MetLife 2007 Annual Report Download - page 149

Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. Net deferred
income tax assets and liabilities consisted of the following:
2007 2006
December 31,
(In millions)
Deferred income tax assets:
Policyholderliabilitiesandreceivables............................................ $4,026 $4,078
Netoperatinglosscarryforwards ............................................... 920 1,368
Employeebenefits......................................................... 176 472
Capitallosscarryforwards.................................................... 162 156
Taxcreditcarryforwards..................................................... 24 —
Intangibles.............................................................. — 22
Litigation-relatedandgovernmentmandated........................................ 113 65
Other................................................................. 247 198
5,668 6,359
Less:Valuationallowance.................................................... 135 239
5,533 6,120
Deferred income tax liabilities:
Investments............................................................. 2,266 1,839
Intangibles.............................................................. 32 —
DAC.................................................................. 5,153 5,433
Netunrealizedinvestmentgains................................................ 423 994
Other................................................................. 116 132
7,990 8,398
Netdeferredincometaxliability.................................................. $(2,457) $(2,278)
Domestic net operating loss carryforwards amount to $2,057 million at December 31, 2007 and will expire beginning in 2019. Foreign
net operating loss carryforwards amount to $725 million at December 31, 2007 and were generated in various foreign countries with
expiration periods of five years to indefinite expiration. Capital loss carryforwards amount to $463 million at December 31, 2007 and will
expire beginning in 2010. Tax credit carryforwards amount to $24 million at December 31, 2007.
The Company has recorded a valuation allowance related to tax benefits of certain foreign net operating loss carryforwards. The
valuation allowance reflects management’s assessment, based on available information, that it is more likely than not that the deferred
income tax asset for certain foreign net operating loss carryforwards will not be realized. The tax benefit will be recognized when
management believes that it is more likely than not that these deferred income tax assets are realizable. In 2007, the Company recorded a
reduction of $104 million to the deferred income tax valuation allowance related to certain foreign net operating loss carryforwards and
other deferred tax assets.
The Company files income tax returns with the U.S. federal government and various state and local jurisdictions, as well as foreign
jurisdictions. The Company is under continuous examination by the Internal Revenue Service (“IRS”) and other tax authorities in jurisdictions
in which the Company has significant business operations. The income tax years under examination vary by jurisdiction. With a few
exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for
years prior to 2000. In the first quarter of 2005, the IRS commenced an examination of the Company’s U.S. income tax returns for 2000
through 2002 that is anticipated to be completed in 2008.
As a result of the implementation of FIN 48 on January 1, 2007, the Company recognized a $52 million increase in the liability for
unrecognized tax benefits, a $4 million decrease in the interest liability for unrecognized tax benefits, and a corresponding reduction to the
January 1, 2007 balance of retained earnings of $37 million, net of $11 million of minority interest. The Company’s total amount of
unrecognized tax benefits upon adoption of FIN 48 was $1,128 million. The Company reclassified, at adoption, $611 million of current
income tax payables to the liability for unrecognized tax benefits included within other liabilities. The Company also reclassified, at
adoption, $465 million of deferred income tax liabilities, for which the ultimate deductibility is highly certain but for which there is uncertainty
about the timing of such deductibility, to the liability for unrecognized tax benefits. 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 total amount of unrecognized tax benefits as of January 1,
2007 that would affect the effective tax rate, if recognized, was $680 million. The Company also had $240 million of accrued interest,
included within other liabilities, as of January 1, 2007. The Company classifies interest accrued related to unrecognized tax benefits in
interest expense, while penalties are included within income tax expense.
As of December 31, 2007, the Company’s total amount of unrecognized tax benefits is $1,038 million and the total amount of
unrecognized tax benefits that would affect the effective tax rate, if recognized, is $593 million. The total amount of unrecognized tax
benefits decreased by $90 million from the date of adoption primarily due to settlements reached with the IRS with respect to certain
significant issues involving demutualization, post-sale purchase price adjustments, and reinsurance offset by additions for tax positions of
the current year. As a result of the settlements, items within the liability for unrecognized tax benefits, in the amount of $177 million, were
reclassified to current and deferred income taxes, as applicable, and a payment of $156 million was made in December of 2007 with the
remaining $21 million to be paid in future years. In addition, the Company’s liability for unrecognized tax benefits may change significantly in
F-53MetLife, Inc.
MetLife, Inc.
Notes to Consolidated Financial Statements — (Continued)