AIG 2005 Annual Report Download - page 147

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
American General Corporation’s (AGC) tax years through
3. Federal Income Taxes
1999 have been audited and settled with the IRS.
Continued
tion, including interest thereon, would not be significant to
AIG’s financial condition, results of operations or liquidity.
(b) The pretax components of domestic and foreign income reflect the locations in which such pretax income was generated.
The pretax domestic and foreign income was as follows for the years ended December 31, 2005, 2004 and 2003:
(in millions) 2005 2004 2003
Domestic $ 6,103 $ 6,069 $ 4,177
Foreign 9,110 8,776 7,730
Total $ 15,213 $14,845 $11,907
(c) The U.S. Federal income tax rate is 35 percent for 2005, 2004 and 2003. Actual tax expense on income differs from the
‘‘expected’’ amount computed by applying the Federal income tax rate because of the following:
2005 2004 2003
Percent Percent Percent
Years Ended December 31, of Pretax of Pretax of Pretax
(dollars in millions) Amount Income Amount Income Amount Income
‘‘Expected’’ tax expense $5,325 35.0% $5,197 35.0% $4,167 35.0%
Adjustments:
Tax exempt interest (566) (3.7) (440) (2.9) (329) (2.8)
Dividends received deduction (117) (0.8) (83) (0.6) (83) (0.7)
State income taxes 86 0.6 23 0.2 12 0.1
Effect of foreign operations(a) (253) (1.7) (11) (0.1) (95) (0.8)
Synthetic fuel tax credits (274) (1.8) (264) (1.8) (278) (2.3)
Affordable housing tax credits (22) (0.1) (46) (0.3) (24) (0.2)
Nondeductible compensation 83 0.5 20 0.1 96 0.8
Penalties 76 0.5 28 0.2 – –
Other (80) (0.5) (17) (0.1) 90 0.8
Actual tax expense $4,258 28.0% $4,407 29.7% $3,556 29.9%
Foreign and domestic components of actual tax expense:
Foreign(b):
Current $ 974 $1,104 $ 882
Deferred 426 561 708
Domestic(b):
Current 1,595 1,489 1,859
Deferred 1,263 1,253 107
Total $4,258 $4,407 $3,556
(a) In 2005 and 2004, it was determined that the earnings of certain foreign subsidiaries are expected to be repatriated to the U.S., and, accordingly, the
undistributed earnings of these subsidiaries are no longer considered indefinitely reinvested abroad. As a consequence of this determination, U.S. deferred
taxes have been provided for the undistributed earnings of these foreign subsidiaries.
(b) Foreign tax expense reflects the expense resulting from local tax regulation. Domestic tax expense includes U.S. taxes incurred on foreign income.
(d) The components of the net deferred tax liability as of December 31, 2005 and 2004 were as follows:
(in millions) 2005 2004
Deferred tax assets*:
Loss reserve discount $ 3,061 $2,400
Unearned premium reserve reduction 1,042 1,074
Loan loss and other reserves 419 394
Investment in foreign subsidiaries and joint ventures 349 542
Adjustment to life policy reserves 2,351 3,458
Accruals not currently deductible, cumulative translation adjustment and other 1,189 1,031
Deferred tax liabilities:
Deferred policy acquisition costs 7,573 7,956
Depreciation of flight equipment 3,196 2,766
Unrealized appreciation of investments 4,025 4,668
Other 224 97
Net deferred tax liability $ 6,607 $6,588
* A valuation allowance in the amount of $280 million related to the Connecticut net deferred tax asset at December 31, 2005 (including net operating
losses that expire between 2020 through 2025) has been provided because it is remote that such amount will be realized. In addition, AIG has a
$192 million alternative minimum tax credit carryforward that does not expire.
AIG m Form 10-K 95