Freddie Mac 2009 Annual Report Download - page 285

Deferred Tax Assets, Net
Table 15.3 — Deferred Tax Assets, Net
Amount
Adjust for
Valuation
Allowance
Adjusted
Amount Amount
Adjust for
Valuation
Allowance
Adjusted
Amount
December 31, 2009 December 31, 2008
(in millions)
Deferred tax assets:
Deferred fees . . . . ..................................... $ 1,613 $ (1,613) $ — $ 3,027 $ (3,027) $ —
Basis differences related to derivative instruments ................ 4,473 (4,473) — 5,969 (5,969) —
Credit related items and reserve for loan losses . ................. 16,296 (16,296) — 7,478 (7,478) —
Basis differences related to assets held for investment . . . ........... 1,361 (1,361) — 5,504 (5,504) —
Unrealized (gains) losses related to available-for-sale securities . . . .... 11,101 — 11,101 15,351 — 15,351
LIHTC and AMT credit carryforward . ........................ 1,598 (1,598) — 526 (526) —
Other items, net . . ..................................... 67 (67) — 186 (186) —
Total deferred tax assets .................................. 36,509 (25,408) 11,101 38,041 (22,690) 15,351
Deferred tax liabilities:
Basis differences related to debt ............................ (300) 300 — (314) 314 —
Total deferred tax (liability) . .............................. (300) 300 — (314) 314 —
Deferred tax assets, net .................................. $36,209 $(25,108) $11,101 $37,727 $(22,376) $15,351
We use the asset and liability method to account for income taxes in accordance with the accounting standards for
income taxes. Under this method, deferred tax assets and liabilities are recognized based upon the expected future tax
consequences of existing temporary differences between the financial reporting and the tax reporting basis of assets and
liabilities using enacted statutory tax rates. Valuation allowances are recorded to reduce net deferred tax assets when it is
more likely than not that a tax benefit will not be realized. The realization of our net deferred tax assets is dependent upon
the generation of sufficient taxable income or upon our intent and ability to hold available-for-sale debt securities until the
recovery of any temporary unrealized losses. On a quarterly basis, we consider all evidence currently available, both positive
and negative, in determining whether, based on the weight of that evidence, the net deferred tax assets will be realized and
whether a valuation allowance is necessary and whether the allowance should be adjusted.
Events since our entry into conservatorship, including those described in “NOTE 2: CONSERVATORSHIP AND
RELATED DEVELOPMENTS,” fundamentally affect our control, management and operations and are likely to affect our
future financial condition and results of operations. These events have resulted in a variety of uncertainties regarding our
future operations, our business objectives and strategies and our future profitability, the impact of which cannot be reliably
forecasted at this time. In evaluating our need for a valuation allowance, we considered all of the events and evidence
discussed above, in addition to: (1) our three-year cumulative loss position; (2) our carryback and carryforward availability;
(3) our difficulty in predicting unsettled circumstances; and (4) our conclusion that we have the intent and ability to hold our
available-for sale securities to the recovery of any temporary unrealized losses.
Subsequent to the date of our entry into conservatorship, we determined that it was more likely than not that a portion
of our deferred tax assets, net would not be realized due to our inability to generate sufficient taxable income and, therefore,
we recorded a valuation allowance. After evaluating all available evidence, including the events and developments related to
our conservatorship, other events in the market, and related difficulty in forecasting future profit levels, we reached a similar
conclusion in the fourth quarter of 2009. We increased our valuation allowance by $2.7 billion in total during 2009,
including a $3.1 billion increase in the fourth quarter. The $2.7 billion increase during 2009 was primarily attributable to
temporary differences generated during the year, partially offset by a $5.1 billion reduction attributable to the second quarter
adoption of an amendment to the accounting standards for investments in debt and equity securities. See “NOTE 6:
INVESTMENTS IN SECURITIES” for additional information on our adoption of the amendment to the accounting
standards for investments in debt and equity securities. Our total valuation allowance as of December 31, 2009 was
$25.1 billion. As of December 31, 2009, after consideration of the valuation allowance, we had a net deferred tax asset of
$11.1 billion representing the tax effect of unrealized losses on our available-for-sale securities. Management believes these
unrealized losses are more likely than not to be realized because of our conclusion that we have the intent and ability to hold
our available-for-sale securities until any temporary unrealized losses are recovered. Our view of our ability to realize the
deferred tax assets, net may change in future periods, particularly if the mortgage and housing markets continue to decline.
In 2008, our income tax liability under the AMT was greater than our regular income tax liability by $133 million. As a
result, we paid $133 million in additional taxes on our 2008 federal income tax return and will carryforward this tax credit
to be applied against our regular tax liability in future years.
In addition, we were not able to use the LIHTC tax credits generated in 2008 and 2009. For 2008, we have unused tax
credits of $608 million that will carryforward into future years because we were in an AMT tax position. For 2009, we have
282 Freddie Mac