Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes [Abstract]

Income Taxes

K. Income Taxes

Income (losses) attributable to noncontrolling interests related to AFG’s managed investment entities are non-taxable (non-deductible). For the first three months of 2012 and 2011, respectively, AFG’s operating earnings before income taxes included $28 million and $35 million of such non-deductible losses, thereby increasing AFG’s effective tax rate.

AFG is involved in litigation with the IRS regarding the calculation of tax reserves for certain annuity reserves pursuant to Actuarial Guideline 33. In 2010, the U.S. District Court in Southern Ohio issued a final summary judgment in favor of AFG. The IRS appealed the District Court decision to the Sixth Circuit Court of Appeals, which heard oral arguments on March 7, 2012. Ultimate resolution may require revised tax calculations for the years 1996-2005, possibly requiring a revised application of tax attribute carryovers or carrybacks, both capital and ordinary, to the affected years, and is contingent upon formal review and acceptance by the IRS. Resolution of the case could result in a decrease in the liability for unrecognized tax benefits by up to $36 million and a decrease in related accrued interest of $15 million. These amounts do not include tax and interest paid to the IRS in 2005 and 2006, for which the suit was filed, totaling $17 million. See Note N – “Subsequent Event.”

During the first quarter of 2012, there were no material changes to AFG’s liability for uncertain tax positions, which is discussed in Note L – “Income Taxes,” to AFG’s 2011 Form 10-K.