US Bank 2009 Annual Report Download - page 108

A reconciliation of expected income tax expense at the federal statutory rate of 35 percent to the Company’s applicable
income tax expense follows:
(Dollars in Millions) 2009 2008 2007
Tax at statutory rate (35 percent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 921 $1,435 $2,200
State income tax, at statutory rates, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 84 138 160
Tax effect of
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (421) (301) (245)
Tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (202) (173) (130)
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) (24) (27)
Resolution of state income tax examinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – (57)
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 12 (18)
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 395 $1,087 $1,883
The tax effects of fair value adjustments on securities
available-for-sale, derivative instruments in cash flow hedges
and certain tax benefits related to stock options are recorded
directly to shareholders’ equity as part of other
comprehensive income (loss).
In preparing its tax returns, the Company is required to
interpret complex tax laws and regulations and utilize
income and cost allocation methods to determine its taxable
income. On an ongoing basis, the Company is subject to
examinations by federal, state and local government taxing
authorities that may give rise to differing interpretations of
these complex laws, regulations and methods. Due to the
nature of the examination process, it generally takes years
before these examinations are completed and matters are
resolved. Included in earnings for 2009, 2008 and 2007
were reductions in income tax expense and associated
liabilities related to the resolution of various state income
tax examinations which cover varying years from 2001
through 2008 in different states. The resolution of these
cycles was the result of negotiations held between the
Company and representatives of various taxing authorities
throughout the examinations. Federal tax examinations for
all years ending through December 31, 2006, are completed
and resolved. During 2009, the Internal Revenue Service
began its examination of the Company’s tax returns for the
years ended December 31, 2007 and 2008. The years open
to examination by state and local government authorities
vary by jurisdiction.
A reconciliation of the changes in the federal, state and foreign unrecognized tax positions balances are summarized as follows:
Year Ended December 31 (Dollars in Millions) 2009 2008
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $283 $296
Additions for tax positions taken in the prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 49
Additions for tax positions taken in the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 8
Exam resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12) (63)
Statute expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) (7)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $440 $283
The total amount of unrecognized tax positions that, if
recognized, would impact the effective income tax rate as of
December 31, 2009 and 2008, were $202 million and
$187 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, 2009 and 2008, the Company recognized
approximately $13 million and $19 million, respectively, in
interest and had approximately $53 million accrued at
December 31, 2009. Substantially all of the current year
additions to uncertain tax positions relate to tax positions
on the timing of the allowance of deductions for losses on
various securities and debt obligations. The ultimate
deductibility is highly certain, however the timing of
deductibility is uncertain.
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.
106 U.S. BANCORP