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)		2015	2014	2013
Current income tax expense:
U.S. Federal income taxes	$	662	424	494
State and local income taxes		55	34	23
Foreign income taxes		13	8	2
Total current income tax expense		730	466	519
Deferred income tax (benefit) expense:
U.S. Federal income taxes		(78)	71	232
State and local income taxes		6	9	23
Foreign income taxes		1	(1)	(2)
Total deferred income tax (benefit) expense		(71)	79	253
Applicable income tax expense	$	659	545	772

The following is a reconciliation between the statutory U.S. Federal income tax rate and the Bancorp’s effective tax rate for the years ended December 31:

	2015		2014	2013
Statutory tax rate	35.0	%	35.0	35.0
Increase (decrease) resulting from:
State taxes, net of federal benefit	1.7		1.4	1.2
Tax-exempt income	(1.7)		(1.4)	(1.1)
Credits	(7.5)		(8.1)	(6.0)
Unrealized stock-based compensation benefits	0.0		0.0	0.3
Other, net	0.3		0.0	0.3
Effective tax rate	27.8	%	26.9	29.7

Credits in the rate reconciliation table include Low-Income Housing, 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/charges on life insurance policies held by the Bancorp, and certain gains on sales of leases that are exempt from federal taxation.

The following table provides a reconciliation of the beginning and ending amounts of the Bancorp’s unrecognized tax benefits:

($ in millions)		2015	2014	2013
Unrecognized tax benefits at January 1	$	11	7	18
Gross increases for tax positions taken during prior period		1	2	1
Gross decreases for tax positions taken during prior period		-	-	(7)
Gross increases for tax positions taken during current period		2	2	1
Settlements with taxing authorities		-	-	(5)
Lapse of applicable statute of limitations		(1)	-	(1)
Unrecognized tax benefits at December 31^(a)	$	13	11	7

The Bancorp's unrecognized tax benefits as of December 31, 2015, 2014, and 2013 primarily relate 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.


Deferred income taxes are comprised of the following items at December 31:

($ in millions)		2015	2014
Deferred tax assets:
Allowance for loan and lease losses	$	445	463
Deferred compensation		118	113
Reserves		61	96
Reserve for unfunded commitments		48	47
State net operating loss carryforwards		10	18
Other		194	189
Total deferred tax assets	$	876	926
Deferred tax liabilities:
Lease financing	$	935	896
Investments in joint ventures and partnership interests		248	329
MSRs and related economic hedges		245	237
Other comprehensive income		106	231
State deferred taxes		79	81
Qualifying hedges and free-standing derivatives		58	105
Bank premises and equipment		53	103
Other		160	148
Total deferred tax liabilities	$	1,884	2,130
Total net deferred tax liability	$	(1,008)	(1,204)

At December 31, 2015 and 2014, the Bancorp recorded deferred tax assets of $10 million and $18 million, respectively, related to state net operating loss carryforwards. The deferred tax assets relating to state net operating losses (primarily resulting from leasing operations) are presented net of specific valuation allowances of $22 million and $19 million at December 31, 2015 and 2014, respectively. If these carryforwards are not utilized, they will expire in varying amounts through 2035. At December 31, 2015, the Bancorp recorded a deferred tax asset of $5 million related to a foreign tax credit carryforward. If not utilized, the deferred tax asset relating to the foreign tax credit carryforward will expire in 2025.

The Bancorp has determined that a valuation allowance is not needed against the remaining deferred tax assets as of December 31, 2015 or 2014. 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, 2015 and 2014 will ultimately be realized. The Bancorp reached this conclusion as the Bancorp has taxable income in the carryback period and 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 audit of the Bancorp's 2010 and 2011 federal income tax returns. No material issues were identified as a result of the IRS audit and there are no contested issues outstanding. The IRS is currently examining the Bancorp's 2012 and 2013 federal income tax returns. The statute of limitations for the Bancorp's federal income tax returns remains open for tax years 2010-2015. 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 income tax expense in the Consolidated Financial Statements. During the years ended December 31, 2015, 2014 and 2013, the Bancorp recognized an immaterial amount of interest expense/benefit in connection with income taxes. At December 31, 2015 and 2014, the Bancorp had accrued interest liabilities, net of the related tax benefits, of $1 million. No material liabilities were recorded for penalties related to income taxes.

Retained earnings at December 31, 2015 and 2014 included $157 million in allocations of earnings for bad debt deductions of former thrift subsidiaries for which no income tax has been provided. Under current tax law, if certain of the Bancorp's subsidiaries use these bad debt reserves for purposes other than to absorb bad debt losses, they will be subject to federal income tax at the current corporate tax rate.