Bank of America Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes (Tables)

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of Components of Income Tax Expense (Benefit)

The components of income tax expense for 2018, 2017 and 2016 are presented in the table below.




Income Tax Expense

(Dollars in millions)	2018		2017		2016
Current income tax expense
U.S. federal	$	816	$	1,310	$	302
U.S. state and local	1,377		557		120
Non-U.S.	1,203		939		984
Total current expense	3,396		2,806		1,406
Deferred income tax expense
U.S. federal	2,579		7,238		5,416
U.S. state and local	240		835		(279		)
Non-U.S.	222		102		656
Total deferred expense	3,041		8,175		5,793
Total income tax expense	$	6,437	$	10,981	$	7,199

Schedule of Effective Income Tax Rate Reconciliation

A reconciliation of the expected U.S. federal income tax expense, calculated by applying the federal statutory tax rate, to the Corporation’s actual income tax expense, and the effective tax rates for 2018, 2017 and 2016 are presented in the table below.

On December 22, 2017, the President signed into law the Tax Act which made significant changes to federal income tax law including, among other things, reducing the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of the Corporation’s non-U.S. business activities. The impact on net income in 2017 was $2.9 billion, driven by $2.3 billion in income tax expense, largely from a lower valuation of certain U.S. deferred tax assets and liabilities. The change in the statutory tax rate also impacted the Corporation’s tax-advantaged energy investments, resulting in a downward valuation adjustment of $946 million recorded in other income and a related income tax benefit of $347 million, which when netted against the $2.3 billion, resulted in a net impact on income tax expense of $1.9 billion. The Corporation has completed its analysis and accounting under Staff Accounting Bulletin No. 118 for the effects of the Tax Act.




Reconciliation of Income Tax Expense

	Amount			Percent		Amount			Percent		Amount			Percent
(Dollars in millions)	2018					2017					2016
Expected U.S. federal income tax expense	$	7,263		21.0	%	$	10,225		35.0	%	$	8,757		35.0	%
Increase (decrease) in taxes resulting from:
State tax expense, net of federal benefit	1,367			4.0		881			3.0		420			1.7
Affordable housing/energy/other credits	(1,888		)	(5.5	)	(1,406		)	(4.8	)	(1,203		)	(4.8	)
Tax-exempt income, including dividends	(413		)	(1.2	)	(672		)	(2.3	)	(562		)	(2.2	)
Share-based compensation	(257		)	(0.7	)	(236		)	(0.8	)	—			—
Nondeductible expenses	302			0.9		97			0.3		180			0.7
Changes in prior-period UTBs, including interest	144			0.4		133			0.5		(328		)	(1.3	)
Rate differential on non-US earnings	98			0.3		(272		)	(0.9	)	(307		)	(1.2	)
Tax law changes ⁽¹⁾	—			—		2,281			7.8		348			1.4
Other	(179		)	(0.6	)	(50		)	(0.2	)	(106		)	(0.5	)
Total income tax expense	$	6,437		18.6	%	$	10,981		37.6	%	$	7,199		28.8	%

⁽¹⁾

Amounts for 2016 are for non-U.S. tax law changes.

Reconciliation of Change in Unrecognized Tax Benefits

(1)

Amounts for 2016 are for non-U.S. tax law changes.

The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the following table.




Reconciliation of the Change in Unrecognized Tax Benefits

(Dollars in millions)	2018			2017			2016
Balance, January 1	$	1,773		$	875		$	1,095
Increases related to positions taken during the current year	395			292			104
Increases related to positions taken during prior years	406			750			1,318
Decreases related to positions taken during prior years	(371		)	(122		)	(1,091		)
Settlements	(6		)	(17		)	(503		)
Expiration of statute of limitations	—			(5		)	(48		)
Balance, December 31	$	2,197		$	1,773		$	875

Summary of Income Tax Examinations




Tax Examination Status

	Years under Examination ⁽¹⁾	Status at December 31 2018
United States	2012 – 2013	IRS Appeals
United States	2014 – 2016	Field examination
New York	2015	Field examination
United Kingdom	2017	To begin in 2019

⁽¹⁾

All tax years subsequent to the years shown remain subject to examination.

Schedule of Deferred Tax Assets and Liabilities

Significant components of the Corporation’s net deferred tax assets and liabilities at December 31, 2018 and 2017 are presented in the following table.




Deferred Tax Assets and Liabilities

	December 31
(Dollars in millions)	2018			2017
Deferred tax assets
Net operating loss carryforwards	$	7,993		$	8,506
Allowance for credit losses	2,400			2,598
Accrued expenses	1,875			2,021
Available-for-sale securities	1,854			510
Security, loan and debt valuations	1,818			2,939
Employee compensation and retirement benefits	1,564			1,705
Credit carryforwards	623			1,793
Other	1,037			1,034
Gross deferred tax assets	19,164			21,106
Valuation allowance	(1,569		)	(1,644		)
Total deferred tax assets, net of valuation allowance	17,595			19,462

Deferred tax liabilities
Equipment lease financing	2,684			2,492
Fixed assets	1,104			840
Tax credit investments	940			734
Other	2,126			2,771
Gross deferred tax liabilities	6,854			6,837
Net deferred tax assets, net of valuation allowance	$	10,741		$	12,625

Schedule of Operating Loss Carryforwards

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, 2018.




Net Operating Loss and Tax Credit Carryforward Deferred Tax Assets

(Dollars in millions)	Deferred Tax Asset		Valuation Allowance			Net Deferred Tax Asset		First Year Expiring
Net operating losses - U.S.	$	592	$	—		$	592	After 2027
Net operating losses - U.K. ⁽¹⁾	5,294		—			5,294		None
Net operating losses - other non-U.S.	633		(517		)	116		Various
Net operating losses - U.S. states ⁽²⁾	1,474		(517		)	957		Various
General business credits	612		—			612		After 2038
Foreign tax credits	11		(11		)	—		n/a


⁽¹⁾	Represents U.K. broker-dealer net operating losses that 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 $1.9 billion and $654 million.

n/a = not applicable

Summary of Tax Credit Carryforwards

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, 2018.




Net Operating Loss and Tax Credit Carryforward Deferred Tax Assets

(Dollars in millions)	Deferred Tax Asset		Valuation Allowance			Net Deferred Tax Asset		First Year Expiring
Net operating losses - U.S.	$	592	$	—		$	592	After 2027
Net operating losses - U.K. ⁽¹⁾	5,294		—			5,294		None
Net operating losses - other non-U.S.	633		(517		)	116		Various
Net operating losses - U.S. states ⁽²⁾	1,474		(517		)	957		Various
General business credits	612		—			612		After 2038
Foreign tax credits	11		(11		)	—		n/a


⁽¹⁾	Represents U.K. broker-dealer net operating losses that 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 $1.9 billion and $654 million.

n/a = not applicable