The Bancorp and its subsidiaries file a consolidated federal income tax return. The following is a summary of applicable income taxes included in the Consolidated Statements of Income for the years ended December 31:


($ in millions)	2020		2019	2018
Current income tax expense:
U.S. Federal income taxes	$	463	788	463
State and local income taxes	69		148	71
Foreign income taxes	—		—	8
Total current income tax expense	532		936	542
Deferred income tax (benefit) expense:
U.S. Federal income taxes	(140)		(212)	24
State and local income taxes	(23)		(35)	4
Foreign income taxes	1		1	2
Total deferred income tax (benefit) expense	(162)		(246)	30
Applicable income tax expense	$	370	690	572

The current U.S. Federal income taxes above include proportional amortization for qualifying LIHTC investments of $150 million, $140 million and $154 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The following is a reconciliation between the federal statutory corporate tax rate and the Bancorp’s effective tax rate for the years ended December 31:


	2020		2019	2018
Statutory tax rate	21.0	%	21.0	21.0
Increase (decrease) resulting from:
State taxes, net of federal benefit	2.0		2.8	2.1
Tax-exempt income	(1.5)		(1.2)	(0.8)
LIHTC investment and other tax benefits	(9.7)		(5.0)	(6.8)
LIHTC investment proportional amortization	8.3		4.4	5.6
Other tax credits	(0.4)		(0.2)	(0.1)
Other, net	0.9		(0.2)	(0.3)
Effective tax rate	20.6	%	21.6	20.7

Other tax credits in the rate reconciliation table include New Markets, Rehabilitation Investment and Qualified Zone Academy Bond tax credits. Tax-exempt income in the rate reconciliation table includes interest on municipal bonds, interest on tax-exempt lending, income on life insurance policies held by the Bancorp and certain gains on sales of leases that are exempt from federal taxation.


($ in millions)	2020		2019	2018
Unrecognized tax benefits at January 1	$	65	55	34
Gross increases for tax positions taken during prior period	29		25	20
Gross decreases for tax positions taken during prior period	(3)		(3)	(1)
Gross increases for tax positions taken during current period	12		6	8
Settlements with taxing authorities	(1)		(9)	(5)
Lapse of applicable statute of limitations	(2)		(9)	(1)
Unrecognized tax benefits at December 31(a)	$	100	65	55

(a)With the exception of $6, $6 and $5 in 2020, 2019 and 2018, respectively, all amounts represent unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.

The Bancorp’s unrecognized tax benefits as of December 31, 2020, 2019 and 2018 primarily related to state income tax exposures from taking tax positions where the Bancorp believes it is likely that, upon examination, a state will take a position contrary to the position taken by the Bancorp.

While it is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the Bancorp’s uncertain tax positions could increase or decrease during the next twelve months, the Bancorp believes it is unlikely that its unrecognized tax benefits will change by a material amount during the next twelve months.


($ in millions)	2020		2019
Deferred tax assets:
Allowance for loan and lease losses	$	515	252
Deferred compensation	107		103
Reserves	40		32
Reserve for unfunded commitments	36		30
State net operating loss carryforwards	3		9
State deferred taxes	1		—
Other	160		154
Total deferred tax assets	$	862	580
Deferred tax liabilities:
Other comprehensive income	$	779	352
Lease financing	638		650
MSRs and related economic hedges	120		144
Bank premises and equipment	91		73
Investments in joint ventures and partnership interests	58		25
State deferred taxes	—		47
Other	128		127
Total deferred tax liabilities	$	1,814	1,418
Total net deferred tax liability	$	(952)	(838)

At December 31, 2020 and 2019, the Bancorp recorded deferred tax assets of $3 million and $9 million, respectively, related to state net operating loss carryforwards. The deferred tax assets relating to state net operating losses are presented net of specific valuation allowances of $4 million and $17 million at December 31, 2020 and 2019, respectively. If these carryforwards are not utilized, they will expire in varying amounts through 2039.

The Bancorp has determined that a valuation allowance is not needed against the remaining deferred tax assets as of December 31, 2020 or 2019. The Bancorp considered all of the positive and negative evidence available to determine whether it is more likely than not that the deferred tax assets will ultimately be realized and, based upon that evidence, the Bancorp believes it is more likely than not that the deferred tax assets recorded at December 31, 2020 and 2019 will ultimately be realized. The Bancorp reached this conclusion as it is expected that the Bancorp’s remaining deferred tax assets will be realized through the reversal of its existing taxable temporary differences and its projected future taxable income.

The IRS has concluded its examination of the Bancorp’s 2016 federal income tax return. The statute of limitations for the Bancorp’s federal income tax returns remains open for tax years 2017 through 2020. On occasion, as various state and local taxing jurisdictions examine the returns of the Bancorp and its subsidiaries, the Bancorp may agree to extend the statute of limitations for a reasonable period of time. Otherwise, the statutes of limitations for state income tax returns remain open only for tax years in accordance with each state’s statutes.

Any interest and penalties incurred in connection with income taxes are recorded as a component of applicable income tax expense in the Consolidated Financial Statements. During the years ended December 31, 2020, 2019 and 2018, the Bancorp recognized $3 million, $1 million and $1 million, respectively, of interest expense in connection with income taxes. At December 31, 2020 and 2019, the Bancorp had accrued interest liabilities, net of the related tax benefits, of $7 million and $4 million, respectively. No material liabilities were recorded for penalties related to income taxes.