Income Taxes

12 Months Ended

Dec. 31, 2015

NOTE 12. Income Taxes

Effective January 1, 2015, BB&T adopted new guidance related to the accounting for investments in qualified affordable housing projects. For periods prior to January 1, 2015, amortization expense related to qualifying investments in low income housing tax credits was reclassified from other income to provision for income taxes, and the amount of amortization and tax benefits recognized was revised as a result of the adoption of the proportional amortization method.

The components of the income tax provision are as follows:

			Year Ended December 31,
			2015		2014		2013

			(Dollars in millions)
	Current expense:
		Federal	$	585	$	706	$	1,148
		State		99		81		98
	Total current expense			684		787		1,246
	Deferred expense:
		Federal		99		122		273
		State		11		12		34
	Total deferred expense			110		134		307
	Provision for income taxes		$	794	$	921	$	1,553

The reasons for the difference between the provision for income taxes and the amount computed by applying the statutory Federal income tax rate to income before income taxes were as follows:

		Year Ended December 31,
		2015			2014			2013

		(Dollars in millions)
Federal income taxes at statutory rate of 35%		$	1,021		$	1,094		$	1,149
Increase (decrease) in provision for income taxes as a result of:
	State income taxes, net of federal tax benefit		72			61			86
	Affordable housing projects proportional amortization		181			159			143
	Affordable housing projects tax credits and other tax benefits		(249)			(221)			(196)
	Tax exempt income		(129)			(125)			(128)
	Adjustments for uncertain tax positions		(107)			(39)			516
	Other, net		5			(8)			(17)
Provision for income taxes		$	794		$	921		$	1,553
Effective income tax rate			27.2	%		29.5	%		47.3	%

The tax effects of temporary differences that gave rise to deferred tax assets and liabilities are reflected in the table below:

				December 31,
				2015		2014

				(Dollars in millions)
	Deferred tax assets:
		ALLL		$	553	$	556
		Postretirement plans			431		372
		Net unrealized loss on AFS securities			124		36
		Equity-based compensation			129		137
		Reserves and expense accruals			255		247
		Investments in qualified affordable housing projects			110		―
		Other			292		198
	Total deferred tax assets				1,894		1,546

	Deferred tax liabilities:
		Prepaid pension plan expense			509		477
		MSRs			331		312
		Lease financing			663		375
		Loan fees and expenses			70		265
		Identifiable intangible assets			207		139
		Derivatives and hedging			77		122
		Investments in qualified affordable housing projects			―		25
		Other			92		93
	Total deferred tax liabilities				1,949		1,808
			Net deferred tax liability	$	(55)	$	(262)

On a periodic basis, BB&T evaluates its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation takes into consideration the status of current taxing authorities' examinations of BB&T's tax returns, recent positions taken by the taxing authorities on similar transactions and the overall tax environment in relation to tax-advantaged transactions. The following table presents changes in unrecognized tax benefits:

		As of/ For the Year Ended December 31,
		2015		2014		2013

		(Dollars in millions)
Beginning balance of unrecognized tax benefits		$	503	$	644	$	297
	Additions based on tax positions related to current year		―		1		18
	Additions (reductions) for tax positions of prior years		(76)		(34)		343
	Settlements		(1)		(17)		―
	Lapse of statute of limitations		(1)		―		―
	Unrecognized deferred tax benefits from acquisitions		1		(91)		(14)
Ending balance of unrecognized tax benefits		$	426	$	503	$	644

Unrecognized tax benefits that would have impacted effective rate if recognized
	Federal	$	422	$	497	$	631
	State		3		4		11

The Company had $181 million, $210 million and $213 million in liabilities for tax-related interest and penalties recorded on its Consolidated Balance Sheets at December 31, 2015, 2014, and 2013, respectively. The amount of net interest and penalties related to unrecognized tax benefits recognized in the Consolidated Statements of Income was a benefit of $29 million for 2015, an immaterial amount for 2014 and expense of $176 million for 2013.

The IRS has completed its Federal income tax examinations of BB&T through 2010. Various years remain subject to examination by state taxing authorities.

In February 2010, BB&T received an IRS statutory notice of deficiency for tax years 2002-2007 asserting a liability for taxes, penalties and interest of approximately $892 million related to the disallowance of foreign tax credits and other deductions claimed by a subsidiary in connection with a financing transaction. BB&T paid the disputed tax, penalties and interest in March 2010 and filed a lawsuit seeking a refund in the U.S. Court of Federal Claims. During September 2013, the court denied the refund claim. These developments and other smaller matters resulted in $516 million of income tax adjustments during 2013. BB&T appealed the decision to the U.S. Court of Appeals for the Federal Circuit. During May 2015, the appeals court overturned a portion of the earlier ruling, resulting in the recognition of a $107 million income tax benefit during the second quarter. The remainder of the decision was affirmed. During September 2015, BB&T filed a petition requesting the case be heard by the U.S. Supreme Court. A decision to hear the case has not been made at this time.

It is reasonably possible that the litigation associated with the financing transaction may conclude within the next twelve months; however, it is also possible that the appeals process could take longer than one year. Changes in the amount of unrecognized tax benefits, penalties and interest could result in a benefit of up to approximately $596 million.