AIG 2012 Annual Report Download - page 59

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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.
An ‘‘ownership change’’ could limit our ability to utilize tax losses and credits carryforwards to offset future
taxable income. As of December 31, 2012, we had a U.S. federal net operating loss carryforward of approximately
$40.9 billion, $17.3 billion in capital loss carryforwards and $5.5 billion in foreign tax credits (tax losses and credits
carryforwards). Our ability to use 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.
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.
On March 9, 2011, our Board of Directors adopted a Tax Asset Protection Plan (the Plan) to help protect these tax
losses and credits carryforwards. At our 2011 Annual Meeting of Shareholders, shareholders ratified the Plan. At the
same time, shareholders adopted a protective amendment to our Restated Certificate of Incorporation, which is
designed to prevent certain transfers of AIG Common Stock that could result in an ‘‘ownership change’’. The Plan is
designed to reduce the likelihood of an ‘‘ownership change’’ by (i) discouraging any person or group from becoming
a 4.99 percent shareholder and (ii) discouraging any existing 4.99 percent shareholder from acquiring additional
shares of AIG Common Stock. The Protective Amendment generally restricts any transfer of AIG Common Stock that
would (i) increase the ownership by any person to 4.99 percent or more of AIG stock then outstanding or (ii) increase
the percentage of AIG stock owned by a Five Percent Stockholder (as defined in the Plan). Despite the intentions of
the Plan and the Protective Amendment to deter and prevent an ‘‘ownership change’’, such an event may still occur.
In addition, the Plan and the Protective Amendment may make it more difficult and more expensive to acquire us,
and may discourage open market purchases of AIG Common Stock or a non-negotiated tender or exchange offer for
AIG Common Stock. Accordingly, the Plan and the Protective Amendment may limit a shareholder’s ability to realize
a premium over the market price of AIG Common Stock in connection with any stock transaction.
Changes in tax laws could increase our corporate taxes, reduce our deferred tax assets or make some of our
products less attractive to consumers. Changes in tax laws or their interpretation could negatively impact our
business or results. Some proposed changes could have the effect of increasing our effective tax rate by reducing
deductions or increasing income inclusions, such as by limiting rules that allow for deferral of tax on certain foreign
insurance income. Conversely, other changes, such as lowering the U.S. federal corporate tax rate discussed
recently in the context of tax reform, could reduce the value of our deferred tax assets. In addition, changes in the
way foreign taxes can be credited against U.S. taxes, methods for allocating interest expense, the ways insurance
companies calculate and deduct reserves for tax purposes, and impositions of new or changed premium, value
added and other indirect taxes could increase our tax expense, thereby reducing earnings.
In addition to proposing to change the taxation of corporations in general and insurance companies in particular, the
Executive Branch of the Federal Government and Congress have recently considered proposals that could increase
taxes on owners of insurance products. For example, there are proposals that would limit the deferral of tax on
income from life and annuity contracts relative to other investment products. These changes could reduce demand in
the U.S. for life insurance and annuity contracts, or cause consumers to shift from these contracts to other
investments, which would reduce our income due to lower sales of these products or potential increased surrenders
of in-force business.
Governments’ need for additional revenue makes it likely that there will be continued proposals to change tax rules in
ways that would reduce our earnings. However, it remains difficult to predict whether or when there will be any tax
law changes having a material adverse effect on our financial condition or results of operations.
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AIG 2012 Form 10-K42
ITEM 1A / RISK FACTORS