Freddie Mac 2012 Annual Report Download - page 279

After evaluating all available evidence, including our prior years’ losses, the events and developments related to our
conservatorship, volatility in the economy, related difficulty in forecasting future profit levels, and our assertion that we have
the intent and ability to hold our available-for-sale securities until any temporary unrealized losses are recovered, we
continue to record a valuation allowance on a portion of our net deferred tax assets as of December 31, 2012 and 2011. As of
December 31, 2012, after consideration of the valuation allowance, our net deferred tax asset is the tax effect of unrealized
losses on our available-for-sale securities.
As of December 31, 2012, we had a net operating loss carryforward of $32.8 billion and a LIHTC carryforward of $3.4
billion that will expire over multiple years beginning in 2030 and 2027, respectively.
Unrecognized Tax Benefits
Table 12.4 — Unrecognized Tax Benefits
2012 2011 2010
(in millions)
Balance at January 1 ....................................................................... $1,355 $1,220 $ 805
Changes based on tax positions in prior years ................................................... (41) 130 372
Changes based on tax positions in current years ................................................. (28) 6 48
Decreases in unrecognized tax benefits due to settlements with taxing authorities ......................... (1,286) (1) (5)
Balance at December 31 .................................................................... $ — $1,355 $1,220
At December 31, 2012, we have assessed all income tax uncertainties and have determined that no reserves currently are
needed. As a result, the balance of unrecognized tax benefits was reduced to zero. See “IRS Examinations and Litigation”
below for more information.
We have accrued gross interest receivable of $523 million and $520 million as of December 31, 2012 and December 31,
2011, respectively, related to payments on account with the IRS. Previously recorded accrued interest payable of
$266 million associated with certain unrecognized tax benefits was reversed in 2012. We anticipate refunds of accrued
interest receivable upon final settlement of the Statutory Notices for the 1998 to 2005 tax years. See “IRS Examinations and
Litigation” below.
IRS Examinations and Litigation
In 2010 and 2011, we received Statutory Notices from the IRS assessing $3.0 billion of additional income taxes and
penalties for the 1998 to 2007 tax years, primarily related to our tax accounting method for certain hedging transactions. We
filed a petition with the U.S. Tax Court on October 22, 2010 in response to the Statutory Notices for the 1998 to 2005 tax
years. A Tax Court trial date was originally scheduled for November 13, 2012; however, on June 7, 2012 the Tax Court
granted a joint motion for continuance in order for both parties to explore settlement options. We have had ongoing
discussions with the IRS regarding the litigation, and based on the favorable resolution of the matters in dispute, the
previously unrecognized tax benefits were reduced to zero in the fourth quarter of 2012.
In addition, the IRS is currently auditing our income tax returns for tax years 2008 through 2011. Although the audit has
not concluded, on July 25, 2012 the IRS advised us that they would not challenge certain deductions in 2008 and 2009, and
the associated unrecognized tax benefits were reduced to zero in the third quarter of 2012.
For a discussion of our significant accounting policies related to income taxes, please see “NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES — Income Taxes.”
NOTE 13: SEGMENT REPORTING
We evaluate segment performance and allocate resources based on a Segment Earnings approach, subject to the conduct
of our business under the direction of the Conservator. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS”
for additional information about the conservatorship.
We present Segment Earnings by: (a) reclassifying certain investment-related activities and credit guarantee-related
activities between various line items on our GAAP consolidated statements of comprehensive income; and (b) allocating
certain revenues and expenses, including certain returns on assets and funding costs, and all administrative expenses to our
three reportable segments. These reclassifications and allocations are described in “Segment Earnings.”
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