Income Taxes

12 Months Ended

Dec. 31, 2014

Income Taxes

Income Taxes

NOTE 13. Income Taxes

The components of the income tax provision are as follows:
			Year Ended December 31,
			2014		2013		2012
			(Dollars in millions)
	Current expense:
		Federal	$	551	$	1,007	$	275
		State		82		100		70
	Total current expense			633		1,107		345
	Deferred expense:
		Federal		115		256		396
		State		12		32		23
	Total deferred expense			127		288		419
	Provision for income taxes		$	760	$	1,395	$	764

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,
		2014			2013			2012
		(Dollars in millions)
Federal income taxes at statutory rate of 35%		$	1,045		$	1,093		$	977
Increase (decrease) in provision for income taxes as a result of:
	State income taxes, net of Federal tax benefit		61			86			61
	Federal tax credits		(171)			(152)			(126)
	Tax exempt income		(125)			(128)			(133)
	Adjustments for uncertain tax positions		(39)			516			―
	Other, net		(11)			(20)			(15)
Provision for income taxes		$	760		$	1,395		$	764
Effective income tax rate			25.5	%		44.7	%		27.4	%

The tax effects of temporary differences that gave rise to deferred tax assets and liabilities are reflected in the table below:
				December 31,
				2014		2013
				(Dollars in millions)
	Deferred tax assets:
		ALLL		$	556	$	655
		Postretirement plans			372		180
		Net unrealized loss on AFS securities			36		172
		Equity-based compensation			137		152
		Reserves and expense accruals			247		181
		Other			242		189
	Total deferred tax assets				1,590		1,529
	Deferred tax liabilities:
		Prepaid pension plan expense			477		431
		MSRs			312		380
		Lease financing			375		315
		Loan fees and expenses			265		263
		Identifiable intangible assets			139		128
		Derivatives and hedging			122		45
		Other			93		120
	Total deferred tax liabilities				1,783		1,682
			Net deferred tax liability	$	(193)	$	(153)

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,
		2014		2013		2012
		(Dollars in millions)
Beginning balance of unrecognized tax benefits		$	644	$	297	$	301
	Additions based on tax positions related to current year		1		18		14
	Additions (reductions) for tax positions of prior years		(34)		343		―
	Settlements		(17)		―		(5)
	Unrecognized deferred tax benefits from business acquisitions		(91)		(14)		(13)
Ending balance of unrecognized tax benefits		$	503	$	644	$	297
Unrecognized tax benefits that would have impacted effective rate if recognized
	Federal	$	497	$	631	$	288
	State		4		11		9

The Company had $210 million, $213 million and $37 million in liabilities for tax-related interest and penalties recorded on its Consolidated Balance Sheets at December 31, 2014, 2013, and 2012,respectively. The amount of net interest and penalties related to unrecognized tax benefits recognized in the 2014 and 2012 Consolidated Statements of Income was immaterial. The amount of net interest and penalties related to unrecognized tax benefits recognized in the 2013 Consolidated Statement of Income was $176 million.

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. On September 20, 2013, the court denied the refund claim. BB&T appealed the decision to the U.S. Court of Appeals for the Federal Circuit. Oral arguments were heard in the appeal on January 7, 2015; however, no decision has been rendered. As of December 31, 2014, the exposure for this financing transaction is fully reserved.

It is reasonably possible that the litigation associated with the financing transaction may conclude within the next twelve months; however, further proceedings could delay a final resolution. Changes in the amount of unrecognized tax benefits, penalties and interest could result in a benefit of up to approximately $700 million. The ultimate resolution of these matters may take longer.