|12 Months Ended|
Dec. 31, 2012
|Income Tax Disclosure [Abstract]|
The components of income tax (benefit) expense for the years ended December 31, 2012, 2011 and 2010 were as follows:
The income tax (benefit) expense for the years ended December 31, 2012, 2011 and 2010 varied from the amount computed by applying the statutory income tax rate to (loss) income before income taxes. A reconciliation of the expected U.S. federal income tax (benefit) expense using the U.S. federal statutory tax rate of 35% to Merrill Lynch’s actual income tax (benefit) expense and resulting effective tax rate for the years ended December 31, 2012, 2011 and 2010 is presented in the table below.
(1) Includes in 2012 a $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.
(2) Includes charges of $781 million, $774 million, and $386 million in 2012, 2011 and 2010, respectively, to reduce the carrying value of certain U.K. net deferred tax assets due to U.K. corporate income tax rate reductions.
The reconciliation of the beginning UTB balance to the ending balance is presented in the table below.
Reconciliation of the Change in UTBs
As of December 31, 2012, 2011 and 2010, the balance of Merrill Lynch’s UTBs which would, if recognized, affect Merrill Lynch’s effective tax rate was $1.1 billion, $1.2 billion and $1.3 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.
Merrill Lynch files income tax returns in more than 100 state and non-U.S. jurisdictions each year. The Internal Revenue Service (“IRS”) and other tax authorities in countries and states in which Merrill Lynch has significant business operations, examine tax returns periodically (continuously in some jurisdictions). The table below summarizes the status of significant tax examinations, by jurisdiction, for Merrill Lynch as of December 31, 2012.
During 2012, Merrill Lynch, Bank of America and the IRS continued to make significant progress toward resolving all federal income tax examinations for Bank of America tax years through 2009 and Merrill Lynch tax years through 2008. While subject to final agreement, including review by the Joint Committee on Taxation of the U.S. Congress for certain years, Merrill Lynch believes that these examinations may be concluded during 2013.
Considering all examinations, it is reasonably possible that the UTB balance will decrease by as much as $0.9 billion during the next twelve months, since resolved items will be removed from the balance whether their resolution resulted in payment or recognition. If such a decrease were to occur, it likely would primarily result from outcomes consistent with management's expectations.
During 2012 and 2011, Merrill Lynch recognized in income tax expense, a benefit of $40 million and a benefit of $135 million, respectively, of interest and penalties, net-of-tax. At December 31, 2012 and 2011, Merrill Lynch's accrual for interest and penalties that related to income taxes, net of taxes and remittances, was $102 million and $137 million, respectively.
Significant components of Merrill Lynch’s net deferred tax assets at December 31, 2012 and 2011 are presented in the table below.
The table below summarizes the deferred tax assets and related valuation allowances recognized for the net operating loss and tax credit carryforwards at December 31, 2012.
(1) The U.K. net operating losses may be carried forward indefinitely.
(2) Amounts above include capital losses. The losses and related valuation allowances for U.S. states before considering
the benefit of federal deductions were $1.8 billion and $(551) million, respectively.
(3) Primarily U.S. foreign tax credits.
Realization of the deferred tax assets recognized for net operating loss and tax credit carryforwards in the table
above is dependent on Merrill Lynch's or Bank of America's ability to generate sufficient taxable income prior to their expiration. Management concluded that no valuation allowance was necessary to reduce the U.K. NOL carryforwards and U.S. federal NOL carryforwards since estimated future taxable income will more-likely-than-not be sufficient to utilize these assets prior to expiration. The majority of Merrill Lynch's U.K. net deferred tax assets, which consist primarily of NOLs, are realizable by a few non-U.S. subsidiaries that have a recent history of cumulative losses. For the deferred tax assets of those subsidiaries, the cessation of certain business activities, changes to capital and funding, forecasts of business volumes and the indefinite period to carry forward NOLs represent significant positive evidence supporting management's conclusion. However, significant changes to those estimates, such as changes that would be caused by substantial and prolonged worsening of the condition of Europe's capital markets, could lead management to reassess its U.K. valuation allowance conclusions.
Merrill Lynch is included in the consolidated U.S. federal income tax return and certain combined and unitary state income tax returns of Bank of America. At December 31, 2012, Merrill Lynch had a current tax payable to Bank of America of approximately $0.2 billion as a result of its inclusion in consolidated, combined, and unitary tax return filings with Bank of America.
At December 31, 2012, U.S. federal income taxes had not been provided on $7.9 billion of undistributed earnings of non-U.S. subsidiaries that management has determined have been reinvested for an indefinite period of time. If Merrill Lynch were to record a deferred tax liability associated with these undistributed earnings, the amount would be approximately $1.6 billion at December 31, 2012.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef