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Income Taxes | 12 Months Ended
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Dec. 31, 2011
Income Taxes [Abstract] |
Income Taxes | Note 14: Income Taxes Income (loss) from operations before provision (benefit) for income taxes consisted of:
|  | Years ended December 31, |
In millions |  | 2011 |  |  | 2010 |  |  | 2009 |
Domestic |  | $ | (2,231) |  |  | $ | (146 | ) |  | $ | 1,100 |
Foreign |  |  | (8) |  |  |  | 51 |  |  |  | 117 |
Income (loss) before income taxes |  | $ | (2,239) |  |  | $ | (95 | ) |  | $ | 1,217 |
The Company files a consolidated tax return that includes all of its U.S. subsidiaries and foreign branches. The Company also files tax returns in the United Kingdom ("U.K."), France, Spain, and various state and local jurisdictions. Income tax expense (benefit) on income (loss) and shareholders' equity consisted of:
|  | Years ended December 31, |
In millions |  | 2011 |  |  | 2010 |  |  | 2009 |
Current taxes: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (1) |  |  | $ | 91 |  |  | $ | (488 | )
State |  |  | 1 |  |  |  | (17) |  |  |  | 5 |
Foreign |  |  | 15 |  |  |  | (1) |  |  |  | (25 | )
Deferred taxes: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (919) |  |  |  | (239) |  |  |  | 1,046 |
State |  |  | 0 |  |  |  | — |  |  |  | — |
Foreign |  |  | (16) |  |  |  | 18 |  |  |  | 45 |
Provision (benefit) for income taxes |  |  | (920) |  |  |  | (148) |  |  |  | 583 |
Income taxes charged (credited) to shareholders' equity related to: |  |  |  |  |  |  |  |  |  |  |  |
Total adjustments due to the adoption of new accounting standards |  |  | — |  |  |  | (21) |  |  |  | (3 | )
Change in unrealized gains and losses on investments |  |  | 119 |  |  |  | 112 |  |  |  | 526 |
Change in other-than-temporary impairment losses |  |  | 3 |  |  |  | (4) |  |  |  | (50 | )
Change in fair value of derivative instruments |  |  | 3 |  |  |  | (7) |  |  |  | 46 |
Change in foreign currency translation |  |  | (1) |  |  |  | 2 |  |  |  | 4 |
Share-based compensation |  |  | 4 |  |  |  | 3 |  |  |  | 5 |
Total income taxes charged (credited) to shareholders' equity |  |  | 128 |  |  |  | 85 |  |  |  | 528 |
Total effect of income taxes |  | $ | (792) |  |  | $ | (63) |  |  | $ | 1,111 |
A reconciliation of the U.S. federal statutory tax rate of 35% to the Company's effective income tax rate for the years ended December 31, 2011, 2010 and 2009 is presented in the following table:
|  | Years ended December 31, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
Federal income tax computed at the statutory rates |  |  | 35.0% |  |  |  | 35.0% |  |  |  | 35.0% |
Increase (reduction) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |
Tax-exempt interest |  |  | 1.5% |  |  |  | 40.2% |  |  |  | (3.1)% |
Mark-to-market on warrants |  |  | 0.3% |  |  |  | (11.2)% |  |  |  | 0.0% |
Change in valuation allowance |  |  | 6.2% |  |  |  | 119.4% |  |  |  | 13.8% |
Change in uncertain tax positions |  |  | (1.0)% |  |  |  | (22.3)% |  |  |  | 0.0% |
State income tax, net of federal benefit |  |  | 0.0% |  |  |  | 11.5% |  |  |  | 0.3% |
Deferred tax inventory adjustment |  |  | 0.0% |  |  |  | (13.6)% |  |  |  | 0.7% |
Foreign taxes |  |  | 0.1% |  |  |  | (1.8)% |  |  |  | (1.6)% |
Other |  |  | (1.0)% |  |  |  | (1.4)% |  |  |  | 2.8% |
Effective tax rate |  |  | 41.1% |  |  |  | 155.8% |  |  |  | 47.9% |
Deferred Tax Asset, Net of Valuation Allowance The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on tax assets and liabilities is recognized in income in the period that includes the enactment date. The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2011 and 2010 are presented in the following table:
|  | As of December 31, |
In millions |  | 2011 |  |  | 2010 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Unearned premium revenue |  | $ | 174 |  |  | $ | 61 |
Loss and loss adjustment expense reserves |  |  | 31 |  |  |  | 493 |
Deferral of cancellation of indebtedness income |  |  | 119 |  |  |  | 119 |
Deferred acquisition costs |  |  | 123 |  |  |  | 144 |
Investments in VIEs |  |  | 154 |  |  |  | 173 |
Other |  |  | — |  |  |  | 216 |
Total gross deferred tax liabilities |  |  | 601 |  |  |  | 1,206 |
Deferred tax assets: |  |  |  |  |  |  |  |
Compensation and employee benefits |  |  | 40 |  |  |  | 40 |
Net operating loss and tax credit carryforwards |  |  | 330 |  |  |  | 274 |
Capital loss carryforward and other-than-temporary impairments |  |  | 236 |  |  |  | 376 |
Net unrealized losses on insured derivatives |  |  | 1,614 |  |  |  | 1,442 |
Net losses on financial instruments at fair value and foreign exchange |  |  | 58 |  |  |  | 41 |
Net unrealized losses in accumulated other comprehensive income |  |  | 105 |  |  |  | 229 |
Alternative minimum tax credit carryforward |  |  | 22 |  |  |  | 45 |
Net deferred taxes on VIEs |  |  | 73 |  |  |  | 43 |
Other |  |  | 104 |  |  |  | — |
Total gross deferred tax assets |  |  | 2,582 |  |  |  | 2,490 |
Valuation allowance |  |  | 236 |  |  |  | 376 |
Net deferred tax asset |  | $ | 1,745 |  |  | $ | 908 |
The Company establishes a valuation allowance against its deferred tax asset when it is more likely than not that all or a portion of the deferred tax asset will not be realized. All evidence, both positive and negative, needs to be identified and considered in making the determination. Future realization of the existing deferred tax asset ultimately depends, in part, on the existence of sufficient taxable income of appropriate character (for example, ordinary income versus capital gains) within the carryforward period available under the tax law. As of December 31, 2011, the Company reported a net deferred tax asset of $1.7 billion. The $1.7 billion deferred tax asset is net of a $236 million valuation allowance. As of December 31, 2011, the Company had a full valuation allowance against the deferred tax asset related to losses from asset impairments and realized losses from sales of investments as these losses are considered capital losses, have a five year carryforward period, and can only be used to offset capital gain income. The 2011 valuation allowance reflects a decrease of $140 million from the 2010 valuation allowance of $376 million. The change in the valuation allowance for the year ended December 31, 2011 was primarily due to generation of capital gains on asset sales and the re-characterization of certain impairments as bad debts resulting in ordinary losses. The remaining valuation allowance reflects the fact that the Company cannot predict capital gains in future years. The Company has concluded that it is more likely than not that the remaining deferred tax assets will be realized. In its conclusion, the Company considered the following evidence (both positive and negative):
| • |  | Due to the long-tail nature of the financial guarantee business, MBIA Inc.'s insurance subsidiaries, without regard to any new business, will have a steady stream of scheduled premium earnings with respect to the existing insured portfolio. Additionally, MBIA Corp.'s announcement in February 2008 of a temporary suspension in writing new structured finance transactions and a permanent cessation with respect to insuring new CDS contracts, except in transactions related to the reduction of existing derivative exposure, would not have an impact on the expected earnings related to the existing insured portfolio.
| • |  | The Company performed taxable income projections over a fifteen and twenty year period to determine whether it will have sufficient income to offset its deferred tax asset that will generate future ordinary deductions. In this analysis, the Company concluded that premium earnings, even without regard to any new business, combined with investment income, less deductible expenses, will be sufficient to recover its net deferred tax asset. The Company's taxable income projections used to assess the recoverability of its deferred tax asset include an estimate of future loss and LAE equal to the present value discount of loss reserves already recognized on the balance sheet and an estimate of loss adjustment expense which is generally insignificant. The Company does not assume additional losses, with the exception of the accretion of its existing present value loss reserves, because the Company establishes case basis reserves on a present value basis based on an estimate of probable losses on specifically identified credits that have defaulted or are expected to default.
| • |  | While the ratings downgrades by the rating agencies have significantly adversely impacted the Company's ability to write new insurance business, the downgrades did not have a material impact on earnings from the existing insured portfolio, which the Company believes will be sufficient to absorb losses in the event that the cumulative unrealized losses become fully impaired.
| • |  | With respect to installment policies, the Company generally does not have an automatic cancellation provision solely in connection with ratings downgrades. For purposes of projecting future taxable income, the Company has applied a discount to adjust for the possible cancellation of future installment premiums based on recent data. With regard to upfront policies, to the extent that the issuer chooses to terminate a policy, any unearned premium reserve with respect to that policy will be accelerated into earnings (i.e. refundings).
| • |  | As of December 31, 2011, the Company had approximately $105 million of deferred tax assets related to net unrealized losses on investments included in accumulated other comprehensive income (loss). The Company intends to hold these investments until maturity or until such time as the value recovers. As such, the Company expects that the related deferred tax assets will reverse over the life of the securities.
After reviewing all of the evidence available, both positive and negative, MBIA believes that it has appropriately valued the recoverability of its deferred tax assets, net of the valuation allowance, as of December 31, 2011. The Company continues to assess the adequacy of its valuation allowance as additional evidence becomes available. The Company's recent financial results have been volatile which has impacted management's ability to accurately project future taxable income. Continued volatility or losses beyond those projected may cause the Company to conclude that certain of the deferred tax assets within the $1.7 billion as of December 31, 2011 may not be realizable. Treatment of Undistributed Earnings of Certain Foreign Subsidiaries—"Accounting for Income Taxes—Special Areas" No U.S. deferred income taxes have been provided on the differences in the book and tax basis in the Company's carrying value of MBIA UK and other entities because of the Company's practice and intent to permanently reinvest these earnings. The cumulative amounts of such differences were $15 million, $3 million and $57 million as of December 31, 2011, 2010 and 2009, respectively. The estimated tax liability with respect to this difference was $5 million as of December 31, 2011. Five-Year NOL Carryback On November 6, 2009, as part of The Worker, Homeownership, and Business Assistance Act of 2009, the NOL carryback provision of the Internal Revenue Code was amended to allow all businesses with NOLs in either 2008 or 2009 (but not both) to elect to claim refunds of taxes paid within the prior five years. In the fifth preceding year of the carryback period, the recovery is limited to 50% of taxable income for that carryback year. There is no such limitation to the first four preceding years of the carryback period. In April 2010, the Company filed its 2009 tax return and elected to carryback its reported NOL under the five-year carryback provision. In the second quarter of 2010, the Company received a tax refund with respect to its carryback in the amount of $391 million which it allocated to the members of its affiliated group in accordance with the tax allocation agreement. In September 2010, the Company filed a superseding and final tax return which reported an additional tax loss. A subsequent carryback claim was filed before December 31, 2010 requesting an additional refund of $41 million, which has been received and allocated among the members of MBIA. Accounting for Uncertainty in Income Taxes It is the Company's policy to record and disclose interest and penalties related to uncertainty in the accounting for income taxes as a component of income tax expense in the statements of operations. For the years ended December 31, 2011, 2010, and 2009, the Company recorded interest of $1.5 million, $0.6 million, and $0.5 million, respectively. As of December 31, 2011, 2010 and 2009 the amounts related to interest and penalties included in the consolidated balance sheets were not material. The following table presents the change in the UTB during 2009, 2010 and 2011:
In millions |  |  |
Unrecognized tax positions as of January 1, 2009 |  | $ | 19 |
The gross amount of the increase (decrease) in UTB as a result of tax positions taken: |  |  |  |
During a prior year |  |  | 2 |
The amounts of decreases in the UTB related to settlement with taxing authorities: |  |  | (11) |
Unrecognized tax positions as of December 31, 2009 |  | $ | 10 |
The gross amount of the increase (decrease) in UTB as a result of tax positions taken: |  |  |  |
During a prior year |  |  | 21 |
The reduction to UTB as a result of the applicable statute of limitations |  |  | (5 | )
Unrecognized tax positions as of December 31, 2010 |  | $ | 26 |
The gross amount of the increase (decrease) in UTB as a result of tax positions taken: |  |  |  |
During a prior year |  |  | 21 |
Unrecognized tax positions as of December 31, 2011 |  | $ | 47 |
For the years ended December 31, 2011, 2010, and 2009, the portion of the UTB that, if recognized, would affect the effective tax rate was approximately $47 million, $25 million, and $9 million, respectively. MBIA's major tax jurisdictions include the U.S. and the U.K. MBIA and its U.S. subsidiaries file a U.S. consolidated federal income tax return. The Internal Revenue Service ("IRS") has concluded its field work with respect to the examination of tax years 2004 through 2009. On January 12, 2012, the Joint Committee on Taxation notified the Company that the results of the IRS field examination were reviewed and accepted. The U.K. tax authorities are currently auditing tax years 2005 through 2009. The New York State tax authorities are currently auditing the New York State combined tax returns for the years 2005 through 2007. The Company expects the examinations to be concluded before December 31, 2012. The total amount of UTB is expected to decrease within the next 12 months due to finalizing adjustments and concluding all significant tax examinations. The range of this possible change to the amount of the unrecognized tax benefit is $20 million to $25 million. As of December 31, 2011, the Company has a 2008 capital loss carryforward of $155 million which will expire in 2013. The Company also has a cumulative NOL carryforward of $943 million, which will expire from tax years 2029 through 2031, and a minimum tax credit carryforward of $22 million, which has an unlimited carryforward period.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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