US Bank 2010 Annual Report Download - page 109

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) 2010 2009 2008
Tax at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,470 $ 921 $1,435
State income tax, at statutory rates, net of federal tax benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . 110 84 138
Tax effect of
Tax credits, net of related expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (462) (421) (301)
Tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (214) (202) (173)
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (11) (24)
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 24 12
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 935 $ 395 $1,087
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 2010, 2009 and 2008
were changes 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 2010, 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) 2010 2009 2008
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $440 $283 $296
Additions for tax positions taken in prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 31 49
Additions for tax positions taken in the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 145 8
Exam resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (12) (63)
Statute expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54) (7) (7)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $532 $440 $283
The total amount of unrecognized tax positions that, if
recognized, would impact the effective income tax rate as of
December 31, 2010, 2009 and 2008, were $253 million,
$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, 2010, 2009 and 2008 the
Company recognized approximately $(6) million,
$13 million and $19 million, respectively, in interest and had
approximately $49 million accrued at December 31, 2010.
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.
U.S. BANCORP 107