Freddie Mac 2012 Annual Report Download - page 278

Table 12.2 — Reconciliation of Statutory to Effective Tax Rate
Year Ended December 31,
2012 2011 2010
Amount Percent Amount Percent Amount Percent
(dollars in millions)
Statutory corporate tax rate ........................................... $(3,306) 35.0% $ 1,983 35.0% $ 5,209 35.0%
Tax-exempt interest ................................................. 133 (1.4) 179 3.2 213 1.4
Tax credits ....................................................... 536 (5.7) 566 10.0 585 3.9
Valuation allowance
Current year activity .............................................. 2,637 (27.9) (2,728) (48.2) (6,007) (40.4)
Unrecognized tax benefits(1) ......................................... 1,205 (12.8) (21) (0.4) (12) (0.1)
Other ......................................................... 45 (0.5) 403 7.2 852 5.8
Total valuation allowance ............................................ 3,887 (41.2) (2,346) (41.4) (5,167) (34.7)
Other ........................................................... 287 (3.0) 18 0.3 16 0.1
Effective tax rate .................................................. $1,537 (16.3)% $ 400 7.1% $ 856 5.7%
(1) See “Unrecognized Tax Benefits” for more information on the change in unrecognized tax benefits in 2012.
In 2012, 2011, and 2010, our effective tax rate differs from the statutory tax rate of 35% primarily due to the valuation
allowance on a portion of our net deferred tax assets and the recognition of uncertain tax positions.
Deferred Tax Assets, Net
The table below presents the balances of significant deferred tax assets, liabilities, and the valuation allowance for the
years ended December 31, 2012 and 2011.
Table 12.3 — Deferred Tax Assets, Net
2012 2011
(in millions)
Deferred tax assets:
Deferred fees .............................................................................. $ 4,330 $ 3,957
Basis differences related to derivative instruments(1) ................................................... 10,294 4,903
Credit related items and allowance for loan losses .................................................... 6,785 12,398
Unrealized (gains) losses related to available-for-sale securities .......................................... 778 3,345
LIHTC and AMT credit carryforward ............................................................. 3,408 2,885
Net operating loss carryforward, net of unrecognized tax benefits(1) ........................................ 11,479 18,053
Other items, net ............................................................................ 146 172
Total deferred tax assets ...................................................................... 37,220 45,713
Deferred tax liabilities:
Basis differences related to assets held for investment(2) ................................................ (4,609) (6,367)
Basis differences related to debt ................................................................. (149) (140)
Total deferred tax liability ..................................................................... (4,758) (6,507)
Valuation allowance ........................................................................... (31,684) (35,660)
Deferred tax assets, net ......................................................................... $ 778 $ 3,546
(1) In 2012, we changed our tax accounting method for certain hedging transactions and, as a result, the deferred tax asset related to the net operating loss
carryforward was reduced by approximately $6.7 billion. A corresponding adjustment is reflected in basis differences related to derivative instruments.
See “Unrecognized Tax Benefits — IRS Examinations and Litigation” below for more information.
(2) 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 the allowance for loan losses.
On a quarterly basis, we determine whether a valuation allowance is necessary. In doing so, we consider all evidence
currently available, both positive and negative, in determining whether, based on the weight of that evidence, it is more likely
than not that the net deferred tax assets will be realized. Evidence that we considered in making our assessments as of
December 31, 2012 and 2011 included: (a) our cumulative loss position for the past three years; (b) our current taxable loss
position; (c) the amount and estimated time required to realize our estimated cumulative tax net operating loss carryforward;
(d) difficulty in predicting unsettled circumstances related to the conservatorship; (e) our access to capital under the
agreements associated with the conservatorship; (f) management’s intent and ability to hold our available-for-sale securities
until losses can be recovered; and (g) the improving trend of our financial results.
273 Freddie Mac