AIG 2015 Annual Report Download - page 336

ITEM 8 / NOTE 22. INCOME TAXES

336
We also filed an administrative refund claim on September 9, 2010 for our 1998 and 1999 tax years.
On August 1, 2012, we filed a motion for partial summary judgment related to the disallowance of foreign tax credits associated
with cross border financing transactions. On March 29, 2013, the Southern District denied our motion. On March 17, 2014, the
U.S. Court of Appeals for the Second Circuit (the Second Circuit) granted our petition for an immediate appeal of the partial
summary judgment decision. On September 9, 2015, the Second Circuit affirmed the decision of the Southern District. On
October 13, 2015, we filed a petition for a writ of certiorari to the U.S Supreme Court. If the U.S. Supreme Court does not grant
certiorari the case will be remanded back to the Southern District for trial.
We will vigorously defend our position and continue to believe that we have adequate reserves for any liability that could result
from these government actions. We continue to monitor legal and other developments in this area and evaluate the effect, if
any, on our position, including recent decisions affecting other taxpayers.
Accounting For Uncertainty in Income Taxes
The following table presents a reconciliation of the beginning and ending balances of the total amounts of gross
unrecognized tax benefits:
Years Ended December 31,
(in millions) 2015 2014 2013
Gross unrecognized tax benefits, beginning of year $ 4,395 $4,340 $4,385
Increases in tax positions for prior years 162 91 680
Decreases in tax positions for prior years (209) (60) (796)
Increases in tax positions for current year - 10 43
Lapse in statute of limitations (4) (6) (20)
Settlements (13) - (2)
Activity of discontinued operations - 20 50
Gross unrecognized tax benefits, end of year $ 4,331 $4,395 $4,340
At December 31, 2015, 2014 and 2013, our unrecognized tax benefits, excluding interest and penalties, were $4.3 billion,
$4.4 billion and $4.3 billion, respectively. The activity includes increases for amounts associated with cross border financing
transactions partially offset by certain benefits realized due to the partial completion of the Internal Revenue Service
examination covering tax year 2006. At December 31, 2015, 2014 and 2013, our unrecognized tax benefits related to tax
positions that, if recognized, would not affect the effective tax rate because they relate to such factors as the timing, rather than
the permissibility, of the deduction were $0.1 billion, $0.3 billion and $0.1 billion, respectively. Accordingly, at December 31,
2015, 2014 and 2013, the amounts of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate
were $4.2 billion, $4.1 billion and $4.2 billion, respectively.
Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2015 and
2014, we had accrued liabilities of $1.2 billion and $1.1 billion, respectively for the payment of interest (net of the federal
benefit) and penalties. For the years ended December 31, 2015, 2014 and 2013, we accrued expense of $156 million,
$21 million and $142 million, respectively, for the payment of interest (net of the federal benefit) and penalties. The interest
increase from December 31, 2014 was primarily due to increases in amounts associated with cross border financing
transactions.
We regularly evaluate adjustments proposed by taxing authorities. At December 31, 2015, such proposed adjustments would
not have resulted in a material change to our consolidated financial condition, although it is possible that the effect could be
material to our consolidated results of operations for an individual reporting period. Although it is reasonably possible that a
change in the balance of unrecognized tax benefits may occur within the next 12 months, based on the information currently
available, we do not expect any change to be material to our consolidated financial condition.