Ameriprise 2006 Annual Report Download - page 99

The principal reasons that the aggregate income tax provision
is different from that computed by using the U.S. statutory
rate of 35% are as follows:
Years Ended December 31,
2006 2005 2004
Tax at U.S. statutory rate 35.0% 35.0% 35.0%
Changes in taxes resulting from:
Dividend exclusion (5.4) (5.7) (2.8)
Tax-exempt interest income (1.5) (1.4) (0.8)
Tax credits (6.4) (8.3) (6.3)
State taxes, net of federal benefit 0.2 1.4 0.8
Taxes applicable to prior years —2.7 (1.8)
Other, net (1.1) 1.4 1.7
Income tax provision 20.8% 25.1% 25.8%
The Company’s effective income tax rate decreased to 20.8%
in 2006 from 25.1% in 2005 primarily due to the impact of a
$16 million tax benefit as a result of a change in the effective
state income tax rate applied to deferred tax assets as a
result of the Distribution, and a $13 million tax benefit,
included in other, related to the true-up of the tax return for the
year 2005 partially offset by lower levels of tax advantaged
items in 2006. Additionally, taxes applicable to prior years
represent a $20 million tax expense in 2005 and a $20 million
tax benefit in 2004.
Accumulated earnings of certain foreign subsidiaries, which
totaled $200 million at December 31, 2006, are intended to
be permanently reinvested outside the United States.
Accordingly, U.S. federal taxes, which would have aggregated
$11 million, have not been provided on those earnings.
Deferred income tax assets and liabilities result from
temporary differences between the assets and liabilities
measured for U.S. GAAP reporting versus income tax return
purposes. The significant components of the Company’s
deferred income tax assets and liabilities were as follows:
December 31,
2006 2005
(in millions)
Deferred income tax assets:
Liabilities for future policy benefits
and claims $ 1,146 $ 1,105
Investment impairments and write-downs 87 98
Deferred compensation 164 148
Unearned revenues 40 29
Net unrealized losses on Available-for-Sale
securities 104 70
Accrued liabilities 121 123
Investment related 154 46
Other 107 189
Gross deferred income tax assets 1,923 1,808
December 31,
2006 2005
(in millions)
Deferred income tax liabilities:
Deferred acquisition costs 1,317 1,259
Deferred sales inducement costs 158 130
Depreciation expense 141 138
Intangible assets 105 79
Other 108 120
Gross deferred income tax liabilities 1,829 1,726
Net deferred income tax assets $94$82
A portion of RiverSource Life’s income earned prior to 1984
was not subject to current taxation but was accumulated, for
tax purposes, in a “policyholders’ surplus account.” At
December 31, 2006, RiverSource Life no longer had a policy-
holders’ surplus account balance. The American Jobs Creation
Act of 2004, which was enacted on October 22, 2004,
provides a two-year suspension of the tax on policyholders’
surplus account distributions. RiverSource Life has made
distributions of $1 million in 2006, which will not be subject to
tax under the two-year suspension. Previously, the policy-
holders’ surplus account was only taxable if dividends to
shareholders exceeded the shareholders’ surplus account
and/or RiverSource Life is liquidated. Deferred income taxes
had not been previously established.
The Company is required to establish a valuation allowance for
any portion of the deferred tax assets that management
believes will not be realized. Included in deferred tax assets is a
significant deferred tax asset relating to capital losses realized
for tax return purposes and capital losses that have been
recognized for financial statement purposes but not yet for tax
return purposes. Under current U.S. federal income tax law,
capital losses generally must be used against capital gain
income within five years of the year in which the capital losses
are recognized for tax purposes. The Company has $156 million
in capital loss carryforwards that expire December 31, 2009 for
which the deferred tax benefit is reflected in the investment
related deferred tax assets, net of other related items.
Additionally, the Company has $45 million in capital loss carry-
forwards that expire December 31, 2009 as a result of the
2005 first short period tax return filed with American Express.
Based on analysis of the Company’s tax position, management
believes it is more likely than not that the results of future
operations and implementation of tax planning strategies will
generate sufficient taxable income to enable the Company to
utilize all of its deferred tax assets. Accordingly, no valuation
allowance for deferred tax assets has been established as of
December 31, 2006 and 2005.
As a result of the Distribution, the Company was required to file a
short period income tax return through September 30, 2005
which was included as part of the American Express consolidated
income tax return for the year ended December 31, 2005.
Additionally, the Company’s life insurance subsidiaries will not be
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Ameriprise Financial, Inc. 2006 Annual Report