Income Taxes (Tables)

INCOME TAXES

The components of income tax expense are as follows:

Table 87: Components of Income Tax Expense



Year ended December 31 In millions	2018		2017 (a)			2016
Current
Federal	$	773	$	454		$	871
State	176		51			71
Total current	949		505			942
Deferred
Federal	123		(474		)	301
State	10		71			25
Total deferred	133		(403		)	326
Total	$	1,082	$	102		$	1,268

(a) The 2017 results benefited from the federal tax legislation that was enacted on December 22, 2017.

Significant components of deferred tax assets and liabilities are as follows:

Table 88: Deferred Tax Assets and Liabilities



December 31 – in millions	2018			2017
Deferred tax assets
Allowance for loan and lease losses	$	637		$	631
Compensation and benefits	279			223
Partnership investments	184			173
Loss and credit carryforward	366			301
Accrued expenses	207			284
Other	193			131
Total gross deferred tax assets	1,866			1,743
Valuation allowance	(37		)	(40		)
Total deferred tax assets	1,829			1,703
Deferred tax liabilities
Leasing	1,169			1,034
Goodwill and intangibles	196			197
Fixed assets	379			206
Mortgage servicing rights	179			146
Net unrealized gains on securities and financial instruments				155
BlackRock basis difference	1,726			1,594
Other	119			345
Total deferred tax liabilities	3,768			3,677
Net deferred tax liability	$	1,939		$	1,974

A reconciliation between the statutory and effective tax rates follows:

Table 89: Reconciliation of Statutory and Effective Tax Rates



Year ended December 31	2018		2017		2016
Statutory tax rate	21.0	%	35.0	%	35.0	%
Increases (decreases) resulting from:
State taxes net of federal benefit	2.3		1.5		1.2
Tax-exempt interest	(1.4	)	(2.5	)	(2.4	)
Life insurance	(.9	)	(1.8	)	(1.9	)
Dividend received deduction	(.9	)	(1.8	)	(1.8	)
Tax credits	(3.4	)	(4.2	)	(4.4	)
Federal deferred tax revaluation (a)	(1.7	)	(21.7	)
Unrecognized tax benefits	1.1		(.1	)	(.1	)
Other	.7		(2.5	)	(1.5	)
Effective tax rate (b)	16.8	%	1.9	%	24.1	%


(a)	Reflects the impact of tax planning activities during the third quarter of 2018.


(b)	The effective tax rates are generally lower than the statutory rate due to the relationship of pretax income to tax credits and earnings that are not subject to tax. The 2017 and 2018 results benefited from the federal tax legislation.

The net operating loss carryforwards at December 31, 2018 and 2017 follow

Table 90: Net Operating Loss Carryforwards



Dollars in millions	December 31, 2018		December 31, 2017		Expiration
Net Operating Loss Carryforwards:
Federal	$	521	$	640	2032
State	$	1,577	$	1,776	2019-2036

A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:

Table 91: Change in Unrecognized Tax Benefits



In millions	2018			2017			2016
Balance of gross unrecognized tax benefits at January 1	$	18		$	22		$	26
Increases:
Positions taken during a prior period	212			4			14
Decreases:
Positions taken during a prior period	(16		)	(3		)	(14		)
Settlements with taxing authorities	(7		)	(4		)
Reductions resulting from lapse of statute of limitations				(1		)	(4		)
Balance of gross unrecognized tax benefits at December 31	$	207		$	18		$	22
Favorable (unfavorable) impact if recognized	$	76		$	17		$	18

Table 92: IRS Tax Examination Status