Fannie Mae 2010 Annual Report Download - page 341

11. Income Taxes
Provision (Benefit) for Income Taxes
We operate as a government-sponsored enterprise. We are subject to federal income tax, but we are exempt
from state and local income taxes. The following table displays the components of our provision (benefit) for
federal income taxes for the years ended December 31, 2010, 2009 and 2008.
2010 2009 2008
For the Year Ended
December 31,
(Dollars in millions)
Current income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(82) $(999) $ 403
Deferred income tax expense
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 14 13,346
Provision (benefit) for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(82) $(985) $13,749
(1)
Amount excludes the income tax effect of items recognized directly in “Fannie Mae stockholders’ equity (deficit)”
where we did not establish a valuation allowance.
In January 2011, we received a refund of $1.1 billion from the IRS related to the carryback of our 2009
operating loss to the 2008 and 2007 tax years.
The following table displays the difference between our effective tax rates and the statutory federal tax rates
for the years ended December 31, 2010, 2009 and 2008, respectively.
2010 2009 2008
For the Year Ended
December 31,
Statutory corporate tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
Tax-exempt interest and dividends-received deductions . . . . . . . . . . . . . . . . . . . . . . . . 1.3 0.3 0.5
Equity investments in affordable housing projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 1.3 2.1
Other .......................................................... 0.1 — —
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42.1) (35.2) (68.2)
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6% 1.4% (30.6)%
Our effective tax rate is the provision (benefit) for federal income taxes, excluding the tax effect of
extraordinary items, expressed as a percentage of income or loss before federal income taxes. Our effective tax
rates were different from the federal statutory rate of 35% for the years ended December 31, 2010, 2009 and
2008 due primarily to the increase to our valuation allowance for our net deferred tax assets that resulted in
the recognition of $5.9 billion, $25.7 billion and $30.8 billion, respectively, in our provision for income taxes.
In addition, our effective tax rate for the year ended December 31, 2010, was also impacted by the reversal of
a portion of the valuation allowance for deferred tax assets resulting from a settlement agreement reached with
the IRS for our unrecognized tax benefits for the tax years 1999 through 2004. Our effective tax rates for the
years ended December 31, 2010, 2009 and 2008 were impacted by the benefits of our holdings of tax-exempt
investments, investments in housing projects eligible for the low-income housing tax credit and other equity
investments that provide tax credits.
F-83
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)