State operating loss carryforwards

  
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) | 2021 |  | 2020 |
| Deferred tax assets: |  |  |  |
| Other comprehensive income  | $227  |  |  | $29  |  |
| Allowance for credit losses | 448  |  |  | 622  |  |
| State net operating loss carryforwards | 50  |  |  | 71  |  |
| Accrued expenses not currently deductible | 676  |  |  | 77  |  |
| Investment and other tax credit carryforwards | 110  |  |  | 99  |  |
|  |  |  |  |
| Total deferred tax assets | 1,511  |  |  | 898  |  |
| Valuation allowance | (103) |  |  | (98) |  |
| Deferred tax assets, net of valuation allowance | 1,408  |  |  | 800  |  |
| Deferred tax liabilities: |  |  |  |
| Leasing transactions | 331  |  |  | 459  |  |
| Amortization of intangibles | 379  |  |  | 376  |  |
| Depreciation | 256  |  |  | 262  |  |
| Pension and other employee compensation plans | 132  |  |  | 107  |  |
|      Partnerships | 95  |  |  | 76  |  |
| Deferred Income | 85  |  |  | 62  |  |
| MSRs | 130  |  |  | 87  |  |
| Total deferred tax liabilities | 1,408  |  |  | 1,429  |  |
| Net deferred tax liability | $—  |  |  | $629  |  |

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, 2021, the Company had state tax net operating loss carryforwards of $812 million. Limitations on the ability to realize these carryforwards are reflected in the associated valuation allowance. At December 31, 2021, the Company had a valuation allowance of $103 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 increased $5 million during the year ended December 31, 2021. 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, 2021, 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 2018. 

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|  |  | Citizens Financial Group, Inc. | 144 |


