Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes

Income Taxes

NOTE 12. Income Taxes

The provision for income taxes comprised the following:

		Years Ended December 31,
		2013		2012		2011
		(Dollars in millions)
Current expense:
	Federal	$	1,004	$	273	$	83
	State		100		70		26
	Foreign		3		2		2
Total current expense			1,107		345		111
Deferred expense:
	Federal		256		396		163
	State		32		23		22
Total deferred expense			288		419		185
Provision for income taxes		$	1,395	$	764	$	296

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

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,
		2013			2012			2011
		(Dollars in millions)
Federal income taxes at statutory rate of 35%		$	1,093		$	977		$	570
Increase (decrease) in provision for income taxes as a result of:
	State income taxes, net of Federal tax benefit		86			61			31
	Federal tax credits		(152)			(126)			(115)
	Tax exempt income		(128)			(133)			(135)
	Nontaxable gain on termination of leveraged lease		―			(12)			(22)
	Adjustments for uncertain tax positions		516			―			―
	Other, net		(20)			(3)			(33)
Provision for income taxes		$	1,395		$	764		$	296
Effective income tax rate			44.7	%		27.4	%		18.2	%

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 and net deferred tax liabilities are included in accounts payable and other liabilities on the Consolidated Balance Sheets.

			December 31,
			2013		2012
			(Dollars in millions)
Deferred tax assets:
	ALLL		$	655	$	771
	Postretirement plans			180		432
	Net unrealized loss on AFS securities			172		―
	Equity-based compensation			152		144
	Reserves and expense accruals			181		150
	Net unrealized loss on cash flow hedges			―		105
	Other			189		213
Total deferred tax assets				1,529		1,815
Deferred tax liabilities:
	Prepaid pension plan expense			431		373
	MSRs			380		201
	Lease financing			315		270
	Loan fees and expenses			263		244
	Identifiable intangible assets			128		161
	Depreciation			59		57
	Derivatives and hedging			45		163
	Net unrealized gain on AFS securities			―		201
	Other			61		70
Total deferred tax liabilities				1,682		1,740
		Net deferred tax asset (liability)	$	(153)	$	75

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, 2013, 2012 and 2011.

		Years Ended December 31,
		2013		2012		2011
		(Dollars in millions)
Beginning balance of unrecognized tax benefits		$	297	$	301	$	292
	Additions based on tax positions related to current year		18		14		―
	Additions for tax positions of prior years		343		―		6
	Settlements		―		(5)		(1)
	Unrecognized deferred tax benefits from business acquisitions		(14)		(13)		4
Ending balance of unrecognized tax benefits		$	644	$	297	$	301

The amount of unrecognized Federal and state tax benefits that would have impacted the effective tax rate if recognizedwas $642 million, $297 million, and $299 million as of December 31, 2013, 2012 and 2011,respectively. The portion of the gross state unrecognized tax benefits that would be offset by the tax benefit of the federal deduction would not impact the effective tax rate. In addition, the Company had $213 million, $37 million and $39 million in liabilities for tax-related interest and penalties recorded on its Consolidated Balance Sheets at December 31, 2013, 2012, and 2011,respectively. Total net interest and penalties related to unrecognized tax benefits recognized in the 2013Consolidated Statement of Income was $176 million. Total net interest and penalties related to unrecognized tax benefits recognized in the 2012 and 2011 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. 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. On September 20, 2013, the court denied the refund claim. BB&T has filed a Notice of Appeal to the U.S. Court of Appeals for the Federal Circuit. As of December 31, 2013, the exposure for this financing transaction is fully reserved. Depending on the outcome of the appeals process, as well as the current IRS examination, it is reasonably possible that changes in the amount of unrecognized tax benefits, penalties and interest could result in a benefit of up to $750 million during the next twelve months. The ultimate resolution of these matters may take longer.