Income Taxes

The differences between the 21% statutory federal income tax rate and our effective income tax rate were as follows:



(Dollars in millions)	Three months ended March 31,
	2019					2018
Tax at statutory rate:	$	182		21.0	%	$	(11	)	21.0	%
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds	(5		)	(0.6	)	(5		)	10.0
Dividend received exclusion	(4		)	(0.5	)	(3		)	6.0
Other	(1		)	(0.1	)	—			1.0
Provision for income taxes	$	172		19.8	%	$	(19	)	38.0	%

The provision for federal income taxes is based upon filing a consolidated income tax return for the company and its subsidiaries.

Unrecognized Tax Benefits

As of March 31, 2019, and December 31, 2018, we had a gross unrecognized tax benefit of $34 million. There were no changes to this amount during the first quarter of 2019.

Acquisition of MSP

As more fully discussed in Note 1, Accounting Policies and Note 14, Acquisition, we closed on the acquisition of MSP during the first quarter of 2019. As a result of this acquisition, $59 million of net deferred tax assets were acquired or established at the acquisition date with an offsetting valuation allowance of $55 million.

Accounting guidance requires deferred tax assets to be reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence related to the MSP operations, we believe it was appropriate to set up a valuation allowance for purposes of our opening MSP balance sheet.

The purchase price allocation to our MSP deferred tax assets and corresponding valuation allowance is subject to further post-closing adjustments based on the actual net asset value (NAV) of MSP and its subsidiaries at closing, pursuant to the procedures set forth in the sale and purchase agreement.

As a result of first quarter operations, there were immaterial changes to the MSP valuation allowance as of March 31, 2019.

As of March 31, 2019, MSP had operating loss carryforwards of $192 million which are subject to certain limitations. These MSP losses can only be utilized within the MSP group and cannot offset the income of our CFC group. Other than the MSP loss carryforwards, we had no other operating or capital loss carryforwards as of March 31, 2019.