2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Continued
20. Ownership and Transactions With
Related Parties
of 2004 amended the federal income tax law to permit life
insurance companies to distribute amounts from their policyhold-
Continued
ers’ surplus accounts in 2005 and 2006 without incurring federal
income tax on the distributions. In 2005 and 2006, AIG made
its subsidiaries paid commissions to Starr and its subsidiaries for
distributions and eliminated the aggregate balance of $945 million
the production and management of insurance business in the
from its policyholders’ surplus accounts.
ordinary course of business. Payment for the production of
insurance business to Starr aggregated approximately $12 million
in 2007, $47 million in 2006, and $214 million in 2005. AIG also
Tax Examinations
received no rental fees in 2007, approximately $4 million in In December 2007, AIG reached a settlement with the IRS in the
2006, and $23 million in 2005 from Starr, and paid no rental United States Tax Court for SunAmerica, Inc. and Subsidiaries
fees in 2007 or 2006 and approximately $20,000 in 2005 to (‘‘SunAmerica’’) for tax years ended September 30, 1993 and
Starr. AIG also received none in 2007 and 2006 and approxi- September 30, 1994, which are years prior to AIG’s 1999
mately $2 million in 2005, respectively, from SICO, and paid none acquisition of SunAmerica. The terms of this settlement will be
in 2007 and 2006 and approximately $1 million in 2005 to SICO, incorporated into the IRS examinations for tax years of SunAmeras
reimbursement for services rendered at cost. AIG also paid to ica from September 30, 1995 through December 31, 1998, and
SICO $2 million in 2007, $2 million in 2006, and $3 million in for SunAmerica Life Insurance Company and Subsidiaries for tax
2005 in rental fees. There are no significant receivables year December 31, 1999, to resolve these years. As a result of
from/payables to related parties at December 31, 2007. this settlement, a net refund is due AIG for the periods from 1993
to 1999, the amount of which is immaterial to AIG’s consolidated
21. Federal Income Taxes financial condition. The IRS’s examination of the separate life
Tax Filings
AIG and its eligible U.S. subsidiaries file a consolidated
U.S. federal income tax return. Prior to 2007, Life Insurance
subsidiaries of AIG Life Holdings (US), Inc. (AIGLH), formerly
known as American General Corporation, also filed a consolidated
U.S. federal income tax return and were not eligible to be included
in AIG’s consolidated federal income tax return. AIGLH will be
included in the 2007 AIG consolidated federal income tax return.
Other U.S. subsidiaries included in the consolidated financial
statements also file separate U.S. federal income tax returns.
Subsidiaries operating outside the U.S. are taxed, and income tax
expense is recorded, based on applicable U.S. and foreign
statutes.
Undistributed Earnings and Distributions from Life Surplus
U.S. federal income taxes have not been provided on $1.5 billion
of undistributed earnings of certain U.S. subsidiaries that are not
included in the consolidated AIG U.S. federal income tax return.
Tax planning strategies are available, and would be utilized, to
eliminate the tax liability related to these earnings. U.S. federal
income taxes have not been provided on the undistributed
earnings of certain non-U.S. subsidiaries to the extent that such
earnings have been reinvested abroad indefinitely. At December
31, 2007, the cumulative amount of undistributed earnings in
these subsidiaries approximated $21.2 billion. Determining the
deferred tax liability that would arise if these earnings were not
permanently reinvested abroad is not practicable.
A component of life insurance surplus accumulated prior to
1984 is not taxable unless it exceeds certain statutory limitations
or is distributed to shareholders. The American Jobs Creation Act
consolidated federal return for SunAmerica Life and its subsidiaries
for years 2000-2002 was closed in January 2008 with a
signed settlement agreement. An immaterial amount is payable to
the IRS for these years. AIG is in a net refund position for all
years 1993-2002 for aggregated SunAmerica audits.
AIGLH’s tax years prior to 2000 are closed. Although a
Revenue Agent’s Report has not yet been issued to AIGLH for
years ended December 31, 2000, August 29, 2001, Decem-
ber 31, 2001, and December 31, 2002, AIGLH has received from
the IRS a notice of proposed adjustment for certain items during
that period.
The statute of limitations for all tax years prior to 1997 has
now expired for AIG’s consolidated federal income tax return. In
June, 2007, AIG filed a refund claim for years 1991-1996. The
refund claim relates to the tax effects of the restatements of
AIG’s 2004 and prior financial statements. A refund claim for the
tax years ending December 31, 1997-2004 will be filed before
September 30, 2008.
AIG has executed a partial settlement with the IRS for tax
years 1997 through 1999. Two issues remain open, neither one
of which, separately or in total, is material to AIG’s consolidated
financial condition. The statute of limitations for these years
expires on March 31, 2008. AIG is currently under examination for
the tax years 2000 through 2002.
AIG believes there are substantial arguments in support of the
tax positions taken in its tax returns. Although the final outcome
of any issue still outstanding is uncertain, AIG believes that any
tax obligation, including interest thereon, would not be material to
AIG’s consolidated financial condition, results of operations, or
liquidity.
194 AIG 2007 Form 10-K