AIG 2010 Annual Report Download - page 374

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant unrealized appreciation in the available for sale securities portfolio partially offset by activity in
other comprehensive income reduced the net deferred tax asset before valuation allowances, allowing a reduction
of $1.9 billion of valuation allowance.
During the year ended December 31, 2010, AIG changed its planned securitization of an insurance portfolio
because it is pursuing more attractive opportunities to provide liquidity. This planned securitization previously
supported $589 million of the U.S. consolidated income tax group’s deferred tax assets.
For the year ended December 31, 2010, $1.5 billion of the increase in valuation allowance was allocated to
continuing operations, $1.2 billion was allocated to discontinued operations, and $66 million was allocated to
Accumulated other comprehensive income. This allocation was based on the primacy of continuing operations,
which requires a net increase in valuation allowance to be attributed to continuing operations to the extent of the
related deferred tax benefit attributable to continuing operations. The amount allocated to continuing operations
also included the $589 million of change related to a reduction in tax planning strategies. The increase in
valuation allowance of $1.2 billion was allocated to discontinued operations to principally offset the deferred tax
benefit on losses.
Deferred tax liability — foreign, state and local
At December 31, 2010 and December 31, 2009, AIG had net deferred tax liabilities of $1.1 billion and
$2.3 billion, respectively, related to foreign subsidiaries, state and local tax jurisdictions, and certain domestic
subsidiaries that file separate tax returns.
At December 31, 2010 and December 31, 2009, AIG had deferred tax asset valuation allowances of $1.9 billion
and $3.3 billion, respectively, related to foreign subsidiaries, state and local tax jurisdictions, and certain domestic
subsidiaries that file separate tax returns. The change is primarily due to a reduction in deferred tax asset
valuation allowance of $1.1 billion related to entities sold, a reduction in state and local jurisdictions valuation
allowances of $269 million, and a transfer of deferred tax asset valuation allowance to the U.S. consolidated
income tax group of $582 million as a result of a U.S. tax election to treat a foreign insurance company as a U.S.
insurance company for U.S. federal income tax purposes, partially offset by an additional deferred tax asset
valuation allowance of $693 million associated with the purchase of additional shares of Fuji, recorded through
purchase accounting.
Tax Examinations and Litigation
AIG and its eligible U.S. subsidiaries file a consolidated U.S. federal income tax return. Several U.S.
subsidiaries included in the consolidated financial statements file separate U.S. federal income tax returns and are
not part of the AIG U.S. consolidated income tax group. Subsidiaries operating outside the U.S. are taxed, and
income tax expense is recorded, based on applicable U.S. and foreign law.
The statute of limitations for all tax years prior to 2000 has now expired for AIG’s consolidated federal income
tax return. AIG is currently under examination for the tax years 2000 through 2005.
In April 2008, AIG filed a refund claim for years 1997 through 2006. A refund claim filed in June 2007 for
years 1991 through 1996 is pending. These refund claims relate to the tax effects of the restatements of AIG’s
2004 and prior financial statements.
On March 20, 2008, AIG received a Statutory Notice of Deficiency (Notice) from the IRS for years 1997 to
1999. The Notice asserted that AIG owes additional taxes and penalties for these years primarily due to the
disallowance of foreign tax credits associated with cross-border financing transactions. The transactions that are
the subject of the Notice extend beyond the period covered by the Notice, and the IRS is challenging the later
periods. It is also possible that the IRS will consider other transactions to be similar to these transactions. AIG
has paid the assessed tax plus interest and penalties for 1997. On February 26, 2009, AIG filed a complaint in the
United States District Court for the Southern District of New York seeking a refund of approximately
$306 million in taxes, interest and penalties paid with respect to its 1997 taxable year. AIG alleges that the IRS
improperly disallowed foreign tax credits and that AIG’s taxable income should be reduced as a result of AIG’s
358 AIG 2010 Form 10-K