Fannie Mae 2009 Annual Report Download - page 339

based on changes in tax laws or variances between our projected operating performance, our actual results and
other factors.
We are in a cumulative book taxable loss position and have been for more than a three-year period. For
purposes of establishing a deferred tax valuation allowance, this cumulative book taxable loss position is
considered significant, objective evidence that we may not be able to realize some portion of our deferred tax
assets in the future. Our cumulative book taxable loss position was caused by the negative impact on our
results from the weak housing and credit market conditions. These conditions deteriorated dramatically during
2008 and continued in 2009, causing a significant increase in our pre-tax loss, due in part to much higher
credit losses, and downward revisions to our projections of future results. Because of the volatile economic
conditions, our projections of future credit losses have become more uncertain.
During 2008, we concluded that it was more likely than not that we would not generate sufficient future
taxable income in the foreseeable future to realize all of our deferred tax assets. Our conclusion was based on
our consideration of the relative weight of the available evidence, including the rapid deterioration of market
conditions discussed above, the uncertainty of future market conditions on our results of operations, and
significant uncertainty surrounding our future business model as a result of the placement of the company into
conservatorship by FHFA. As a result, we recorded a valuation allowance on our net deferred tax asset for the
portion of the future tax benefit that more likely than not will not be utilized in the future. We did not,
however, establish a valuation allowance for the deferred tax asset amount that is related to unrealized losses
recorded through AOCI for certain available-for-sale securities. We believe this deferred tax amount is
recoverable because we have the intent and ability to hold these securities until recovery of the unrealized loss
amounts. There have been no changes to our conclusion as of December 31, 2009.
As a result of adopting the new accounting standard for assessing other-than-temporary impairments, we
recorded a cumulative-effect adjustment at April 1, 2009 of $8.5 billion on a pre-tax basis ($5.6 billion after
tax) to reclassify the noncredit portion of previously recognized other-than-temporary impairments from
“Accumulated deficit” to “Accumulated other comprehensive loss.” We also reduced the “Accumulated deficit”
and valuation allowance by $3.0 billion for the deferred tax asset related to the amounts previously recognized
as other-than-temporary impairments in our consolidated statements of operations based upon the assertion of
our intent and ability to hold certain AFS securities until recovery.
As of December 31, 2009, we had $3.3 billion of net operating loss carryforwards that expire in 2029,
$1.4 billion of capital loss carryforwards that expire in 2013 and 2014, $3.6 billion of partnership tax credit
carryforwards that expire in various years through 2029, and $126 million of alternative minimum tax credit
carryforwards that have an indefinite carryforward period.
Unrecognized Tax Benefits
We had $911 million, $1.7 billion, and $124 million of unrecognized tax benefits as of December 31, 2009,
2008 and 2007, respectively. Of these amounts, we had $29 million as of December 31, 2009 and $8 million
as of both December 31, 2008 and 2007, which, if resolved favorably, would reduce our effective tax rate in
future periods. As of December 31, 2009 and 2008, we had accrued interest payable related to unrecognized
tax benefits of $41 million and $251 million, respectively, and did not recognize any tax penalty payable. For
the years ended December 31, 2009, 2008 and 2007, we had total interest expense related to unrecognized tax
benefits of $32 million, $223 million and $7 million, respectively, and did not have any tax expense related to
tax penalties.
During 2009, we reached an agreement of $1.2 billion, net of tax credits, with the IRS on the audits of our
2005 and 2006 federal income tax returns. The decrease in our unrecognized tax benefits during the year
ended December 31, 2009 is due to our settlement reached with the IRS regarding certain tax positions related
F-81
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)