Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

NOTE 13. Income Taxes

The provision for income taxes comprised the following:

		Years Ended December 31,
		2011		2010		2009
		(Dollars in millions)
Current expense:
	Federal	$	83	$	161	$	302
	State		26		18		15
	Foreign		2		2		2
Total current expense			111		181		319
Deferred expense (benefit):
	Federal		163		(65)		(143)
	State		22		(1)		(17)
Total deferred expense (benefit)			185		(66)		(160)
Provision for income taxes		$	296	$	115	$	159

The foreign income tax expense is related to income generated on assets controlled by a foreign subsidiary of Branch Bank.

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:

		Years Ended December 31,
		2011			2010			2009
		(Dollars in millions)
Federal income taxes at statutory rate of 35%		$	570		$	339		$	362
Increase (decrease) in provision for income taxes as a result of:
	Addition to Federal tax reserves, net		―			1			26
	State income taxes, net of Federal tax benefit		31			11			(2)
	Federal tax credits		(115)			(105)			(78)
	Interest on Federal tax refunds		1			3			(4)
	Tax exempt income		(135)			(125)			(108)
	Nontaxable gain on termination of leveraged lease		(22)			(2)			(18)
	Other, net		(34)			(7)			(19)
Provision for income taxes		$	296		$	115		$	159
Effective income tax rate			18.2	%		11.9	%		15.3	%

The tax effects of temporary differences that gave rise to significant portions of the net deferred tax assets and liabilities are reflected in the table below. Net deferred tax assets are included in other assets on the “Consolidated Balance Sheets”.

			December 31,
			2011		2010
			(Dollars in millions)
Deferred tax assets:
	Allowance for loan and lease losses		$	855	$	1,003
	Net unrealized loss on securities available for sale			―		198
	Postretirement plans			362		219
	Equity-based compensation			130		123
	Loan/Securities basis difference			127		165
	Foreclosed property write-downs			240		196
	Net unrealized loss on cash flow hedges			95		28
	Other			257		262
Total deferred tax assets				2,066		2,194
Deferred tax liabilities:
	Lease financing			267		211
	Prepaid pension plan expense			352		360
	Loan fees and expenses			225		199
	Depreciation			76		78
	Identifiable intangible assets			92		107
	Loan servicing rights			156		218
	Derivatives and hedging			136		68
	Other			120		97
Total deferred tax liabilities				1,424		1,338
		Net deferred tax assets	$	642	$	856

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, if any, and the overall tax environment in relation to tax-advantaged transactions. The following table presents changes in unrecognized tax benefits for the years ended December 31, 2011, 2010 and 2009.

		Years Ended December 31,
		2011		2010		2009
		(Dollars in millions)
Beginning balance of unrecognized tax benefits		$	292	$	179	$	197
	Additions for tax positions of prior years		6		―		1
	Settlements		(1)		―		(16)
	Lapse of statute of limitations		―		(1)		(3)
	Unrecognized deferred tax benefits from business acquisitions		4		114		―
Ending balance of unrecognized tax benefits		$	301	$	292	$	179

As of December 31, 2011, BB&T had $301 million of unrecognized Federal and state tax benefits that would have impacted the effective tax rate if recognized. In addition, the Company had $39 million and $37 million in liabilities for tax-related interest recorded on its Consolidated Balance Sheets at December 31, 2011 and 2010, respectively. Total interest, net of the Federal benefit, related to unrecognized tax benefits recognized in the 2011, 2010 and 2009 Consolidated Statements of Income was immaterial. BB&T classifies interest and penalties related to income taxes as a component of the provision for income taxes in the Consolidated Statements of Income.

The IRS has completed its Federal income tax examinations of BB&T through 2007. In connection with the settlement agreement with the IRS regarding its leveraged lease transactions, BB&T is entitled to Federal income tax refunds for tax years 1998-2006. During 2010, BB&T received Federal tax refunds including interest of approximately $379 million for tax years 1998-2006. 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. Management has consulted with outside counsel and continues to believe that BB&T's treatment of this transaction was in compliance with applicable tax laws and regulations. However, as a procedural matter and in order to limit its exposure to incremental penalties and interest associated with this matter, 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. The Court has scheduled the trial to take place in March 2013. BB&T recorded a receivable in other assets for the amount of this payment, less the reserve considered necessary in accordance with applicable income tax accounting guidance. Based on an assessment of the applicable tax law and the relevant facts and circumstances related to this matter, management has concluded that the amount of this reserve is adequate, although litigation is still ongoing. Final resolution of this matter is not expected to occur within the next twelve months. Various years remain subject to examination by state taxing authorities.