Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

  NOTE 18   Income Taxes

The components of income tax expense were:

Year Ended December 31 (Dollars in Millions)	2020			2019			2018
Federal
Current	$	1,146		$	1,162		$	1,287
Deferred		(291	)		166			(148	)
Federal income tax		855			1,328			1,139
State
Current		355			379			395
Deferred		(144	)		(59	)		20
State income tax		211			320			415
Total income tax provision	$	1,066		$	1,648		$	1,554

A reconciliation of expected income tax expense at the federal statutory rate of 21 percent to the Company’s applicable income tax expense follows:

Year Ended December 31 (Dollars in Millions)	2020			2019			2018
Tax at statutory rate	$	1,271		$	1,805		$	1,822
State income tax, at statutory rates, net of federal tax benefit		240			355			352
Tax effect of
Tax credits and benefits, net of related expenses		(370	)		(424	)		(513	)
Tax-exempt income		(117	)		(120	)		(130	)
Nondeductible legal and regulatory expenses		29			23			52
Other items(a)		13			9			(29	)
Applicable income taxes	$	1,066		$	1,648		$	1,554

(a) Includes excess tax benefits associated with stock-based compensation and adjustments related to deferred tax assets and liabilities.

The tax effects of fair value adjustments on securities available-for-sale, derivative instruments in cash flow hedges, foreign currency translation adjustments, and pension and post-retirement plans are recorded directly to shareholders’ equity as part of other comprehensive income (loss).

In preparing its tax returns, the Company is required to interpret complex tax laws and regulations and utilize income and cost allocation methods to determine its taxable income. On an ongoing basis, the Company is subject to examinations by federal, state, local and foreign taxing authorities that may give

rise to differing interpretations of these complex laws, regulations and methods. Due to the nature of the examination process, it generally takes years before these examinations are completed and matters are resolved. Federal tax examinations for all years ending through December 31, 2014 are completed and resolved.

The Company’s tax returns for the years ended December 31, 2015, 2016, 2017 and 2018 are under examination by the Internal Revenue Service. The years open to examination by foreign, state and local government authorities vary by jurisdiction.

A reconciliation of the changes in the federal, state and foreign uncertain tax position balances are summarized as follows:

Year Ended December 31 (Dollars in Millions)	2020			2019			2018
Balance at beginning of period	$	432		$	335		$	287
Additions for tax positions taken in prior years		62			168			93
Additions for tax positions taken in the current year		6			6			10
Exam resolutions		(8	)		(62	)		(51	)
Statute expirations		(18	)		(15	)		(4	)
Balance at end of period	$	474		$	432		$	335

The total amount of uncertain tax positions that, if recognized, would impact the effective income tax rate as of December 31, 2020, 2019 and 2018, were $280 million, $274 million and $273 million, respectively. The Company classifies interest and penalties related to uncertain tax positions as a component of income tax expense. At December 31, 2020, the Company’s uncertain tax position balance included $40 million of accrued interest and penalties. During the years

ended December 31, 2020, 2019 and 2018 the Company recorded approximately $5 million, $7 million and $(25) million, respectively, in interest and penalties on uncertain tax positions.

Deferred income tax assets and liabilities reflect the tax effect of estimated temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for the same items for income tax reporting purposes.

The significant components of the Company’s net deferred tax asset (liability) follows:

At December 31 (Dollars in Millions)	2020			2019
Deferred Tax Assets
Federal, state and foreign net operating loss and credit carryforwards	$	2,495		$	2,592
Allowance for credit losses		2,042			1,155
Accrued expenses		554			485
Obligation for operating leases		293			328
Pension and postretirement benefits		108			193
Stock compensation		84			78
Partnerships and other investment assets		9			91
Fixed assets		–			2
Other deferred tax assets, net		383			257
Gross deferred tax assets		5,968			5,181
Deferred Tax Liabilities
Leasing activities		(2,511	)		(2,700	)
Goodwill and other intangible assets		(802	)		(763	)
Securities available-for-sale and financial instruments		(755	)		(111	)
Mortgage servicing rights		(408	)		(546	)
Right of use operating leases		(249	)		(282	)
Fixed assets		(226	)		–
Loans		(112	)		(139	)
Other deferred tax liabilities, net		(145	)		(131	)
Gross deferred tax liabilities		(5,208	)		(4,672	)
Valuation allowance		(163	)		(127	)
Net Deferred Tax Asset	$	597		$	382

The Company has approximately $2.3 billion of federal, state and foreign net operating loss carryforwards which expire at various times beginning in 2021. A substantial portion of these carryforwards relate to state-only net operating losses, for which the related deferred tax asset is subject to a full valuation allowance as the carryforwards are not expected to be realized within the carryforward period. Management has determined it is more likely than not the other net deferred tax assets could be realized through carry back to taxable income in

prior years, future reversals of existing taxable temporary differences and future taxable income.

In addition, the Company has $2.3 billion of federal credit carryforwards which expire at various times through 2040 which are not subject to a valuation allowance as management believes that it is more likely than not that the credits will be utilized within the carryforward period.

At December 31, 2020, retained earnings included approximately $102 million of base year reserves of acquired thrift institutions, for which no deferred federal income tax liability has been recognized. These base year reserves would be recaptured if certain subsidiaries of the Company cease to qualify as a bankfor federal income tax purposes. The base year reserves also remain subject to income tax penalty provisions that, in general, require recapture upon certain stock redemptions of, and excess distributions to, stockholders.