Ameriprise 2011 Annual Report Download - page 168

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 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. Significant judgment is required in determining if a valuation allowance
should be established, and the amount of such allowance if required. Factors used in making this determination include
estimates relating to the performance of the business including the ability to generate capital gains. Consideration is given
to, among other things in making this determination, (i) future taxable income exclusive of reversing temporary differences
and carryforwards, (ii) future reversals of existing taxable temporary differences, (iii) taxable income in prior carryback years,
and (iv) tax planning strategies. Based on analysis of the Company’s tax position, management believes it is more likely
than not that the Company will not realize the full benefit of certain state net operating losses and therefore a valuation
allowance of $5 million has been established as of December 31, 2011.
Included in the Company’s deferred income tax assets are tax benefits related to capital loss carryforwards of $30 million
which will expire beginning December 31, 2015, tax credits of $65 million which will expire beginning December 31,
2027, and state net operating losses of $39 million which will expire beginning December 31, 2014. As a result of the
Company’s ability to file a consolidated U.S. federal income tax return including the Company’s life insurance subsidiaries,
as well as the expected level of taxable income, management believes the Company’s capital loss carryforwards and tax
credit carryforwards will be utilized before they expire.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (expense) were as follows:
2011 2010 2009
(in millions)
Balance at January 1 $ 75 $ (33) $ (56)
Additions based on tax positions related to the current year 1 2 1
Additions for tax positions of prior years 95 57 45
Reductions for tax positions of prior years (8) (42) (23)
Settlements 21 91 —
Balance at December 31 $ 184 $ 75 $ (33)
If recognized, approximately $38 million, $54 million and $81 million, net of federal tax benefits, of unrecognized tax
benefits as of December 31, 2011, 2010, and 2009, respectively, would affect the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax
provision. The Company recognized $66 million of interest and penalties for the year ended December 31, 2011. The
Company recognized a net reduction of $17 million in interest and penalties for the year ended December 31, 2010 and
an increase of $1 million in interest and penalties for the year ended December 31, 2009. At December 31, 2011 and
2010, the Company had a payable of $37 million and a receivable of $29 million, respectively, related to accrued interest
and penalties.
It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. Based on
the current audit position of the Company, it is estimated that the total amount of gross unrecognized tax benefits may
decrease by $150 million to $160 million in the next 12 months.
The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states
and foreign jurisdictions. The Internal Revenue Service (‘‘IRS’’) had previously completed its field examination of the 1997
through 2007 tax returns in recent years as part of the overall examination of the American Express Company consolidated
returns. However, for federal income tax purposes these years except for 2007, continue to remain open as a
consequence of certain issues under appeal. The IRS is currently auditing the Company’s U.S. income tax returns for 2008
and 2009. The Company’s or certain of its subsidiaries’ state income tax returns are currently under examination by
various jurisdictions for years ranging from 1999 through 2009. The Company’s federal and state income tax returns
remain open for the years after 2009.
It is possible there will be corporate tax reform in the next few years. While impossible to predict, corporate tax reform is
likely to include a reduction in the corporate tax rate coupled with reductions in tax preferred items. Potential tax reform
may also affect the U.S. tax rules regarding international operations. Any changes could have a material impact on the
income tax expense and the deferred tax balances of the Company.
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