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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | NOTE 22 - INCOME TAXES Citizens uses an asset and liability (balance sheet) approach for financial accounting and reporting of income taxes, resulting in two components of income tax expense: current and deferred. Current income tax expense approximates taxes to be paid or refunded for the current period. Deferred income tax expense results from changes in gross deferred tax assets and liabilities between periods. These gross deferred tax assets and liabilities represent changes in taxes expected to be paid in the future due to reversals of temporary differences between the bases of the assets and liabilities as measured under tax laws, and their bases reported in the Consolidated Financial Statements as measured under GAAP. Citizens also assesses the probability that the positions taken, or expected to be taken, in its income tax returns will be sustained by taxing authorities. A “more likely than not” (more than 50 percent) recognition threshold must be met before a tax benefit can be recognized. Tax positions that are more likely than not to be sustained are reflected in the Company’s Consolidated Financial Statements. The following table presents total income tax expense:
| Year Ended December 31,
(in millions) | 2019 |  |  | 2018 |  |  | 2017 |
Income tax expense |  | $460 |  |  |  | $462 |  |  |  | $260 |
Tax effect of changes in OCI | 225 |  |  | (96 | ) |  | (7 | )
Total comprehensive income tax expense |  | $685 |  |  |  | $366 |  |  |  | $253 |
The following table presents the components of income tax expense:
(in millions) | Current |  | Deferred |  | Total |
Year Ended December 31, 2019 |  |  |
U.S. federal |  | $323 |  |  | $64 |  |  | $387 |
State and local | 73 |  | — |  | 73 |
Total |  | $396 |  |  | $64 |  |  | $460 |
Year Ended December 31, 2018 |  |  |
U.S. federal |  | $271 |  |  | $90 |  |  | $361 |
State and local | 94 |  | 7 |  | 101 |
Total |  | $365 |  |  | $97 |  |  | $462 |
Year Ended December 31, 2017 |  |  |
U.S. federal |  | $376 |  |  | ($142 | ) |  | $234 |
State and local | 20 |  | 6 |  | 26 |
Total |  | $396 |  |  | ($136 | ) |  | $260 |
The following table presents a reconciliation between the U.S. federal income tax rate and the Company’s effective income tax rate:
| Year Ended December 31,
| 2019 |  | 2018 |  | 2017
(in millions, except ratio data) | Amount |  | Rate |  | Amount |  | Rate |  | Amount |  | Rate
U.S. federal income tax expense and tax rate |  | $473 |  | 21.0 | % |  |  | $459 |  | 21.0 | % |  |  | $669 |  | 35.0 | %
Increase (decrease) resulting from: |  |  |  |  |  |  |  |
Federal rate change | — |  | — |  |  | (34 | ) | (1.6 | ) |  | (331 | ) | (17.3 | )
State and local income taxes (net of federal benefit) | 73 |  | 3.2 |  |  | 89 |  | 4.1 |  |  | 46 |  | 2.4 |
Bank-owned life insurance | (12 | ) | (0.5 | ) |  | (12 | ) | (0.5 | ) |  | (19 | ) | (1.0 | )
Tax-exempt interest | (15 | ) | (0.7 | ) |  | (15 | ) | (0.7 | ) |  | (21 | ) | (1.1 | )
Tax advantaged investments (including related credits) | (50 | ) | (2.3 | ) |  | (44 | ) | (2.0 | ) |  | (51 | ) | (2.7 | )
Other tax credits | (10 | ) | (0.4 | ) |  | (8 | ) | (0.4 | ) |  | (3 | ) | (0.1 | )
Adjustments for uncertain tax positions | — |  | — |  |  | 1 |  | 0.1 |  |  | (23 | ) | (1.2 | )
Non-deductible FDIC premiums | 13 |  | 0.6 |  |  | 21 |  | 1.0 |  |  | — |  | — |
Legacy tax matters | (19 | ) | (0.8 | ) |  | — |  | — |  |  | — |  | — |
Other | 7 |  | 0.3 |  |  | 5 |  | 0.2 |  |  | (7 | ) | (0.4 | )
Total income tax expense and tax rate |  | $460 |  | 20.4 | % |  |  | $462 |  | 21.2 | % |  |  | $260 |  | 13.6 | %
The following table presents the tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities:
| December 31,
(in millions) | 2019 |  |  | 2018 |
Deferred tax assets: |  |  |
Other comprehensive income |  | $141 |  |  |  | $366 |
Allowance for credit losses | 315 |  |  | 308 |
State net operating loss carryforwards | 62 |  |  | 90 |
Accrued expenses not currently deductible | 24 |  |  | 36 |
Investment and other tax credit carryforwards | 89 |  |  | 74 |
Fair value adjustments | — |  |  | 28 |
Total deferred tax assets | 631 |  |  | 902 |
Valuation allowance | (79 | ) |  | (110 | )
Deferred tax assets, net of valuation allowance | 552 |  |  | 792 |
Deferred tax liabilities: |  |  |
Leasing transactions | 513 |  |  | 527 |
Amortization of intangibles | 370 |  |  | 364 |
Depreciation | 186 |  |  | 195 |
Pension and other employee compensation plans | 124 |  |  | 127 |
Partnerships | 71 |  |  | 51 |
Deferred Income | 79 |  |  | 50 |
MSRs | 75 |  |  | 51 |
Total deferred tax liabilities | 1,418 |  |  | 1,365 |
Net deferred tax liability |  | $866 |  |  |  | $573 |
Deferred tax assets are recognized for net operating loss carryforwards and tax credit carryforwards. Valuation allowances are recorded as necessary to reduce deferred tax assets to the amounts that management concludes are more likely than not to be realized. At December 31, 2019, the Company had state tax net operating loss carryforwards of $1.1 billion. Limitations on the ability to realize these carryforwards are reflected in the associated valuation allowance. At December 31, 2019, the Company had a valuation allowance of $79 million against various deferred tax assets related to state net operating losses and state tax credits, as it is management’s current assessment that it is more likely than not that the Company will not recognize a portion of the deferred tax assets related to these items. The valuation allowance decreased $31 million during the year ended December 31, 2019. Effective with the fiscal year ended September 30, 1997, the reserve method for bad debts was no longer permitted for tax purposes. The repeal of the reserve method required the recapture of the reserve balance in excess of certain base year reserve amounts attributable to years ended prior to 1988. At December 31, 2019, the Company’s base year loan loss reserves attributable to years ended prior to 1988, for which no deferred income taxes have been provided, was $557 million. This base year reserve may become taxable if certain distributions are made with respect to the stock of the Company or if the Company ceases to qualify as a bank for tax purposes. No actions are planned that would cause this reserve to become wholly or partially taxable. Citizens files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal or state and local income tax examinations by major tax authorities for years before 2016. The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits:
| December 31,
(in millions) | 2019 |  |  | 2018 |  |  | 2017 |
Balance at the beginning of the year |  | $8 |  |  |  | $5 |  |  |  | $42 |
Gross increase for tax positions related to current year | — |  |  | 3 |  |  | — |
Gross decrease for tax positions related to prior years | (2 | ) |  | — |  |  | (27 | )
Decrease for tax positions as a result of the lapse of the statutes of limitations | (1 | ) |  | — |  |  | (1 | )
Decrease for tax positions related to settlements with taxing authorities | — |  |  | — |  |  | (9 | )
Balance at end of year |  | $5 |  |  |  | $8 |  |  |  | $5 |
Tax positions are measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The difference between the benefit recognized for a position and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. Included in the total amount of unrecognized tax benefits at December 31, 2019, are potential benefits of $5 million that, if recognized, would impact the effective tax rate. Citizens classifies interest and penalties related to unrecognized tax benefits as a component of income tax expense. There was no interest accrued through income tax expense during the years ended December 31, 2019 and 2018. The Company released $8 million of accrued interest through income tax expense during the year ended December 31, 2017. Citizens had approximately $1 million, $2 million, and $1 million accrued for the payment of interest at December 31, 2019, 2018, and 2017, respectively. There were no amounts accrued for penalties as of December 31, 2019, 2018, and 2017, and there were no penalties recognized during the years ended December 31, 2019, 2018, and 2017.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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