Freddie Mac 2009 Annual Report Download - page 284

NOTE 15: INCOME TAXES
We are exempt from state and local income taxes. Table 15.1 presents the components of our provision for income taxes
for 2009, 2008, and 2007.
Table 15.1 — Provision for Federal Income Taxes
2009 2008 2007
Year Ended December 31,
(in millions)
Current income tax benefit (expense) ...................................................... $160 $ (45) $(1,056)
Deferred income tax benefit (expense) ..................................................... 670 (5,507) 3,943
Total income tax benefit (expense)
(1)
..................................................... $830 $(5,552) $ 2,887
(1) Does not reflect (a) the deferred tax effects of unrealized (gains) losses on available-for-sale securities, the tax effects of net (gains) losses related to the
effective portion of derivatives designated in cash flow hedge relationships, and the tax effects of certain changes in our defined benefit plans which are
reported as part of AOCI, (b) certain stock-based compensation tax effects reported as part of additional paid-in capital, and (c) the tax effect of
cumulative effect of change in accounting principles.
A reconciliation between our federal statutory income tax rate and our effective tax rate for 2009, 2008, and 2007 is
presented in Table 15.2.
Table 15.2 — Reconciliation of Statutory to Effective Tax Rate
Amount Percent Amount Percent Amount Percent
2009 2008 2007
Year Ended December 31,
(dollars in millions)
Statutory corporate tax rate ...................................... $7,834 35.0% $ 15,597 35.0% $2,096 35.0%
Tax-exempt interest . . . . ....................................... 252 1.1 266 0.6 255 4.3
Tax credits . . . .............................................. 594 2.7 589 1.3 534 8.9
Unrecognized tax benefits and related interest/contingency reserves ........... (12) (0.1) 167 0.4 (32) (0.5)
Valuation allowance . . . . ....................................... (7,860) (35.1) (22,172) (49.8) — —
Other . .................................................... 22 0.1 1 — 34 0.5
Effective tax rate ............................................. $ 830 3.7% $ (5,552) (12.5)% $2,887 48.2%
The change in the 2009 valuation allowance of $7.9 billion for the year ended December 31, 2009 in Table 15.2 is
reduced by the $5.1 billion related to the adoption of an amendment to the accounting standards for investments in debt and
equity securities recorded through retained earnings in the second quarter, resulting in a net $2.7 billion increase in our
valuation allowance, as presented in Table 15.3 below. See “NOTE 6: INVESTMENTS IN SECURITIES” for additional
information on our adoption of the amendment to the accounting standards for investments in debt and equity securities.
In 2008 and 2009, our effective tax rate differs from the federal statutory tax rate of 35% primarily due to the
establishment of a partial valuation allowance against our net deferred tax assets in the third quarter of 2008. Those tax
benefits recognized represent primarily the current tax benefits associated with our ability to carry back net operating tax
losses expected to be generated in 2009 to previous tax years. In 2007, our effective tax rate differs from the federal
statutory tax rate of 35% primarily due to the benefits of our investments in LIHTC partnerships and tax-exempt housing-
related securities.
The sources and tax effects of temporary differences that give rise to significant portions of deferred tax assets and
liabilities for the years ended December 31, 2009 and 2008 are presented in Table 15.3.
281 Freddie Mac