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, 2019

Schedule of Components of Income Tax Expense (Benefit)

The components of income tax expense for 2019, 2018 and 2017 are presented in the table below.




Income Tax Expense

(Dollars in millions)	2019		2018		2017
Current income tax expense
U.S. federal	$	1,136	$	816	$	1,310
U.S. state and local	901		1,377		557
Non-U.S.	852		1,203		939
Total current expense	2,889		3,396		2,806
Deferred income tax expense
U.S. federal	2,001		2,579		7,238
U.S. state and local	223		240		835
Non-U.S.	211		222		102
Total deferred expense	2,435		3,041		8,175
Total income tax expense	$	5,324	$	6,437	$	10,981

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 2019, 2018 and 2017 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.




Reconciliation of Income Tax Expense

	Amount			Percent		Amount			Percent		Amount			Percent
(Dollars in millions)	2019					2018					2017
Expected U.S. federal income tax expense	$	6,878		21.0	%	$	7,263		21.0	%	$	10,225		35.0	%
Increase (decrease) in taxes resulting from:
State tax expense, net of federal benefit	1,283			3.9		1,367			4.0		881			3.0
Affordable housing/energy/other credits	(2,365		)	(7.2	)	(1,888		)	(5.5	)	(1,406		)	(4.8	)
Changes in prior-period UTBs, including interest	(613		)	(1.9	)	144			0.4		133			0.5
Tax-exempt income, including dividends	(433		)	(1.3	)	(413		)	(1.2	)	(672		)	(2.3	)
Stock-based compensation	(225		)	(0.7	)	(257		)	(0.7	)	(236		)	(0.8	)
Rate differential on non-U.S. earnings	504			1.5		98			0.3		(272		)	(0.9	)
Nondeductible expenses	290			0.9		302			0.9		97			0.3
Tax law changes	—			—		—			—		2,281			7.8
Other	5			0.1		(179		)	(0.6	)	(50		)	(0.2	)
Total income tax expense	$	5,324		16.3	%	$	6,437		18.6	%	$	10,981		37.6	%

Reconciliation of Change in Unrecognized Tax Benefits

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)	2019			2018			2017
Balance, January 1	$	2,197		$	1,773		$	875
Increases related to positions taken during the current year	238			395			292
Increases related to positions taken during prior years⁽¹⁾	401			406			750
Decreases related to positions taken during prior years ⁽¹⁾	(1,102		)	(371		)	(122		)
Settlements	(541		)	(6		)	(17		)
Expiration of statute of limitations	(18		)	—			(5		)
Balance, December 31	$	1,175		$	2,197		$	1,773

⁽¹⁾

The sum of the positions taken during prior years differs from the $(613) million, $144 million and $133 million in the Reconciliation of Income Tax Expense table due to temporary items, state items and jurisdictional offsets, as well as the inclusion of interest in the Reconciliation of Income Tax Expense table.

Summary of Income Tax Examinations




Tax Examination Status

	Years under Examination ⁽¹⁾	Status at December 31 2019
United States	2017-2018	To begin in 2020
California	2012-2017	Field examination
New York	2016-2018	Field examination
United Kingdom	2018	Field examination

⁽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, 2019 and 2018 are presented in the following table.




Deferred Tax Assets and Liabilities

	December 31
(Dollars in millions)	2019			2018
Deferred tax assets
Net operating loss carryforwards	$	7,417		$	7,993
Allowance for credit losses	2,354			2,400
Lease liability	2,321			—
Security, loan and debt valuations	1,860			1,818
Accrued expenses	1,719			1,875
Employee compensation and retirement benefits	1,622			1,564
Credit carryforwards	183			623
Available-for-sale securities	—			1,854
Other	1,203			1,037
Gross deferred tax assets	18,679			19,164
Valuation allowance	(1,989		)	(1,569		)
Total deferred tax assets, net of valuation allowance	16,690			17,595

Deferred tax liabilities
Equipment lease financing	2,933			2,684
Right-to-use asset	2,246			—
Tax credit investments	1,577			940
Fixed assets	1,505			1,104
Available-for-sale securities	100			—
Other	1,885			2,126
Gross deferred tax liabilities	10,246			6,854
Net deferred tax assets	$	6,444		$	10,741

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, 2019.




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.	$	312	$	—		$	312	After 2028
Net operating losses - U.K. ⁽¹⁾	5,276		—			5,276		None
Net operating losses - other non-U.S.	493		(423		)	70		Various
Net operating losses - U.S. states ⁽²⁾	1,336		(580		)	756		Various
Foreign tax credits	183		(183		)	—		2028


⁽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 $1.7 billion and $734 million.

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, 2019.




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.	$	312	$	—		$	312	After 2028
Net operating losses - U.K. ⁽¹⁾	5,276		—			5,276		None
Net operating losses - other non-U.S.	493		(423		)	70		Various
Net operating losses - U.S. states ⁽²⁾	1,336		(580		)	756		Various
Foreign tax credits	183		(183		)	—		2028


⁽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 $1.7 billion and $734 million.