AIG 2011 Annual Report Download - page 373

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The statute of limitations for all tax years prior to 2000 has expired for AIG’s consolidated federal income tax
return. AIG is currently under examination for the tax years 2000 through 2006.
On March 20, 2008, AIG received a Statutory Notice of Deficiency (Notice) from the IRS for years 1997 to
1999. The Notice asserted that AIG owes additional taxes and penalties for these years primarily due to the
disallowance of foreign tax credits associated with cross-border financing transactions. The transactions that are
the subject of the Notice extend beyond the period covered by the Notice, and the IRS is challenging the later
periods. It is also possible that the IRS will consider other transactions to be similar to these transactions. AIG
has paid the assessed tax plus interest and penalties for 1997 to 1999. On February 26, 2009, AIG filed a
complaint in the United States District Court for the Southern District of New York seeking a refund of
approximately $306 million in taxes, interest and penalties paid with respect to its 1997 taxable year. AIG alleges
that the IRS improperly disallowed foreign tax credits and that AIG’s taxable income should be reduced as a
result of AIG’s 2005 restatement of its consolidated financial statements.
On March 29, 2011, the U.S. District Court, Southern District of New York, ruled on a motion for partial
summary judgment that AIG filed on July 30, 2010 related to the disallowance of foreign tax credits associated
with cross border financing transactions. The court denied AIG’s motion with leave to renew following the
completion of discovery regarding certain transactions referred to in AIG’s motion, which AIG believes may be
significant to the outcome of the action.
AIG also filed an administrative refund claim on September 9, 2010 for its 1998 and 1999 tax years. AIG will
vigorously defend its position, and continues to believe that it has adequate reserves for any liability that could
result from the IRS actions.
The following table presents a rollforward of the beginning and ending balances of the total amounts of gross
unrecognized tax benefits:
Years Ended December 31,
(in millions) 2011 2010 2009
Gross unrecognized tax benefits, beginning of year $ 5,296 $ 4,843 $ 3,368
Increases in tax positions for prior years 239 888 1,628
Decreases in tax positions for prior years (1,046) (470) (132)
Increases in tax positions for current year 48 49 142
Lapse in statute of limitations (7) (6) (47)
Settlements (259) (12) (9)
Activity of discontinued operations 8- (46)
Less: Unrecognized tax benefits of held for sale entities -4 (61)
Gross unrecognized tax benefits, end of year $ 4,279 $ 5,296 $ 4,843
At December 31, 2011, 2010 and 2009, AIG’s unrecognized tax benefits related to tax positions that if
recognized would not affect the effective tax rate as they relate to such factors as the timing, rather than the
permissibility, of the deduction were $0.7 billion, $1.7 billion and $1.4 billion, respectively. Accordingly, at
December 31, 2011, 2010 and 2009, the amounts of unrecognized tax benefits that, if recognized, would favorably
affect the effective tax rate were $3.5 billion, $3.6 billion and $3.4 billion, respectively.
The decrease in the gross unrecognized tax benefits for 2011 was primarily related to tax positions that did not
affect the effective tax rate because they relate to timing.
Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At
December 31, 2011 and 2010, AIG had accrued liabilities of $744 million and $952 million, respectively, for the
payment of interest (net of the federal benefit) and penalties. For the years ended December 31, 2011, 2010 and
2009, AIG accrued expense (benefits) of $(170) million, $152 million and $393 million, respectively, for the
payment of interest (net of the federal benefit) and penalties.
AIG 2011 Form 10-K 359
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES