Freddie Mac 2010 Annual Report Download - page 106

IRS Examinations
The IRS completed its examinations of tax years 1998 to 2007. We received Statutory Notices from the IRS assessing
$3.0 billion of additional income taxes and penalties for the 1998 to 2005 tax years. We filed a petition with the U.S. Tax
Court in October 2010 in response to the Statutory Notices. The principal matter of controversy involves questions of timing
and potential penalties regarding our tax accounting method for certain hedging transactions. The IRS responded to our
petition with the U.S. Tax Court in December 2010. We currently believe adequate reserves have been provided for
settlement on reasonable terms. For additional information, see “NOTE 14: INCOME TAXES.”
Other Assets
Other assets consist of the guarantee asset related to non-consolidated trusts, other guarantee commitments, accounts and
other receivables, debt issuance costs, net, and other miscellaneous assets. Upon consolidation of our single-family PCs and
certain Other Guarantee Transactions, our guarantee asset does not have a material impact on our financial position and is,
therefore, included in other assets on our consolidated balance sheets. Our guarantee asset declined to $541 million as of
December 31, 2010 from $10.4 billion as of December 31, 2009 primarily because we no longer recognize a guarantee asset
on PCs and certain Other Guarantee Transactions issued by consolidated securitization trusts. All other assets increased to
$10.3 billion as of December 31, 2010 from $4.9 billion as of December 31, 2009 primarily because of servicer receivables
in our securitization trusts that were recorded on our consolidated balance sheets beginning January 1, 2010 upon
consolidation of our single-family PCs and certain Other Guarantee Transactions. See “NOTE 2: CHANGE IN
ACCOUNTING PRINCIPLES” and “NOTE 23: SELECTED FINANCIAL STATEMENT LINE ITEMS” for additional
information.
Total Debt, Net
Commencing January 1, 2010, we consolidated our single-family PCs and certain Other Guarantee Transactions in our
financial statements. Consequently, PCs and Other Guarantee Transactions issued by our consolidated trusts and held by third
parties are recognized as debt securities of consolidated trusts held by third parties on our consolidated balance sheets. Debt
securities of consolidated trusts held by third parties represents our liability to third parties that hold beneficial interests in
our consolidated trusts. The debt securities of our consolidated trusts are prepayable without penalty at any time. Other debt
consists of unsecured short-term and long-term debt securities we issue to third parties to fund our business activities. It is
classified as either short-term or long-term based on the contractual maturity of the debt instrument.
Table 32 reconciles the par value of other debt and the UPB of debt securities of consolidated trusts held by third
parties to the amounts shown on our consolidated balance sheets.
Table 32 — Reconciliation of the Par Value and UPB to Total Debt, Net
2010 2009
December 31,
(in millions)
Total debt:
Other debt:
Par value. . . . . . . . . . . . ............................................................. $ 728,217 $805,073
Unamortized balance of discounts and premiums
(1)
............................................ (14,529) (24,907)
Hedging-related and other basis adjustments
(2)
............................................... 252 438
Subtotal . . . . . . . . . . . ............................................................. 713,940 780,604
Debt securities of consolidated trusts held by third parties:
UPB............................................................................ 1,517,001 —
Unamortized balance of discounts and premiums.............................................. 11,647 —
Subtotal . . . . . . . . . . . ............................................................. 1,528,648 —
Total debt, net . . . . . . . . . . ............................................................. $2,242,588 $780,604
(1) Primarily represents unamortized discounts on zero-coupon debt.
(2) Primarily represents deferrals related to debt instruments that were in hedge accounting relationships and changes in the fair value attributable to
instrument-specific credit risk related to foreign-currency-denominated debt.
103 Freddie Mac