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lease transactions. This favorable settlement reduced income tax expense (including interest) by $6 million and $55 million for 2010 and 2009, respectively. The accrual of interest expense for these items had an adverse impact on income tax expense for 2008. 

During 2009, the Bancorp notified the carrier of one of the Bancorp’s policies of its intent to surrender a certain BOLI 

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

policy and was therefore required to establish a deferred tax asset relating to the difference between its financial reporting and tax basis of its investment. As a result, income tax expense for 2009 was favorably impacted by $106 million. Income tax expense was adversely impacted in 2008 by $78 million relating to the same BOLI policy. 

The following table provides a summary of the Bancorp’s unrecognized tax benefits as of December 31: 

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The following table provides a reconciliation of the beginning and ending amounts of the Bancorp’s unrecognized tax benefits: 

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The Bancorp’s unrecognized tax benefits as of December 31, 2010 relate largely to U.S. state income tax exposures from taking tax positions where the Bancorp believes it is likely that upon examination a state will take a position contrary to the position taken by the Bancorp. 

Substantially all of the reduction of unrecognized tax benefits during 2010 related to the settlement of the Bancorp’s dispute with the IRS relating to the specific capital raising transaction 

Deferred income taxes are comprised of the following items at December 31: 

mentioned previously. Similarly, substantially all of the reduction of unrecognized tax benefits during 2009 related to the settlement of certain leveraged lease transactions with the IRS. 

The Bancorp believes it is unlikely that its unrecognized tax benefits will change by a material amount during the next 12 months. 

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Deferred tax assets are included as a component of other assets in the Consolidated Balance Sheets. Deferred tax liabilities are included as a component of accrued taxes, interest and expenses in the Consolidated Balance Sheets. 

At December 31, 2010 and 2009, the Bancorp had recorded deferred tax assets of $66 million and $81 million, respectively, related to state net operating loss carryforwards. The deferred tax assets relating to state net operating losses are presented net of specific valuation allowances, primarily resulting from leasing operations, of $25 million and $15 million at December 31, 2010 and 2009, respectively. If these carry forwards are not utilized, they will expire in varying amounts through 2030. Additionally, at December 31, 2010 and 2009, the Bancorp had federal general 

business tax credit carryforwards of $45 million and $42 million, respectively. If unused, these credit carryforwards will expire in 2030. 

The Bancorp has determined that a valuation allowance is not needed against the remaining deferred tax assets as of December 31, 2010 or 2009. The Bancorp considered all of the positive and negative evidence available to determine whether it is more likely than not that the deferred tax assets will ultimately be realized and, based upon that evidence, the Bancorp believes it is more likely than not that the deferred tax assets recorded at December 31, 2010 and 2009 will ultimately be realized. The Bancorp reached this conclusion as the Bancorp has taxable income in the carryback period and it is expected that the Bancorp’s remaining deferred tax 

