Bring on tomorrow - AIG.com

ITEM 8 / NOTE 24. INCOME TAXES.....................................................................................................................................................................................Assessment of Deferred Tax Asset Valuation Allowance..............................................................................................................................................................................................The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires us toweigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portionof the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent towhich it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessaryand the more difficult it is to support a conclusion that a valuation allowance is not needed.Our framework for assessing the recoverability of deferred tax assets weighs the sustainability of recent operatingprofitability, the predictability of future operating profitability of the character necessary to realize the deferred taxassets, and our emergence from cumulative losses in recent years. The framework requires us to consider allavailable evidence, including:• the nature, frequency, and severity of cumulative financial reporting losses in recent years;• the sustainability of recent operating profitability of our subsidiaries in various tax jurisdictions;• the predictability of future operating profitability of the character necessary to realize the net deferred tax asset;• the carryforward periods for the net operating loss, capital loss and foreign tax credit carryforwards, including theeffect of reversing taxable temporary differences; and,• prudent and feasible tax planning strategies that would be implemented, if necessary, to protect against the loss ofthe deferred tax assets.As a result of sales in the ordinary course of business to manage the investment portfolio and the application ofprudent and feasible tax planning strategies during the year ended December 31, 2012, AIG determined that anadditional portion of the life insurance business capital loss carryforwards will more-likely-than-not be realized prior totheir expiration.For the year ended December 31, 2012, AIG released $2.1 billion of its deferred tax asset valuation allowanceassociated with the life insurance business capital loss carryforwards, of which $1.9 billion was allocated to incomefrom continuing operations. Additional life insurance business capital loss carryforwards may be realized in the futureif and when other prudent and feasible tax planning strategies are identified. Changes in market conditions, includingrising interest rates above AIG’s projections, may result in a reduction in projected taxable gains and reestablishmentof a valuation allowance.The following table presents the net deferred tax assets (liabilities) for December 31, 2012, and December 31,2011, respectively, on a U.S. GAAP basis:December 31,(in millions) 2012 2011Net U.S. consolidated return group deferred tax assets $ 29,550 $ 29,442Net deferred tax assets (liabilities) in Other comprehensive income (7,174) (3,041)Valuation allowance (5,068) (7,240)Subtotal 17,308 19,161Net foreign, state & local deferred tax assets 3,126 4,261Valuation allowance (2,968) (3,807)Subtotal 158 454Subtotal – Net U.S, foreign, state & local deferred tax assets 17,466 19,615Net foreign, state & local deferred tax liabilities (771) (1,326)Total AIG net deferred tax assets (liabilities) $ 16,695 $ 18,289Deferred Tax Asset Valuation Allowance of U.S. Consolidated Income Tax Group..............................................................................................................................................................................................At December 31, 2012, and December 31, 2011, our U.S. consolidated income tax group had net deferred tax assets(liabilities) after valuation allowance of $17.3 billion and $19.2 billion, respectively. At December 31, 2012, andDecember 31, 2011, our U.S. consolidated income tax group had valuation allowances of $5.1 billion and $7.2 billion,respectively...................................................................................................................................................................................................................................332 AIG 2012 Form 10-K