Income Taxes

3 Months Ended

Mar. 31, 2017

Note 10: Income Taxes

The Company’s income taxes and the related effective tax rates for the three months ended March 31, 2017 and 2016 are as follows:

		Three Months Ended March 31,
In millions		2017		2016
Income (loss) before income taxes	$	(120)	$	(101)
Provision (benefit) for income taxes	$	(48)	$	(23)
Effective tax rate		40.0%		22.8%

For the three months ended March 31, 2017, the Company’s effective tax rate applied to its loss before income taxes is greater than the U.S. statutory tax rate primarily due to tax-exempt interest income and the fluctuation of the value of nontaxable warrants issued by the Company. For the three months ended March 31, 2016, the Company’s effective tax rate applied to its loss before income taxes is less than the U.S. statutory effective tax rate primarily due to a foreign tax credit adjustment and the fluctuation of the value of nondeductible warrants issued by the Company.

Deferred Tax Asset, Net of Valuation Allowance

The Company has come to the conclusion that it is more likely than not that its net deferred tax asset, other than that portion of the asset related to foreign tax credits which have been claimed on its prior years’ tax returns and are being carried forward, will be fully realized after weighing all positive and negative evidence available as required under GAAP. The positive evidence that was considered included the cumulative operating income the Company has earned over the last three years, and the significant unearned premium income to be included in taxable income. The positive evidence outweighs any negative evidence that exists. As such, the Company believes that no valuation allowance is necessary in connection with this deferred tax asset. The Company will continue to analyze the need for a valuation allowance on a quarterly basis.

However, as the prediction of adequate future taxable income and foreign sourced income within the carryforward period is not assured, the Company has concluded that a valuation allowance for the foreign tax credits being carried forward is appropriate. As of March 31, 2017 and December 31, 2016, the valuation allowance was $62 million and $7 million, respectively. The increase in the Company’s valuation allowance was primarily related to foreign tax credits that were generated as a result of the sale of MBIA UK.

Accounting for Uncertainty in Income Taxes

The Company’s policy is to record and disclose any change in unrecognized tax benefits (“UTB”) and related interest and/or penalties to income tax in the consolidated statements of operations. The Company includes interest as a component of income tax expense. As of March 31, 2017 and December 31, 2016, the Company had no UTB.

Federal income tax returns through 2011 have been examined or surveyed.

As of March 31, 2017, the Company’s net operating loss (“NOL”) is approximately $2.6 billion. The NOL will expire between tax years 2030 through 2034. As of March 31, 2017, the Company has a foreign tax credit carryforward of $62 million, which will expire between tax years 2019 through 2027. As of March 31, 2017, the Company has an alternative minimum tax credit carryforward of $26 million, which does not expire.