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ITEM 8 / NOTE 24. INCOME TAXES.....................................................................................................................................................................................For the year ended December 31, 2011, the decrease in the U.S. consolidated income tax group deferred tax assetvaluation allowance was $18.4 billion. The entire decrease in the deferred tax asset valuation allowance wasallocated to continuing operations. The amount allocated to continuing operations also included the decrease in thedeferred tax asset valuation allowance attributable to the anticipated inclusion of the ALICO SPV within the 2011U.S. consolidated federal income tax return.Deferred Tax Liability – Foreign, State and Local..............................................................................................................................................................................................At December 31, 2012 and December 31, 2011, we had net deferred tax liabilities of $613 million and $872 million,respectively, related to foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that fileseparate tax returns.At December 31, 2012 and December 31, 2011, we had deferred tax asset valuation allowances of $2.9 billion and$3.8 billion, respectively, related to foreign subsidiaries, state and local tax jurisdictions, and certain domesticsubsidiaries that file separate tax returns. We maintained these valuation allowances following our conclusion that wecould not demonstrate that it was more likely than not that the related deferred tax assets will be realized. This wasprimarily due to factors such as cumulative losses in recent years and the inability to demonstrate profits within thespecific jurisdictions over the relevant carryforward periods.Tax Examinations and Litigation..............................................................................................................................................................................................We file a consolidated U.S. federal income tax return with our eligible U.S. subsidiaries. Several U.S. subsidiariesincluded in the consolidated financial statements previously filed separate U.S. federal income tax returns and werenot part of our U.S. consolidated income tax group. Subsidiaries operating outside the U.S. are taxed, and incometax expense is recorded, based on applicable U.S. and foreign law.The statute of limitations for all tax years prior to 2000 has expired for our consolidated federal income tax return.We are currently under examination for the tax years 2000 through 2006.On March 20, 2008, we received a Statutory Notice of Deficiency (Notice) from the IRS for years 1997 to 1999. TheNotice asserted that we owe additional taxes and penalties for these years primarily due to the disallowance offoreign tax credits associated with cross-border financing transactions. The transactions that are the subject of theNotice extend beyond the period covered by the Notice, and the IRS is challenging the later periods. It is alsopossible that the IRS will consider other transactions to be similar to these transactions. We have paid the assessedtax plus interest and penalties for 1997 to 1999. On February 26, 2009, we filed a complaint in the United StatesDistrict Court for the Southern District of New York seeking a refund of approximately $306 million in taxes, interestand penalties paid with respect to its 1997 taxable year. We allege that the IRS improperly disallowed foreign taxcredits and that our taxable income should be reduced as a result of our 2005 restatement of its consolidatedfinancial statements.On March 29, 2011, the U.S. District Court, Southern District of New York, ruled on a motion for partial summaryjudgment that we filed on July 30, 2010 related to the disallowance of foreign tax credits associated with crossborder financing transactions. The court denied our motion with leave to renew following the completion of discoveryregarding certain transactions referred to in our motion, which we believe may be significant to the outcome of theaction.On August 1, 2012, we filed a motion for partial summary judgment. The parties completed submission of briefs insupport of their respective positions on November 12, 2012. As of February 21, 2013 the motion remains pending.We will vigorously defend our position, and continue to believe that we have adequate reserves for any liability thatcould result from the IRS actions.We also filed an administrative refund claim on September 9, 2010 for our 1998 and 1999 tax years.We continue to monitor legal and other developments in this area and evaluate the effect, if any, on our position,including recent decisions adverse to other taxpayers...................................................................................................................................................................................................................................AIG 2012 Form 10-K 333