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.  lease transactions. This favorable settlement reduced income  tax expense (including interest) by $6 million and $55 million  for 2010 and 2009, respectively. The accrual of interest expense  for these items had an adverse impact on income tax expense  for 2008. During 2009, the Bancorp notified the carrier of one of the  Bancorp’s policies of its intent to surrender a certain BOLI  The following table provides a summary of the Bancorp’s unrecognized tax benefits as of December 31:  The following table provides a reconciliation of the beginning and ending amounts of the Bancorp’s unrecognized tax benefits:  ($ in millions)  2010 2009 Tax positions that would impact the effective tax rate, if recognized  $15  81  Tax positions where the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of the deduction 1  1  Unrecognized tax benefits  $16 82 ($ in millions)  2010  2009 2008 Unrecognized tax benefits at January 1 $82  959 469 Gross increases for tax positions taken during prior period  4  16 496 Gross decreases for tax positions taken during prior period  (23)  (329) (8) Gross increases for tax positions taken during current period  2  1 4 Settlements with taxing authorities  (48)  (563) - Lapse of applicable statute of limitations  (1)  (2) (2) Unrecognized tax benefits at December 31  $16  82 959 mentioned previously. Similarly, substantially all of the reduction  of unrecognized tax benefits during 2009 related to the settlement  of certain leveraged lease transactions with the IRS. The Bancorp believes it is unlikely that its unrecognized tax  benefits will change by a material amount during the next 12  months.  The Bancorp’s unrecognized tax benefits as of December 31,  2010 relate largely to U.S. state income tax exposures from taking  tax positions where the Bancorp believes it is likely that upon  examination a state will take a position contrary to the position  taken by the Bancorp.  Substantially all of the reduction of unrecognized tax benefits  during 2010 related to the settlement of the Bancorp’s dispute with  the IRS relating to the specific capital raising transaction  Deferred income taxes are comprised of the following items at December 31:  ($ in millions)  2010 2009 Deferred tax assets:  Allowance for loan & lease losses  $1,051 1,312 Impairment reserves  144 145 Deferred compensation  136 147 Reserve for unfunded commitments  79 103 State net operating losses 66 81 Other  273 224 Total deferred tax assets  $1,749 2,012 Deferred tax liabilities:  Lease financing $801 898 Investments in joint ventures and partnership interests  481 481 MSRs 190 191 Other comprehensive income  169 130 Bank premises and equipment  69 88 State deferred taxes  53 60 Other  130 138 Total deferred tax liabilities  $1,893 1,986 Total net deferred tax (liability) asset  ($144) 26 business tax credit carryforwards of $45 million and $42 million,  respectively. If unused, these credit carryforwards will expire in  2030. 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  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  106 Fifth Third Bancorp