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 September 30,										Nine months ended September 30,
	2014					2013					2014					2013
	Amount			% of EBT		Amount			% of EBT		Amount			% of EBT		Amount			% of EBT
Earnings before income taxes (“EBT”)	$	145				$	142				$	436				$	443

Income taxes at statutory rate	$	51		35	%	$	50		35	%	$	153		35	%	$	155		35	%
Effect of:
Tax exempt interest	(6		)	(4	%)	(5		)	(3	%)	(18		)	(4	%)	(16		)	(4	%)
Losses of managed investment entities	10			7	%	(4		)	(3	%)	16			4	%	11			3	%
Subsidiaries not in AFG’s tax return	1			1	%	1			1	%	—			—	%	1			—	%
Other	(2		)	(2	%)	2			1	%	4			1	%	4			1	%
Provision for income taxes as shown in the Statement of Earnings	$	54		37	%	$	44		31	%	$	155		36	%	$	155		35	%

In July 2014, AFG finalized a settlement with the IRS related to tax years 2008 and 2009. As a result, AFG’s uncertain tax positions are now effectively settled, allowing AFG to reduce its liability for previously uncertain tax positions and related interest by $20 million in the third quarter of 2014. The majority of the reduction in this liability resulted in offsetting adjustments to AFG’s deferred tax liability and did not impact AFG’s effective tax rate. The portion of the reduction in this liability that favorably impacted the effective tax rate was approximately $4 million.