AIG 2010 Annual Report Download - page 49

American International Group, Inc., and Subsidiaries
including the USA PATRIOT Act of 2001, which requires companies to know certain information about their
clients and to monitor their transactions for suspicious activities. In addition, the Department of the Treasury’s
Office of Foreign Assets Control administers regulations requiring U.S. persons to refrain from doing business, or
allowing their clients to do business through them, with certain organizations or individuals on a prohibited list
maintained by the U.S. government or with certain countries. The United Kingdom, the European Union and
other jurisdictions maintain similar laws and regulations. Although we have instituted compliance programs to
address these requirements, there are inherent risks in global transactions.
New regulations promulgated from time to time may affect our operations, financial condition and ability to compete
effectively. Legislators and regulators may periodically consider and put forward various proposals that may affect
the profitability of certain of our businesses or even our ability to conduct certain businesses at all, including
proposals relating to restrictions on the type of activities in which financial institutions are permitted to engage
and the size of financial institutions, and proposals to impose additional taxes on a limited subset of financial
institutions and insurance companies (either based on size, activities, geography, government support or other
criteria). It is uncertain whether and how these and other such proposals would apply to us or our competitors or
how they could impact our consolidated results of operations, financial condition and ability to compete
effectively.
Change in Control
Our ability to utilize tax losses and credits carryforwards to offset future taxable income may be significantly limited if
we experience an ‘‘ownership change’’ under the Internal Revenue Code. As of December 31, 2010, we had a U.S.
federal net operating loss carryforward of approximately $32.3 billion, $27.8 billion in capital loss carryforwards
and $4.6 billion in foreign tax credits (Tax Losses and credits carryforwards). Our ability to utilize such tax
attributes to offset future taxable income may be significantly limited if we experience an ‘‘ownership change’’ as
defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code). In general, an ownership
change will occur when the percentage of AIG Parent’s ownership (by value) of one or more ‘‘5-percent
shareholders’’ (as defined in the Code) has increased by more than 50 percent over the lowest percentage owned
by such shareholders at any time during the prior three years (calculated on a rolling basis). An entity that
experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change tax
losses and credits carryforwards equal to the equity value of the corporation immediately before the ownership
change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain adjustments).
The annual limitation would be increased each year to the extent that there is an unused limitation in a prior
year. The limitation on our ability to utilize tax losses and credits carryforwards arising from an ownership change
under Section 382 would depend on the value of our equity at the time of any ownership change.
While the Department of the Treasury owns more than 50 percent of AIG Common Stock, under guidance
issued by the Internal Revenue Service, we will not be treated as having experienced an ownership change.
However, once the Department of the Treasury’s ownership of outstanding AIG Common Stock falls below
50 percent, it is possible for us to experience an ownership change as a result of purchases of AIG Common Stock
by ‘‘5-percent shareholders’’. For the purpose of determining whether there has been an ‘‘ownership change’’, the
change in ownership as a result of purchases by ‘‘5-percent shareholders’’ will be aggregated with certain changes
in ownership that occurred over the three-year period ending on the date of such purchases, including, for
example, the sale of AIG Common Stock that was issued in exchange for the shares of AIG’s Series C Perpetual,
Convertible, Participating Preferred Stock, par value $5.00 per share (the Series C Preferred Stock), but excluding
the issuance of the AIG Common Stock that was issued in exchange for the shares of AIG’s Series E Fixed Rate
Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (the Series E Preferred Stock), and the
shares of AIG’s Series F Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (the
Series F Preferred Stock). If we were to experience an ‘‘ownership change’’, it is possible that a significant portion
of our tax losses and credits carryforwards could expire before we would be able to use them to offset future
taxable income.
AIG 2010 Form 10-K 33