AIG 2007 Annual Report Download - page 250

American International Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Continued
21. Federal Income Taxes
Continued
The components of the net deferred tax liability at December 31, 2007 and 2006 were as follows:
(in millions) 2007 2006
Deferred tax assets:
Loss reserve discount $ 2,249 $ 1,969
Unearned premium reserve reduction 1,743 1,352
Unrealized depreciation of investments 104 —
Loan loss and other reserves 1,408 1,054
Investments in foreign subsidiaries and joint ventures 1,121 420
Adjustment to life policy reserves 3,213 3,584
NOL’s and tax attributes 1,814 222
Accruals not currently deductible, and other 1,305 1,209
Deferred tax assets*12,957 9,810
Valuation allowance (223) (11)
Net deferred tax assets 12,734 9,799
Deferred tax liabilities:
Deferred policy acquisition costs 11,716 10,396
Flight equipment, fixed assets and intangible assets 5,239 4,377
Unrealized appreciation of investments —3,370
Other 1,041 508
Total deferred tax liabilities 17,996 18,651
Net deferred tax liability $ 5,262 $ 8,852
* AIG has recorded deferred tax assets for alternative minimum tax credit carry for wards of $101 million and $222 million at December 31, 2007 and 2006,
respectively. In 2007, AIG generated net operating loss carryforwards, unused foreign tax credits and general business tax credits in the amount of
$4.2 billion, $130 million and $125 million, respectively. Net operating loss carryforwards and general business tax credits may be carried forward for
twenty years while foreign tax credits may be carried forward for ten years. Unused minimum tax credits are available for future use without expiration.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
(in millions) 2007
Gross unrecognized tax benefits at Januar y 1, 2007 $ 1,138
Agreed audit adjustments with taxing authorities
included in the beginning balance (188)
Increases in tax positions for prior years 646
Decreases in tax positions for prior years (189)
Increases in tax positions for current year 82
Lapse in statute of limitations (1)
Settlements (178)
Gross unrecognized tax benefits at December 31, 2007 $ 1,310
At December 31, 2007, AIG’s unrecognized tax benefits, Listed below are the tax years that remain subject to
excluding interest and penalties, were $1.3 billion, which includes examination by major tax jurisdictions:
$299 million related to tax positions the disallowance of which Major Tax Jurisdictions Open Tax Years
would not affect the annual effective income tax rate. Accordingly, United States 1997-2006
the amount of unrecognized tax benefits that, if recognized, would United Kingdom 2003-2006
Hong Kong 1997-2006
favorably affect the effective tax rate were $1.0 billion.
Malaysia 1999-2006
Interest and penalties related to unrecognized tax benefits are Singapore 1993-2006
Thailand 2001-2006
recognized in income tax expense. At January 1, 2007 and Taiwan 2000-2006
December 31, 2007, AIG had accrued $175 million and $281 mil- Japan 2000-2006
lion, respectively, for the payment of interest (net of the federal Korea 2001-2006
France 2003-2006
benefit) and penalties. For the year ended December 31, 2007,
AIG recognized $170 million of interest (net of the federal benefit) The reserve for uncertain tax positions increased in the fourth
and penalties in the Consolidated Statement of Income. quarter 2007 by $210 million for items attributable to prior
AIG continually evaluates adjustments proposed by taxing restatements, including certain tax positions associated with
authorities. At December 31, 2007, such proposed adjustments compensation deductions. In addition, income tax expense has
would not result in a material change to AIG’s consolidated been reduced by $162 million for interest receivable from the IRS
financial condition. However, AIG believes that it is reasonably attributable to refund claims for prior restatements.
possible that the balance of the unrecognized tax benefits could
decrease by $50 to $150 million within the next twelve months
due to settlements or the expiration of statutes.
196 AIG 2007 Form 10-K