2007 Annual Report - AIG.com
2007 Annual Report - AIG.com
2007 Annual Report - AIG.com
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American International Group, Inc. and Subsidiaries<br />
Notes to Consolidated Financial Statements Continued<br />
21. Federal In<strong>com</strong>e Taxes<br />
Continued<br />
The <strong>com</strong>ponents of the net deferred tax liability at December 31, <strong>2007</strong> and 2006 were as follows:<br />
(in millions) <strong>2007</strong> 2006<br />
Deferred tax assets:<br />
Loss reserve discount $ 2,249 $ 1,969<br />
Unearned premium reserve reduction 1,743 1,352<br />
Unrealized depreciation of investments 104 —<br />
Loan loss and other reserves 1,408 1,054<br />
Investments in foreign subsidiaries and joint ventures 1,121 420<br />
Adjustment to life policy reserves 3,213 3,584<br />
NOL’s and tax attributes 1,814 222<br />
Accruals not currently deductible, and other 1,305 1,209<br />
Deferred tax assets * 12,957 9,810<br />
Valuation allowance (223) (11)<br />
Net deferred tax assets 12,734 9,799<br />
Deferred tax liabilities:<br />
Deferred policy acquisition costs 11,716 10,396<br />
Flight equipment, fixed assets and intangible assets 5,239 4,377<br />
Unrealized appreciation of investments — 3,370<br />
Other 1,041 508<br />
Total deferred tax liabilities 17,996 18,651<br />
Net deferred tax liability $ 5,262 $ 8,852<br />
* <strong>AIG</strong> has recorded deferred tax assets for alternative minimum tax credit carry forwards of $101 million and $222 million at December 31, <strong>2007</strong> and 2006,<br />
respectively. In <strong>2007</strong>, <strong>AIG</strong> generated net operating loss carryforwards, unused foreign tax credits and general business tax credits in the amount of<br />
$4.2 billion, $130 million and $125 million, respectively. Net operating loss carryforwards and general business tax credits may be carried forward for<br />
twenty years while foreign tax credits may be carried forward for ten years. Unused minimum tax credits are available for future use without expiration.<br />
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:<br />
(in millions) <strong>2007</strong><br />
Gross unrecognized tax benefits at January 1, <strong>2007</strong> $ 1,138<br />
Agreed audit adjustments with taxing authorities<br />
included in the beginning balance (188)<br />
Increases in tax positions for prior years 646<br />
Decreases in tax positions for prior years (189)<br />
Increases in tax positions for current year 82<br />
Lapse in statute of limitations (1)<br />
Settlements (178)<br />
Gross unrecognized tax benefits at December 31, <strong>2007</strong> $ 1,310<br />
At December 31, <strong>2007</strong>, <strong>AIG</strong>’s unrecognized tax benefits, Listed below are the tax years that remain subject to<br />
excluding interest and penalties, were $1.3 billion, which includes examination by major tax jurisdictions:<br />
$299 million related to tax positions the disallowance of which<br />
Major Tax Jurisdictions<br />
Open Tax Years<br />
would not affect the annual effective in<strong>com</strong>e tax rate. Accordingly,<br />
United States 1997-2006<br />
the amount of unrecognized tax benefits that, if recognized, would United Kingdom 2003-2006<br />
favorably affect the effective tax rate were $1.0 billion.<br />
Hong Kong 1997-2006<br />
Interest and penalties related to unrecognized tax benefits are<br />
Malaysia 1999-2006<br />
Singapore 1993-2006<br />
recognized in in<strong>com</strong>e tax expense. At January 1, <strong>2007</strong> and<br />
Thailand 2001-2006<br />
December 31, <strong>2007</strong>, <strong>AIG</strong> had accrued $175 million and $281 mil-<br />
Japan 2000-2006<br />
lion, respectively, for the payment of interest (net of the federal Korea 2001-2006<br />
Taiwan 2000-2006<br />
benefit) and penalties. For the year ended December 31, <strong>2007</strong>, France 2003-2006<br />
<strong>AIG</strong> recognized $170 million of interest (net of the federal benefit)<br />
The reserve for uncertain tax positions increased in the fourth<br />
and penalties in the Consolidated Statement of In<strong>com</strong>e.<br />
quarter <strong>2007</strong> by $210 million for items attributable to prior<br />
<strong>AIG</strong> continually evaluates adjustments proposed by taxing restatements, including certain tax positions associated with<br />
authorities. At December 31, <strong>2007</strong>, such proposed adjustments <strong>com</strong>pensation deductions. In addition, in<strong>com</strong>e tax expense has<br />
would not result in a material change to <strong>AIG</strong>’s consolidated<br />
been reduced by $162 million for interest receivable from the IRS<br />
financial condition. However, <strong>AIG</strong> believes that it is reasonably attributable to refund claims for prior restatements.<br />
possible that the balance of the unrecognized tax benefits could<br />
decrease by $50 to $150 million within the next twelve months<br />
due to settlements or the expiration of statutes.<br />
196 <strong>AIG</strong> <strong>2007</strong> Form 10-K