Citigroup Inc.

INCOME TAXESCitigroup is subject to the income tax laws of the U.S., its states and localmunicipalities and the foreign jurisdictions in which Citi operates. These taxlaws are complex and are subject to differing interpretations by the taxpayerand the relevant governmental taxing authorities. In establishing a provisionfor income tax expense, Citi must make judgments and interpretations aboutthe application of these inherently complex tax laws. Citi must also makeestimates about when in the future certain items will affect taxable income inthe various tax jurisdictions, both domestic and foreign.Disputes over interpretations of the tax laws may be subject to review andadjudication by the court systems of the various tax jurisdictions or may besettled with the taxing authority upon audit. Deferred taxes are recorded forthe future consequences of events that have been recognized in the financialstatements or tax returns, based upon enacted tax laws and rates. Deferredtax assets (DTAs) are recognized subject to management’s judgment thatrealization is more likely than not.At December 31, 2010, Citigroup had recorded net DTAs of approximately$52.1 billion, an increase of $6.0 billion from $46.1 billion at December 31,2009. Excluding the impact of the adoption of SFAS 166/167, the DTAsincreased $1.0 billion during 2010. The adoption of SFAS 166/167 onJanuary 1, 2010 resulted in an increase to the DTAs of approximately$5.0 billion related to the loan losses recorded upon consolidation of Citi’scredit card trusts.Although realization is not assured, Citigroup believes that the realizationof the recognized net DTAs of $52.1 billion at December 31, 2010 is morelikely than not based upon expectations as to future taxable income in thejurisdictions in which the DTAs arise, and based on available tax planningstrategies, as defined in ASC 740, Income Taxes, that would be implemented,if necessary, to prevent a carryforward from expiring.The following table summarizes Citi’s net DTAs balance at December 31,2010 and 2009:Jurisdiction/ComponentIn billions of dollarsDTAs balanceDecember 31, 2010DTAs balanceDecember 31, 2009U.S. federalNet operating loss (NOL) $ 3.9 $ 5.1Foreign tax credit (FTC) 13.9 12.0General business credit (GBC) 1.7 1.2Future tax deductions and credits 21.8 17.5Other 0.3 0.5Total U.S. federal $41.6 $36.3State and localNew York NOLs $ 1.1 $ 0.9Other state NOLs 0.6 0.4Future tax deductions 2.9 3.0Total state and local $ 4.6 $ 4.3ForeignAPB 23 subsidiary NOLs $ 0.5 $ 0.7Non-APB 23 subsidiary NOLs 1.5 0.4Future tax deductions 3.9 4.4Total foreign $ 5.9 $ 5.5Total $52.1 $46.1Included in the net U.S. federal DTAs of $41.6 billion are deferred taxliabilities of $4 billion that will reverse in the relevant carryforward periodand may be used to support the DTAs, and $0.3 billion in compensationdeductions that reduced additional paid-in capital in January 2011 andfor which no adjustment to such DTAs is permitted at December 31, 2010,because the related stock compensation was not yet deductible to Citi. Ingeneral, Citi would need to generate approximately $105 billion of taxableincome during the respective carryforward periods to fully realize its U.S.federal, state and local DTAs.140