’s federal income tax returns remains open for tax
years 2008-2012. On occasion, as various state and local taxing
jurisdictions examine the returns of the Bancorp and its subsidiaries,
the Bancorp may agree to extend the statute of limitations for a
short period of time. Otherwise, with the exception of a few states
with insignificant uncertain tax positions, the statutes of limitations
for state income tax returns remain open only for tax years in
accordance with each state’s statutes.
During the years ended December 31, 2012 and 2011, the
Bancorp recognized an immaterial amount of interest expense in
connection with income taxes. At December 31, 2012 and 2011, the
Bancorp had accrued interest liabilities, net of the related tax
benefits of $3 million. No material liabilities were recorded for
penalties.
Retained earnings at December 31, 2012 and 2011 included
$157 million in allocations of earnings for bad debt deductions of
former thrift subsidiaries for which no income tax has been
provided. Under current tax law, if certain of the Bancorp’s
subsidiaries use these bad debt reserves for purposes other than to
absorb bad debt losses, they will be subject to federal income tax at
the current corporate tax rate.