AIG 2009 Annual Report Download - page 341

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the provision for income taxes:
Years Ended December 31,
(in millions) 2009 2008 2007
Foreign and U.S. components of actual income tax expense:
Foreign:
Current $ 1,723 $ 1,534 $ 3,119
Deferred 481 (2,329) 311
U.S.:
Current 58 169 61
Deferred (4,140) (8,268) (2,224)
Total $ (1,878) $ (8,894) $ 1,267
AIG’s actual income tax (benefit) expense from continuing operations differs from the statutory U.S. federal amount
computed by applying the federal income tax rate due to the following:
2009 2008 2007
Years Ended December 31,
Percent Percent Percent
of Pre-tax of Pre-tax of Pre-tax
Income Income Income
(dollars in millions) Amount (loss) Amount (loss) Amount (loss)
U.S. federal income tax at statutory rate $ (4,776) 35.0% $ (37,284) 35.0% $ 2,847 35.0%
Adjustments:
Valuation allowance 2,916 (21.4) 20,673 (19.4) - -
Uncertain tax positions 893 (6.5) 1,113 (1.0) 621 7.6
Tax exempt interest (680) 5.0 (843) 0.8 (823) (10.1)
Variable interest entity (income) loss 435 (3.2) 279 (0.3) (312) (3.8)
State income taxes 189 (1.4) (63) 0.1 45 0.6
Investment in subsidiaries (845) 6.2 4,341 (4.1) (37) (0.5)
Effect of foreign operations (146) 1.1 (454) 0.4 (432) (5.3)
Dividends received deduction (147) 1.1 (144) 0.1 (129) (1.6)
Other 283 (2.1) 3,488 (3.3) (513) (6.3)
Actual income tax expense (benefit) $ (1,878) 13.8% $ (8,894) 8.3% $ 1,267 15.6%
The effective tax rate on the pre-tax loss from continuing operations for the year ended December 31, 2009 was
lower than the statutory rate of 35 percent due primarily to increases in the valuation allowance and reserve for
uncertain tax positions, partially offset by tax exempt interest and the change in investment in subsidiaries which was
principally related to changes in the estimated U.S. tax liability with respect to the potential sale of subsidiaries.
The effective tax rate on the pre-tax loss from continuing operations for the year ended December 31, 2008 was
lower than the statutory rate of 35 percent due primarily to the change in investment in subsidiaries and a valuation
allowance to reduce deferred tax assets to the amount that AIG believes is more likely than not to be realized.
The effective tax rate on the pre-tax loss from continuing operations for the year ended December 31, 2007 was
lower than the statutory rate of 35 percent due primarily to increases in tax exempt interest and the effect of foreign
operations, partially offset by an increase in uncertain tax positions.
In connection with AIG’s restructuring and anticipated sales of certain of its businesses, at December 31, 2008, AIG
recorded a deferred tax liability reflecting the difference between the carrying value of each company expected to be
sold and its tax basis (i.e., its outside basis difference). AIG recorded $4.3 billion of tax expense in 2008 associated
with the change in indefinite reinvestment assertions and realization assumptions related to the outside basis
differences in foreign affiliates. During 2009, AIG recorded a $900 million tax benefit, of which $800 million is related
333 AIG 2009 Form 10-K