NOTE 14 - INCOME TAXES

The components of income tax provision included in the Consolidated Statements of Income during the years ended December 31 were as follows:



(Dollars in millions)	2013			2012			2011
Current income tax (benefit)/expense:
Federal		($206	)		$553			($4	)
State	(16		)	26			—
Total		($222	)		$579			($4	)
Deferred income tax expense/(benefit):
Federal		$444			$229			$81
State	51			(35		)	2
Total	495			194			83
Total income tax expense		$273			$773			$79

The income tax provision does not reflect the tax effects of unrealized gains and losses and other income and expenses recorded in AOCI. For additional information on AOCI, see Note 21, “Accumulated Other Comprehensive Income.”

A reconciliation of the expected income tax expense at the statutory federal income tax rate of 35% to the Company’s actual provision for income taxes and the effective tax rate during the years ended December 31 were as follows:



	2013					2012					2011
(Dollars in millions)	Amount			Percent of Pre-Tax Income		Amount			Percent of Pre-Tax Income		Amount			Percent of Pre-Tax Income
Income tax expense at federal statutory rate		$566		35.0	%		$956		35.0	%		$254		35.0	%
Increase (decrease) resulting from:
State income taxes, net	20			1.2		(9		)	(0.3	)	1			0.1
Tax-exempt interest	(80		)	(4.9	)	(77		)	(2.8	)	(72		)	(9.9	)
Internal restructuring	(343		)	(21.3	)	—			—		—			—
Changes in UTBs (including interest), net	152			9.4		1			—		1			0.1
Income tax credits	(84		)	(5.2	)	(83		)	(3.0	)	(88		)	(12.1	)
Non-deductible expenses	49			3.1		16			0.6		6			0.8
Dividends received deduction	(1		)	—		(8		)	(0.3	)	(14		)	(1.9	)
Other	(6		)	(0.4	)	(23		)	(0.9	)	(9		)	(1.2	)
Total income tax expense and rate		$273		16.9	%		$773		28.3	%		$79		10.9	%

Deferred income tax assets and liabilities result from differences between the timing of the recognition of assets and liabilities for financial reporting purposes and for income tax return purposes. These assets and liabilities are measured using the enacted federal and state tax rates expected to apply in the periods in which the deferred tax assets or liabilities are expected to be realized. The net deferred income tax liability is recorded in other liabilities in the Consolidated Balance Sheets. The significant components of the DTAs and DTLs, net of the federal impact for state taxes, at December 31 were as follows:



(Dollars in millions)	2013			2012
DTAs:
ALLL		$795			$861
Accrued expenses	463			685
State NOL and other carryforwards	208			169
Net unrealized losses in AOCI	153			—
Other	131			173
Total gross DTAs	1,750			1,888
Valuation allowance	(102		)	(56		)
Total DTAs		$1,648			$1,832
DTLs:
Leasing		$804			$786
Net unrealized gains in AOCI	—			197
Compensation and employee benefits	97			74
MSRs	566			623
Loans	98			72
Goodwill and intangible assets	151			141
Fixed assets	153			196
Other	53			62
Total DTLs		$1,922			$2,151
Net DTL		($274	)		($319	)

The DTAs include state NOLs and other state carryforwards that will expire, if not utilized, in varying amounts from 2014 to 2033. At December 31, 2013 and 2012, the Company had a valuation allowance recorded against its state carryforwards and certain state DTAs of $102 million and $56 million, respectively. The increase in the valuation allowance was primarily due to an increase in the valuation allowance recorded against STM’s state NOLs. The Company determined that a valuation allowance is not required for the federal and the remaining state DTAs because it is more likely than not these assets will be realized.

The following table provides a rollforward of the Company's federal and state UTBs, excluding interest and penalties, during the years ended December 31:



(Dollars in millions)	2013			2012
Balance at January 1		$137			$133
Increases in UTBs related to prior years	4			1
Decreases in UTBs related to prior years	(10		)	(2		)
Increases in UTBs related to the current year	171			45
Decreases in UTBs related to settlements	(2		)	(34		)
Decreases in UTBs related to lapse of the applicable statutes of limitations	(9		)	(6		)
Balance at December 31		$291			$137

The amount of UTBs that, if recognized, would affect the Company's effective tax rate was $237 million at December 31, 2013. The remainder of the UTBs have offsetting amounts in other jurisdictions or would be offset by the recording of a valuation allowance.

Interest related to UTBs is recorded as a component of the income tax provision. The Company had a liability of $17 million and $18 million for interest related to its UTBs at December 31, 2013 and 2012, respectively. During the years ended December 31, 2013 and 2012, the Company recognized a benefit of approximately $1 million and $3 million, respectively, for interest on the UTBs.

The Company files U.S. federal, state, and local income tax returns. The Company's federal income tax returns are no longer subject to examination by the IRS for taxable years prior to 2010. With limited exceptions, the Company is no longer subject to examination by state and local taxing authorities for taxable years prior to 2006. It is reasonably possible that the liability for UTBs could decrease by as much as $75 million during the next 12 months due to completion of tax authority examinations, receipt of a private letter ruling from the IRS, and the expiration of statutes of limitations.