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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Text Block [Abstract] |
Income Taxes | Note 11: Income Taxes Income (loss) from operations before provision (benefit) for income taxes consisted of:
|  |  | Years Ended December 31, |
| In millions |  | 2017 |  | 2016 |  | 2015 |
| Domestic |  | $ | (638) |  | $ | (362) |  | $ | 303 |
| Foreign |  |  | (23) |  |  | 23 |  |  | (14) |
| Income (loss) before income taxes |  | $ | (661) |  | $ | (339) |  | $ | 289 |
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 Spain, Mexico, and various state and local jurisdictions. Income tax expense (benefit) on income (loss) and shareholders’ equity consisted of:
|  |  |  | Years Ended December 31, |
| In millions |  | 2017 |  | 2016 |  | 2015 |
| Current taxes: |  |  |  |  |  |  |  |  |  |
|  | Federal |  | $ | 4 |  | $ | 4 |  | $ | - |
|  | State |  |  | - |  |  | 1 |  |  | 1 |
|  | Foreign |  |  | - |  |  | - |  |  | 2 |
| Deferred taxes: |  |  |  |  |  |  |  |  |  |
|  | Federal |  |  | 945 |  |  | (8) |  |  | 97 |
|  | Foreign |  |  | (5) |  |  | 2 |  |  | 9 |
| Provision (benefit) for income taxes |  |  | 944 |  |  | (1) |  |  | 109 |
| Income taxes charged (credited) to shareholders' equity related to: |  |  |  |  |  |  |  |  |  |
|  | Change in unrealized gains (losses) on AFS securities |  |  | (1) |  |  | 8 |  |  | (30) |
|  | Change in AFS securities with OTTI |  |  | 1 |  |  | 5 |  |  | - |
|  | Change in foreign currency translation |  |  | 21 |  |  | 1 |  |  | (14) |
|  | Share-based compensation |  |  | - |  |  | - |  |  | 9 |
| Total income taxes charged (credited) to shareholders' equity |  |  | 21 |  |  | 14 |  |  | (35) |
| Total effect of income taxes |  | $ | 965 |  | $ | 13 |  | $ | 74 |
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, 2017, 2016 and 2015 is presented in the following table:
|  |  |  | Years Ended December 31, |
|  |  |  | 2017 |  | 2016 |  | 2015 |
| Federal income tax computed at the statutory rate |  | 35.0% |  | 35.0% |  | 35.0% |
| Increase (reduction) in taxes resulting from: |  |  |  |  |  |  |
|  | Tax Reform/Change in Tax Rate |  | (71.4)% |  | 0.0% |  | 0.0% |
|  | Mark-to-market on warrants |  | 1.4% |  | (1.5)% |  | (1.2)% |
|  | Change in valuation allowance |  | (116.9)% |  | (2.2)% |  | 0.0% |
|  | Nondeductible compensation |  | 0.0% |  | (1.4)% |  | 2.7% |
|  | Deferred inventory adjustments |  | 0.8% |  | 3.6% |  | 0.0% |
|  | Foreign Taxes |  | 8.2% |  | 0.0% |  | 0.0% |
|  | Basis difference in foreign subsidiary |  | 0.0% |  | (33.0)% |  | 0.0% |
|  | Other |  | 0.1% |  | (0.3)% |  | 1.2% |
| Effective tax rate |  | (142.8)% |  | 0.2% |  | 37.7% |
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 inco me in the period that includes the enactment date. Valuation allowances are established to reduce deferred tax assets to the amount that more likely than not will be realized. The tax effects of temporary differences that give rise to deferred tax assets a nd liabilities as of December 31, 2017 and 2016 are presented in th e following table:
|  |  |  | As of |
| In millions |  | December 31, 2017 |  | December 31, 2016 |
| Deferred tax liabilities: |  |  |  |  |  |  |
|  | Unearned premium revenue |  | $ | 75 |  | $ | 143 |
|  | Deferral of cancellation of indebtedness income |  |  | 14 |  |  | 46 |
|  | Deferred acquisition costs |  |  | 21 |  |  | 42 |
|  | Net unrealized gains in accumulated other comprehensive income |  |  | - |  |  | 4 |
|  | Partnership basis difference |  |  | 11 |  |  | 36 |
|  | Basis difference in foreign subsidiaries |  |  | 1 |  |  | 64 |
|  | Net deferred taxes on VIEs |  |  | 38 |  |  | - |
|  | Other |  |  | - |  |  | 27 |
| Total gross deferred tax liabilities |  |  | 160 |  |  | 362 |
| Deferred tax assets: |  |  |  |  |  |  |
|  | Compensation and employee benefits |  |  | 11 |  |  | 19 |
|  | Accrued interest |  |  | 131 |  |  | 177 |
|  | Loss and loss adjustment expense reserves |  |  | 87 |  |  | 142 |
|  | Net operating loss |  |  | 582 |  |  | 929 |
|  | Foreign tax credits |  |  | 62 |  |  | 7 |
|  | Other-than-temporary impairments |  |  | 22 |  |  | 4 |
|  | Net unrealized losses on insured derivatives |  |  | 14 |  |  | 29 |
|  | Net losses on financial instruments at fair value and foreign exchange |  |  | 13 |  |  | - |
|  | Net unrealized losses in accumulated other comprehensive income |  |  | 5 |  |  | 6 |
|  | Alternative minimum tax credit carryforward |  |  | - |  |  | 26 |
|  | Other |  |  | 3 |  |  | - |
| Total gross deferred tax assets |  |  | 930 |  |  | 1,339 |
|  | Valuation allowance |  |  | 770 |  |  | 7 |
| Net deferred tax asset |  | $ | - |  | $ | 970 |
On June 26, 2017, S&P downgraded the financial strength rating of National, which led the Company to cease its efforts to actively pursue writing new financial guarantee business. In addition to National’s cessation of new business activity, there was an increase in loss and LAE due to changes in assumptions on certain Puerto Rico credits. As a result of the increase in loss and LAE, the Company has a three-year cumulative loss, which is considered significant negative evidence in the assessment of its abi lity to use its deferred tax assets. In addition, the Company considered all available positive and negative evidence as required by GAAP, to estimate if sufficient taxable income will be generated to use its deferred tax assets. After considering all posi tive and negative evidence, including the Company’s inability to objectively identify and forecast future sources of taxable income, the Company c oncluded in the second quarter of 2017 it did not have sufficient positive evidence to support its ability to use its deferred tax assets before they would expire. Accordingly, the Company has a full valuation allowance against its net deferred tax asset of $770 million in 2017. The Company will continue to analyze the valuation allowance on a quarterly basis. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”), which among other items reduces the federal corporate tax rate to 21% effective January 1, 2018. As a result, during the fourth quarter of 2017, the Company revalued its net tax deferred tax asset using the newly enacted tax rate of 21% and recorded a $472 million reduction to both its net deferred tax asset and valuation allowance. The Company’s revaluation of its net deferred tax asset is subject to further clarifi cations of the new law that cannot be estimated at this time. However, as further clarification of the new law is determined, any adjustment would be offset with a valuation allowance resulting in no change to the Company’s net deferred tax asset. The Comp any does not anticipate future cash expenditures as a result of the reduction to its net deferred tax asset. Under the Act, NOLs of property and casualty insurance companies retain their current two-year carryback and 20-year carryforward periods and will not be subject to the 80 percent taxable income limitation and indefinite lived carryforward period applicable to general corporate NOLs. Therefore, NOLs generated after 2017 by the Company’s insurance companies and non-insurance companies will be treated differently under the Act. Due to held for sale accounting of MBIA UK as of December 31, 2016, $36 million of deferred tax liabilities has been reported within “Lia bilities held for sale” on the Company’s consolidated balance sheet. Tax Sharing Agreement The Company has a tax sharing agreement among its members effective January 1, 1987. The agreement was amended and restated effective September 8, 2011 to change th e method of calculating each domestic insurer’s tax liability to the method permitted by paragraph 3(a) of Department Circular Letter #33 (1979). The agreement was submitted to the NYSDFS for review and non-disapproval pursuant to Section 1505 of the New Y ork Insurance Law. Refer to “Note 2: Significant Accounting Policies” for further discussion on the Company’s tax sharing agreement. Treatment of Undistributed Earnings of Certain Foreign Subsidiaries—“Accounting for Income Taxes—Special Areas” During 201 7, the Company sold MBIA UK and reversed any deferred income taxes with respect to the differences in the book and tax basis in the Company’s carrying value of MBIA UK. T he Company’s amount of undistributed earnings of certain foreign subsidiaries was not material as of December 31, 2017. A cc o u n t i n g f o r U n c e r t a i n t y i n I n c o m e T ax e s The C o m p a ny’s po l i c y is t o r eco r d a n d d i s c l o s e an y c h an g e i n U T B an d r e l a t e d i n t e r es t a n d/or p e n a l t i e s t o i n c o m e t a x i n t h e co n s o l i d a t e d s t a t e m en t s o f o pe r a t i ons. The Company includes interest as a component of income tax expense. As of December 31, 2017 and 2016, the Company had no UTB. Federal income tax returns through 2011 have been examined or surveyed. As of December 31, 2017, the Company’s NOL is approximately $2.8 billion. The NOL will expire between tax years 20 31 through 203 7. As of December 31, 2017, the Company has a foreign tax credit carryforward of $62 million, which will expire between tax years 2019 through 2027. As of December 31, 2017, the Company has an alternative minimum tax (“AMT”) credit carryforward of $30 million, which does not expire. As a result of tax reform, AMT credits are now fully refundable no later than 2022. The AMT credit has been reclassed out of the deferred tax asset and into other assets as the AMT credits are now a receivable.

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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 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: 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=65882285&loc=d3e32559-109319 Reference 3: 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=65882285&loc=d3e32718-109319 Reference 4: 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=65882285&loc=d3e32639-109319 Reference 5: 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=65882285&loc=d3e32537-109319 + Details
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