Income Taxes

The following is a reconciliation of income taxes at the statutory rate of 35% to the provision for income taxes as shown in the Statement of Earnings (in millions):



	Three months ended June 30,										Six months ended June 30,
	2014					2013					2014					2013
	Amount			% of EBT		Amount			% of EBT		Amount			% of EBT		Amount			% of EBT
Earnings before income taxes (“EBT”)	$	130				$	126				$	291				$	301

Income taxes at statutory rate	$	46		35	%	$	44		35	%	$	102		35	%	$	105		35	%
Effect of:
Tax exempt interest	(7		)	(5	%)	(6		)	(5	%)	(12		)	(4	%)	(11		)	(4	%)
Losses of managed investment entities	6			5	%	11			9	%	6			2	%	15			5	%
Subsidiaries not in AFG’s tax return	(2		)	(2	%)	(1		)	(1	%)	(1		)	—	%	—			—	%
Other	4			3	%	1			1	%	6			2	%	2			1	%
Provision for income taxes as shown in the Statement of Earnings	$	47		36	%	$	49		39	%	$	101		35	%	$	111		37	%

During the second quarter and first six months of 2014, there were no material changes to AFG’s liability for uncertain tax positions, which relate to the timing of investment income and the deductibility of certain financing expenses. In July 2014, AFG finalized a settlement with the IRS related to tax years 2008 and 2009. As a result, AFG expects to reduce its liability for uncertain tax positions and related interest by $20 million in the third quarter of 2014 as AFG’s uncertain tax positions are now effectively settled. The majority of the reduction in this liability will result in offsetting adjustments to AFG’s deferred tax liability, which will not have a material impact on AFG’s effective tax rate. The total unrecognized tax benefits and related interest that will favorably impact the effective tax rate is approximately $4 million.