US Bank 2008 Annual Report Download - page 102

The total amount of unrecognized tax positions that, if
recognized would impact the effective income tax rate as of
December 31, 2008 and 2007, were $187 million and
$192 million, respectively. The Company classifies interest
and penalties related to unrecognized tax positions as a
component of income tax expense. During the years ended
December 31, 2008 and 2007, the Company recognized
approximately $19 million and $13 million, respectively, in
interest on unrecognized tax positions and had
approximately $41 million accrued at December 31, 2008.
While certain examinations may be concluded, statutes
may lapse or other developments may occur, the Company
does not believe a significant increase or decrease in the
uncertain tax positions will occur over the next twelve
months.
Deferred income tax assets and liabilities reflect the tax
effect of estimated temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for the same items
for income tax reporting purposes.
The significant components of the Company’s net deferred tax asset (liability) as of December 31 were:
(Dollars in Millions) 2008 2007
Deferred Tax Assets
Securities available-for-sale and financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,473 $ 538
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,345 879
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 111
Other investment basis differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 184
Pension and postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 –
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 232
Accrued severance, pension and retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 67
Federal, state and foreign net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 66
Other deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 25
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,907 2,102
Deferred Tax Liabilities
Leasing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,996) (2,139)
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (328) (390)
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (140) (80)
Deferred fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57) (59)
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40) (9)
Intangible asset basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35) (20)
Pension and postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (392)
Other deferred tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (142) (226)
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,738) (3,315)
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49) (66)
Net Deferred Tax Asset (Liability) ................................................ $ 1,120 $(1,279)
The Company has established a valuation allowance to
offset deferred tax assets related to federal, state and foreign
net operating loss carryforwards which are subject to
various limitations under the respective income tax laws and
some of which may expire unused. The Company has
approximately $487 million of federal, state and foreign net
operating loss carryforwards which expire at various times
through 2024. Management has determined a valuation
reserve is not required for the remaining net deferred tax
assets because it is more likely than not these assets will be
realized through carry back to taxable income in prior years,
future reversals of existing taxable temporary differences and
future taxable income.
Certain events covered by Internal Revenue Code
section 593(e), which was not repealed, will trigger a
recapture of base year reserves of acquired thrift institutions.
The base year reserves of acquired thrift institutions would
be recaptured if an entity ceases to qualify as a bank for
federal income tax purposes. The base year reserves of thrift
institutions also remain subject to income tax penalty
provisions that, in general, require recapture upon certain
stock redemptions of, and excess distributions to,
stockholders. At December 31, 2008, retained earnings
included approximately $102 million of base year reserves
for which no deferred federal income tax liability has been
recognized.
Note 20 DERIVATIVE INSTRUMENTS
In the ordinary course of business, the Company enters into
derivative transactions to manage its interest rate,
prepayment and foreign currency risks and to accommodate
the business requirements of its customers. The Company
does not enter into derivative transactions for speculative
purposes. Refer to Note 1 “Significant Accounting Policies”
in the Notes to Consolidated Financial Statements for a
discussion of the Company’s accounting policies for
derivative instruments. For information related to derivative
100 U.S. BANCORP