Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Income Tax Disclosure
Income Taxes
The components of income tax expense (benefit) for 2013, 2012 and 2011 are presented in the table below.
 
 
 
 
 
 
Income Tax Expense (Benefit)
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
2013
 
2012
 
2011
Current income tax expense (benefit)
 

 
 

 
 

U.S. federal
$
180

 
$
458

 
$
(733
)
U.S. state and local
786

 
592

 
393

Non-U.S. 
513

 
569

 
613

Total current expense
1,479

 
1,619

 
273

Deferred income tax expense (benefit)
 

 
 

 
 

U.S. federal
2,056

 
(3,433
)
 
(2,673
)
U.S. state and local
(94
)
 
(55
)
 
(584
)
Non-U.S. 
1,300

 
753

 
1,308

Total deferred expense (benefit)
3,262

 
(2,735
)
 
(1,949
)
Total income tax expense (benefit)
$
4,741

 
$
(1,116
)
 
$
(1,676
)

Total income tax expense (benefit) does not reflect the deferred tax effects of unrealized gains and losses on AFS debt and marketable equity securities, foreign currency translation adjustments, derivatives and employee benefit plan adjustments that are included in accumulated OCI. These tax effects resulted in a benefit of $2.7 billion and $2.9 billion in 2013 and 2011, respectively, and an expense of $1.3 billion in 2012 recorded in accumulated OCI. In addition, total income tax expense (benefit) does not reflect tax effects associated with the Corporation’s employee stock plans which decreased common stock and additional paid-in capital $128 million and $277 million in 2013 and 2012, and increased common stock and additional paid-in capital $19 million in 2011.
Income tax expense (benefit) for 2013, 2012 and 2011 varied from the amount computed by applying the statutory income tax rate to income (loss) before income taxes. A reconciliation of the expected U.S. federal income tax expense is calculated by applying the federal statutory tax rate of 35 percent to the Corporation’s actual income tax expense (benefit) and the effective tax rates for 2013, 2012 and 2011 are presented in the table below.
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of Income Tax Expense (Benefit)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
2012
 
2011
(Dollars in millions)
Amount

Percent

Amount

Percent

Amount

Percent
Expected U.S. federal income tax expense (benefit)
$
5,660

 
35.0
 %
 
$
1,075

 
35.0
 %
 
$
(81
)
 
35.0
 %
Increase (decrease) in taxes resulting from:
 

 
(0.001
)%
 
 

 
(0.001
)%
 
 

 
(0.001
)%
State tax expense (benefit), net of federal effect
450

 
2.8

 
349

 
11.4

 
(124
)
 


Non-U.S. tax differential (1)
(940
)
 
(5.8
)
 
(1,968
)
 
(64.1
)
 
(383
)
 


Affordable housing credits/other credits
(863
)
 
(5.3
)
 
(783
)
 
(25.5
)
 
(800
)
 


Tax-exempt income, including dividends
(524
)
 
(3.2
)
 
(576
)
 
(18.8
)
 
(614
)
 


Changes in prior period UTBs, including interest
(255
)
 
(1.6
)
 
(198
)
 
(6.4
)
 
(239
)
 


Non-U.S. statutory rate reductions
1,133

 
7.0

 
788

 
25.7

 
860

 


Nondeductible expenses
52

 
0.3

 
231

 
7.5

 
119

 


Goodwill – impairment and other goodwill impacts
52

 
0.3

 
—

 
—

 
1,420

 


Change in federal and non-U.S. valuation allowances
26

 
0.2

 
41

 
1.3

 
(1,102
)
 


Leveraged lease tax differential
26

 
0.2

 
83

 
2.7

 
121

 


Subsidiary sales and liquidations
—

 
—

 
—

 
—

 
(823
)
 


Other
(76
)
 
(0.6
)
 
(158
)
 
(5.1
)
 
(30
)
 


Total income tax expense (benefit)
$
4,741

 
29.3
 %
 
$
(1,116
)
 
(36.3
)%
 
$
(1,676
)
 
n/m


(1)  
Includes in 2012, $1.7 billion income tax benefit attributable to the excess of foreign tax credits recognized in the U.S. upon repatriation of the earnings of certain non-U.S. subsidiaries over the related U.S. tax liability.
n/m = not meaningful
The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the table below.
 
 
 
 
 
 
Reconciliation of the Change in Unrecognized Tax Benefits
 
 
 
 
 
 
(Dollars in millions)
2013
 
2012
 
2011
Balance, January 1
$
3,677

 
$
4,203

 
$
5,169

Increases related to positions taken during the current year
98

 
352

 
219

Increases related to positions taken during prior years (1)
254

 
142

 
879

Decreases related to positions taken during prior years (1)
(508
)
 
(711
)
 
(1,669
)
Settlements
(448
)
 
(205
)
 
(277
)
Expiration of statute of limitations
(5
)
 
(104
)
 
(118
)
Balance, December 31
$
3,068

 
$
3,677

 
$
4,203

(1) 
The sum per year of positions taken during prior years differs from the $255 million, $198 million and $239 million in the Reconciliation of Income Tax Expense (Benefit) table due to temporary items and jurisdictional offsets, as well as the inclusion of interest in the Reconciliation of Income Tax Expense (Benefit) table.
At December 31, 2013, 2012 and 2011, the balance of the Corporation’s UTBs which would, if recognized, affect the Corporation’s effective tax rate was $2.5 billion, $3.1 billion and $3.3 billion, respectively. Included in the UTB balance are some items the recognition of which would not affect the effective tax rate, such as the tax effect of certain temporary differences, the portion of gross state UTBs that would be offset by the tax benefit of the associated federal deduction and the portion of gross non-U.S. UTBs that would be offset by tax reductions in other jurisdictions.
The Corporation files income tax returns in more than 100 state and non-U.S. jurisdictions each year. The IRS and other tax authorities in countries and states in which the Corporation has significant business operations examine tax returns periodically (continuously in some jurisdictions). The Tax Examination Status table summarizes the status of significant examinations (U.S. federal unless otherwise noted) for the Corporation and various subsidiaries as of December 31, 2013.
 
 
 
 
Tax Examination Status
 
 
 
 
 
 
 
 
Years under
Examination
 
Status at December 31 2013
Bank of America Corporation – U.S.
2005 – 2009
 
See below
Bank of America Corporation – U.S.
2010 – 2011
 
Field examination
Bank of America Corporation – New York (1)
2004 – 2008
 
Field examination
Merrill Lynch – U.S. 
2004 – 2008
 
See below
Various – U.K.
2012
 
Field examination
(1) 
All tax years subsequent to the years shown remain open to examination.
During 2013, the Corporation and the IRS arrived at final resolution of the Bank of America Corporation 2001 through 2004 tax years and continued to make progress toward resolving all federal income tax examinations through 2009, including Merrill Lynch. While subject to final agreement, including review by the Joint Committee on Taxation of the U.S. Congress for certain years, the Corporation believes that these examinations may be concluded during 2014.
Considering all examinations, it is reasonably possible that the UTB balance may decrease by as much as $2.1 billion during the next 12 months, since resolved items will be removed from the balance whether their resolution results in payment or recognition. If such decrease were to occur, it likely would primarily result from outcomes consistent with management expectations.
During 2013 and 2012, the Corporation recognized $127 million and $99 million of expense and, in 2011, a benefit of $168 million for interest and penalties, net-of-tax, in income tax expense (benefit). At December 31, 2013 and 2012, the Corporation’s accrual for interest and penalties that related to income taxes, net of taxes and remittances, was $888 million and $775 million.
Significant components of the Corporation’s net deferred tax assets and liabilities at December 31, 2013 and 2012 are presented in the table below.
 
 
 
 
Deferred Tax Assets and Liabilities
 
 
 
 
 
 
 
 
December 31
(Dollars in millions)
2013
 
2012
Deferred tax assets
 

 
 

Net operating loss carryforwards
$
10,967

 
$
13,863

Tax credit carryforwards
9,689

 
9,529

Accrued expenses
6,749

 
8,099

Allowance for credit losses
6,100

 
8,463

Security, loan and debt valuations
4,264

 
2,712

Employee compensation and retirement benefits
2,729

 
4,612

State income taxes
2,643

 
2,766

Available-for-sale securities
1,918

 
—

Other
722

 
725

Gross deferred tax assets
45,781

 
50,769

Valuation allowance
(1,940
)
 
(2,211
)
Total deferred tax assets, net of valuation allowance
43,841

 
48,558

 
 
 
 
Deferred tax liabilities
 

 
 

Equipment lease financing
3,106

 
3,371

Long-term borrowings
3,033

 
3,215

Mortgage servicing rights
1,547

 
1,986

Intangibles
1,529

 
1,708

Fee income
798

 
901

Available-for-sale securities
—

 
2,877

Other
1,472

 
1,462

Gross deferred tax liabilities
11,485

 
15,520

Net deferred tax assets
$
32,356

 
$
33,038


The table below summarizes the deferred tax assets and related valuation allowances recognized for the net operating loss (NOL) and tax credit carryforwards at December 31, 2013.
 
 
 
 
 
 
 
 
Net Operating Loss and Tax Credit Carryforwards
 
 
 
 
 
 
 
 
(Dollars in millions)
Deferred
Tax Asset
 
Valuation
Allowance
 
Net
Deferred
Tax Asset
 
First Year
Expiring
Net operating losses – U.S. 
$
3,061

 
$
—

 
$
3,061

 
After 2027
Net operating losses – U.K.
7,417

 
—

 
7,417

 
None (1)
Net operating losses – other non-U.S. 
489

 
(366
)
 
123

 
Various
Net operating losses – U.S. states (2)
2,039

 
(1,025
)
 
1,014

 
Various
General business credits
4,034

 
—

 
4,034

 
After 2027
Foreign tax credits
5,655

 
(271
)
 
5,384

 
After 2017
(1) 
The U.K. net operating losses may be carried forward indefinitely.
(2) 
The net operating losses and related valuation allowances for U.S. states before considering the benefit of federal deductions were $3.1 billion and $1.6 billion.
Management concluded that no valuation allowance was necessary to reduce the U.K. NOL carryforwards and U.S. NOL and general business credit carryforwards since estimated future taxable income will be sufficient to utilize these assets prior to their expiration. The majority of the Corporation’s U.K. net deferred tax assets, which consist primarily of NOLs, are expected to be realized by certain subsidiaries over an extended number of years. Management’s conclusion is supported by recent financial results and forecasts, the reorganization of certain business activities and the indefinite period to carry forward NOLs. However, significant changes to those estimates, such as changes that would be caused by a substantial and prolonged worsening of the condition of Europe’s capital markets, could lead management to reassess its U.K. valuation allowance conclusions.
At December 31, 2013, U.S. federal income taxes had not been provided on $17.0 billion of undistributed earnings of non-U.S. subsidiaries that management has determined have been reinvested for an indefinite period of time. If the Corporation were to record a deferred tax liability associated with these undistributed earnings, the amount would be approximately $4.3 billion at December 31, 2013.