AIG 2011 Annual Report Download - page 371

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires
AIG to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or
some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate
with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive
evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed.
AIG’s framework for assessing the recoverability of deferred tax assets weighs the sustainability of recent
operating profitability, the predictability of future operating profitability of the character necessary to realize the
deferred tax assets, and AIG’s emergence from cumulative losses in recent years. The framework requires AIG to
consider all available evidence, including:
• the nature, frequency, and severity of cumulative financial reporting losses in recent years;
• the sustainability of recent operating profitability of AIG’s subsidiaries in various tax jurisdictions;
• the predictability of future operating profitability of the character necessary to realize the net deferred tax
asset;
• the carryforward periods for the net operating loss, capital loss and foreign tax credit carryforwards,
including the effect of reversing taxable temporary differences; and,
• prudent and feasible tax planning strategies that would be implemented, if necessary, to protect against the
loss of the deferred tax assets.
During 2011, AIG experienced significant favorable developments, including the completion of the
Recapitalization in January 2011, the wind-down of AIGFP’s portfolios, the sale of certain businesses, emergence
from cumulative losses in recent years and a return to sustainable operating profits within its primary operations.
During 2011, AIG’s level of profitability, excluding the $3.3 billion loss on extinguishment of debt in January
confirmed its return to sustainable operating profit for the full year. This, together with the emergence from
cumulative losses in recent years and projections of sufficient future taxable income, represent significant positive
evidence. As of December 31, 2011, the cumulative positive evidence outweighed the historical negative evidence
regarding the likelihood that the deferred tax asset for AIG’s U.S. consolidated income tax group (other than the
life-insurance-business capital loss carryforwards) will be realized. This assessment was evidenced by AIG meeting
all of the criteria in its framework, resulting in its conclusion that $16.6 billion of the deferred tax asset valuation
allowance for AIG’s U.S. consolidated income tax group should be released in 2011. The life-insurance-business
capital loss carryforwards may be realized in the future if and when either capital gains are realized or when
prudent and feasible tax planning strategies are identified that result in an assessment that the life-insurance-
business capital loss carryforwards will be realized on a more-likely-than-not basis prior to their expiration.
AIG 2011 Form 10-K 357
ASSESSMENT OF DEFERRED TAX ASSET VALUATION ALLOWANCE