Aflac 2008 Annual Report Download - page 90

86 Aflac Incorporated Annual Report for 2008
Changes in unrealized foreign currency translation
gains/losses included a deferred income tax benefit of $329
million in 2008, compared with a deferred income tax benefit
of $55 million in 2007 and a deferred income tax expense of
$11 million in 2006.
The income tax effects of the temporary differences that
gave rise to deferred income tax assets and liabilities as of
December 31 were as follows:
(In millions) 2008 2007
Deferred income tax liabilities:
Deferred policy acquisition costs $ 2,356 $ 1,847
Unrealized gains on investment securities – 92
Difference in tax basis of investment in Aflac Japan – 6
Other basis differences in investment securities 112 528
Premiums receivable 155 143
Policy benefit reserves 735 302
Other – 185
Total deferred income tax liabilities 3,358 3,103
Deferred income tax assets:
Depreciation 128 102
Policyholder protection corporation obligation 48 56
Difference in tax basis of investment in Aflac Japan 172 –
Unfunded retirement benefits 44 43
Other accrued expenses 65 49
Unrealized losses on investment securities 1,189 –
Policy and contract claims 106 76
Unrealized exchange loss on yen-denominated notes payable 184 57
Deferred compensation 131 85
Capital loss carryforwards 76 –
Other 229 416
Total deferred income tax assets 2,372 884
Net deferred income tax liability 986 2,219
Current income tax liability 215 312
Total income tax liability $ 1,201 $ 2,531
A valuation allowance is provided when it is more likely than
not that deferred tax assets will not be realized. In prior years,
we established valuation allowances primarily for alternative
minimum tax credit and noninsurance loss carryforwards
that exceeded projected future offsets. Under U.S. income
tax rules, only 35% of noninsurance losses can be offset
against life insurance taxable income each year. For current
U.S. income tax purposes, there were no alternative minimum
tax credit carryforwards available at December 31, 2008.
The Company has capital loss carryforwards of $217 million
available to offset capital gains through 2013.
We file federal income tax returns in the United States and
Japan as well as state or prefecture income tax returns in
various jurisdictions in the two countries. U.S. federal and
state income tax returns for years before 2004 are no longer
subject to examination. We are currently under examination
by the IRS in the U.S. for tax years 2006 and 2007 and by
the National Tax Agency (NTA) in Japan for tax years 2004
through 2007.
We adopted the provisions of FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (FIN 48),
on January 1, 2007 (see Note 1). There was no change in
the liability for unrecognized tax benefits as a result of the
implementation of FIN 48 and therefore no adjustment to
retained earnings upon adoption. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is
as follows for the years ended December 31:
(In millions) 2008 2007
Balance, beginning of year $ 50* $ 43*
Additions for tax positions of prior years 18 18
Reductions for tax positions of prior years (11) (11)
Balance, end of year $ 57* $ 50*
*Amounts do not include tax deductions of $14 at January 1, 2007, $18 at December 31, 2007, and $20 at December 31, 2008.
Included in the balance of the liability for unrecognized
tax benefits at December 31, 2008, are $56 million of tax
positions for which the ultimate deductibility is highly certain,
but for which there is uncertainty about the timing of such
deductibility, compared with $51 million at December 31,
2007. Because of the impact of deferred tax accounting, other
than interest and penalties, the disallowance of the shorter
deductibility period would not affect the annual effective tax
rate, but would accelerate the payment of cash to the taxing
authority to an earlier period. The Company has accrued
approximately $4 million as of December 31, 2008, for
permanent uncertainties, which if reversed would not have a
material effect on the annual effective rate.
The Company recognizes accrued interest and penalties
related to unrecognized tax benefits in income tax expense.
We recognized approximately $5 million in interest and
penalties in 2008, compared with $3 million in 2007 and $2
million in 2006. The Company has accrued approximately
$37 million for the payment of interest and penalties as of
December 31, 2008, compared with $32 million a year ago.
As of December 31, 2008, there were no material uncertain
tax positions for which the total amounts of unrecognized tax
benefits will significantly increase or decrease within the next
twelve months.
9. SHAREHOLDERS’ EQUITY
The following table is a reconciliation of the number of
shares of the Company’s common stock for the years ended
December 31.