2007 Annual Report - AIG.com

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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
American International Group, Inc. and Subsidiaries 21. Federal Income Taxes Continued The pretax components of U.S. and foreign income reflect the locations in which such pretax income was generated. The pretax U.S. and foreign income was as follows for the years ended December 31, 2007, 2006 and 2005: (in millions) 2007 2006 2005 U.S. $ (3,957) $ 9,862 $ 6,103 Foreign 12,900 11,825 9,110 Total $ 8,943 $21,687 $15,213 The provision for income taxes for the years ended December 31, 2007, 2006 and 2005 consists of the following: Years Ended December 31, (in millions) 2007 2006 2005 Foreign and U.S. components of actual income tax expense: Foreign: Current $ 3,157 $ 2,725 $ 974 Deferred 461 933 426 U.S.: Current 62 2,764 1,613 Deferred (2,225) 115 1,245 Total $ 1,455 $ 6,537 $ 4,258 The U.S. federal income tax rate was 35 percent for 2007, 2006 and 2005. Actual tax expense on income differs from the ‘‘expected’’ amount computed by applying the federal income tax rate because of the following: 2007 2006 2005 Percent Percent Percent Years Ended December 31, of Pretax of Pretax of Pretax (dollars in millions) Amount Income Amount Income Amount Income U.S. federal income tax at statutory rate $3,130 35.0% $7,591 35.0% $5,325 35.0% Adjustments: Tax exempt interest (823) (9.2) (718) (3.3) (566) (3.7) Partnerships and joint ventures (312) (3.5) (265) (1.2) (85) (0.5) Synthetic fuel and other tax credits (127) (1.4) (196) (0.9) (296) (1.9) Effect of foreign operations (294) (3.3) (132) (0.6) (253) (1.7) Dividends received deduction (129) (1.4) (102) (0.5) (117) (0.8) State income taxes 45 0.5 59 0.3 86 0.6 Nondeductible compensation 41 0.5 61 0.3 83 0.5 SICO benefit (194) (2.2) — — — — Other 118 1.3 239 1.0 81 0.5 Actual income tax expense $1,455 16.3% $6,537 30.1% $4,258 28.0% AIG 2007 Form 10-K 195
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AMERICAN INTERNATIONAL GROUP, INC.
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FINANCIAL HIGHLIGHTS (in millions,
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overall financial condition, althou
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Group Executive Committee We are ad
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AIG’s life insurance network is t
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We have also begun to address the e
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WHAT WE SEE The ability to see and
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The Major Accounts Practice within
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Around the world, the middle class
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WE SEE GROWTH OPPORTUNITIES IN EMER
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To grow the strength of the AIG glo
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Since 2003, the AIG Disaster Relief
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RESPECT Respect encompasses how we
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Life Insurance & Retirement Service
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Domestic Brokerage Group— Gross P
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In the summer of 2007, widespread f
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in gross premiums written. It launc
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It grew new business premiums from
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emerging markets for its services,
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ILFC—Revenues by Region Total = $
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AIG Investments acquired a 94 perce
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and changing interest rates, as wel
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American International Group, Inc.
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UNITED STATES SECURITIES AND EXCHAN
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Index of Notes to Consolidated Fina
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Page 197 and 198: American International Group, Inc.
Page 247: American International Group, Inc.
Page 275 and 276: SHAREHOLDER INFORMATION Corporate H
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2007 Annual Report - AIG.com

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