Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.20.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The following is a summary of the provision (benefit) for income taxes:
  Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Current tax provision (benefit)
Federal $ 236  $ 209  $ 152 
State 12  16  20 
Total current tax provision 248  225  172 
Deferred tax provision (benefit)
Federal (103) 24  71 
State 10  (1) (8)
Total deferred tax provision (93) 23  63 
Provision for income taxes $ 155  $ 248  $ 235 
The following is a reconciliation for provision for income taxes:
 
Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Provision for income taxes computed at the statutory rate $ 204  $ 348  $ 342 
Increases (decreases):
General business credits (99) (88) (80)
Capital loss (25) (62) (60)
Tax-exempt income (17) (21) (23)
Tax-exempt bank owned life insurance income (13) (14) (14)
Affordable housing investment amortization, net of tax benefits 78  70  64 
State income taxes, net 17  11  10 
Stock based compensation 1  (5) (14)
Impact from TCJA —  —  (3)
Other 9  9  13 
Provision for income taxes $ 155  $ 248  $ 235 
The significant components of deferred tax assets and liabilities at December 31, 2020 and 2019 were as follows:
  At December 31,
(dollar amounts in millions) 2020 2019
Deferred tax assets:
Allowances for credit losses $ 448  $ 184 
Net operating and other loss carryforward 128  99 
Lease liability 54  47 
Purchase accounting and other intangibles 30  33 
Pension and other employee benefits 10  12 
Fair value adjustments —  77 
Other assets 5  11 
Total deferred tax assets 675  463 
Deferred tax liabilities:
Lease financing 409  359 
Loan origination costs 137  119 
Operating assets 85  74 
Fair value adjustments 55  — 
Right-of-use asset 46  41 
Mortgage servicing rights 43  36 
Other liabilities 23  11 
Total deferred tax liabilities 798  640 
Net deferred tax liability before valuation allowance (123) (177)
Valuation allowance (11) (6)
Net deferred tax liability $ (134) $ (183)
At December 31, 2020, Huntington’s net deferred tax asset related to net operating loss and other carryforwards was $128 million. This was comprised of federal net operating loss carryforwards of $45 million, which will begin expiring in 2029, $39 million of state net operating loss carryforwards, which will begin expiring in 2021, and a capital loss carryforward of $42 million, which will begin expiring in 2022.
The Company has established a valuation allowance on its state deferred tax assets as it believes it is more likely than not, portions will not be realized.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and city jurisdictions. Federal income tax audits have been completed for tax years through 2009. In 2019, the 2010 and 2011 audits were submitted to the Congressional Joint Committee on Taxation of the U.S. Congress for approval. During the 2020 third quarter, the Joint Committee referred the audit back to the IRS exam team for reconsideration. This action led to the re-characterization of the audit resolution from a settlement to an uncertain tax position. While the statute of limitations remains open for tax years 2012 through 2019, the IRS has advised that tax years 2012 through 2014 will not be audited and is currently examining the 2015 and 2016 federal income tax returns. Also, with few exceptions, the Company is no longer subject to state and local income tax examinations for tax years before 2016.
The following table provides a reconciliation of the beginning and ending amounts of gross unrecognized tax benefits:
(dollar amounts in millions) 2020 2019
Unrecognized tax benefits at beginning of year $ —  $ — 
Gross increases for tax positions taken during prior years 46  — 
Unrecognized tax benefits at end of year $ 46  $ — 
Due to the complexities of some of these uncertainties, the ultimate resolution may result in a liability that is materially different from the current estimate of the tax liabilities. We do not currently anticipate that the amount of unrecognized tax benefits will significantly change over the next 12 months.
Any interest and penalties on income tax assessments or income tax refunds are recognized in the Consolidated Statements of Income as a component of provision for income taxes. The amounts of accrued tax-related interest and penalties were immaterial at December 31, 2020 and 2019. Further, the amount of net interest and penalties
related to unrecognized tax benefits was immaterial for all periods presented. All of the gross unrecognized tax benefits would impact the Company’s effective tax rate if recognized.
At December 31, 2020, retained earnings included approximately $12 million of base year reserves of acquired thrift institutions, for which no deferred federal income tax liability has been recognized. Under current law, if these bad debt reserves are used for purposes other than to absorb bad debt losses, they will be subject to federal income tax at the corporate tax rate enacted at the time. The amount of unrecognized deferred tax liability relating to the cumulative bad debt deduction was approximately $3 million at December 31, 2020.