The Hartford 2010 Annual Report Download - page 201

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-73
13. Income Tax (continued)
The Company has recorded a deferred tax asset valuation allowance that is adequate to reduce the total deferred tax asset to an amount
that will more likely than not be realized. The deferred tax asset valuation allowance was $173 as of December 31, 2010 and $86 as of
December 31, 2009. The increase in the valuation allowance during 2010 was triggered by the recognition of additional realized losses
on investment securities which were incurred in the first quarter. In assessing the need for a valuation allowance, management
considered future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary
differences and carryforwards, and taxable income in prior carryback years, as well as tax planning strategies that include holding a
portion of debt securities with market value losses until recovery, selling appreciated securities to offset capital losses, business
considerations, such as asset-liability matching, and the sales of certain corporate assets, including a subsidiary. Such tax planning
strategies are viewed by management as prudent and feasible and will be implemented if necessary to realize the deferred tax asset.
Future economic conditions and debt market volatility, including increases in interest rates, can adversely impact the Company’ s tax
planning strategies and in particular the Company’ s ability to utilize tax benefits on previously recognized realized capital losses.
As of December 31, 2010 and 2009, the Company had a current income tax payable of $78 and $216, respectively, of which $30 and $0,
respectively, was related to Japan and payable to a foreign jurisdiction.
The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign
jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for years before 2007. The IRS examination of the years 2007 – 2009 commenced during 2010 and is
expected to conclude by the end of 2012. In addition, the Company is working with the IRS on a possible settlement of a DRD issue
related to prior periods which, if settled, may result in the booking of tax benefits. Such benefits are not expected to be material to the
statement of operations. The Company does not anticipate that any of these items will result in a significant change in the balance of
unrecognized tax benefits within 12 months. Management believes that adequate provision has been made in the financial statements
for any potential assessments that may result from tax examinations and other tax-related matters for all open tax years.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
For the years ended December 31,
2010 2009 2008
Balance, at January 1 $ 48 $ 91 $ 76
Additions based on tax positions related to the current year –– –– 27
Additions for tax positions for prior years –– –– ––
Reductions for tax positions for prior years –– (35) (12)
Settlements –– (8) ––
Balance, at December 31 $ 48 $ 48 $ 91
The entire balance, if it were recognized, would affect the effective tax rate.
The Company classifies interest and penalties (if applicable) as income tax expense in the financial statements. During the years ended
December 31, 2010, 2009 and 2008, the Company recognized interest expense of approximately $2, $7, and $0. The Company had
approximately $1 of interest receivable and $8 of interest payable accrued at December 31, 2010 and 2009, respectively. The Company
does not believe it would be subject to any penalties in any open tax years and, therefore, has not booked any accrual for penalties.
A reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes is as follows:
For the years ended December 31,
2010 2009 2008
Tax provision at U.S. Federal statutory rate $792 $(605) $(1,607)
Tax-exempt interest (152) (149) (161)
Dividends received deduction (154) (188) (191)
Nondeductible costs associated with warrants –– 78 ––
Valuation allowance 87 30 32
Goodwill –– 12 113
Other 11 (19) (28)
Provision for income taxes $584 $(841) $(1,842)