Freddie Mac 2011 Annual Report Download - page 276

Deferred Tax Assets, Net
The sources and tax effects of temporary differences that give rise to significant deferred tax assets and liabilities for
the years ended December 31, 2011 and 2010 are presented in the table below.
Table 13.3 — Deferred Tax Assets, Net
2011 2010
(in millions)
Deferred tax assets:
Deferred fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,957 $ 1,561
Basis differences related to derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,903 4,630
Credit related items and allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,398 17,850
Unrealized (gains) losses related to available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,345 5,211
LIHTC and AMT credit carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,885 2,360
Net operating loss carryforward, net of unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,053 12,122
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 268
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,713 44,002
Deferred tax liabilities:
Basis differences related to assets held for investment
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,367) (4,886)
Basis differences related to debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (140) (192)
Total deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,507) (5,078)
Valuation allowance
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,660) (33,381)
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,546 $ 5,543
(1) The deferred tax liability balance for basis differences related to assets held for investment includes a basis adjustment on seriously delinquent loans.
This deferred tax liability offsets a portion of the deferred tax asset for credit related items and allowance for loan losses.
(2) The valuation allowance as of December 31, 2010 includes $3.1 billion related to the adoption of the accounting guidance for transfers of financial
assets and consolidation of VIEs.
We use the asset and liability method to account for income taxes in accordance with the accounting guidance 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 in available carryback years from current operations and unrecognized
tax benefits, and upon our intent and ability to hold available-for-sale debt securities until the recovery of any temporary
unrealized losses.
After evaluating all available evidence, including our losses, the events and developments related to our
conservatorship, volatility in the economy, and related difficulty in forecasting future profit levels, we continue to record a
valuation allowance on a portion of our net deferred tax assets as of December 31, 2011 and 2010. Our valuation
allowance increased by $2.3 billion during 2011 to $35.7 billion, primarily attributable to an increase in temporary
differences during the period. As of December 31, 2011, after consideration of the valuation allowance, we had a net
deferred tax asset of $3.5 billion, primarily representing the tax effect of unrealized losses on our available-for-sale
securities. We believe the deferred tax asset related to these unrealized losses is more likely than not to be realized
because of our assertion that we have the intent and ability to hold our available-for-sale securities until any temporary
unrealized losses are recovered.
As of December 31, 2011, we had a net operating loss carryforward of $51.6 billion and a LIHTC carryforward of
$2.9 billion that will expire over multiple years beginning in 2030 and 2027, respectively. Our AMT credit carryforward
of $4 million will not expire.
Unrecognized Tax Benefits
Table 13.4 — Unrecognized Tax Benefits
2011 2010 2009
(in millions)
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,220 $ 805 $636
Changes based on tax positions in prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 372 (34)
Changes based on tax positions in current years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 48 203
Decreases in unrecognized tax benefits due to settlements with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . . (1) (5) —
Balance at December 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,355 $1,220 $805
At December 31, 2011, we had total unrecognized tax benefits, exclusive of interest, of $1.4 billion. This amount
relates to tax positions for which ultimate deductibility is highly certain, but for which there is uncertainty as to the
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