Income Tax (Provision) Benefit

The income tax (expense) benefit in the Condensed Statements of Changes in Net Assets in Liquidation for the three and nine months ended December 31, 2014 and 2013 was determined by computing the current and deferred tax provision or benefit for the interim periods using the GUC Trust’s statutory tax rate of 39.6% that became effective on April 1, 2013. There was no current tax provision or benefit in any of such periods due to cumulative net operating and capital losses and no income taxes have been paid by the GUC Trust.

The components of the income tax (provision) benefit in the Condensed Statements of Changes in Net Assets in Liquidation for the three and nine months ended December 31, 2014 and 2013 are as follows:


	Three Months Ended December 31,					Nine Months Ended December 31,
(in thousands)	2014		2013			2014		2013
Current	$	—	$	—		$	—	$	—
Deferred		—		(32,183	)		—		132,662

Total	$	—	$	(32,183	)	$	—	$	132,662

Deferred taxes in the accompanying condensed statement of net assets in liquidation at December 31, 2014 are comprised of the following components:


Deferred tax assets:
Reserves for expected costs of liquidation	$	10,990
Net operating and capital loss carryovers		108,720

Gross deferred tax assets		119,710
Less: Valuation allowance		(79,762	)

Deferred tax asset, net of valuation allowance		39,948
Deferred tax liabilities:
Fair value in excess of tax basis of holdings of New GM Securities		(38,539	)
Other		(1,409	)

Gross deferred tax liabilities		(39,948	)

Net deferred tax liability	$	—

For the years ended March 31, 2014 and 2013, the GUC Trust filed its U.S. federal income tax returns taking the position that beneficial ownership for a substantial majority of New GM Securities transferred from MLC to the GUC Trust on March 31, 2011, and that the tax basis of such New GM Securities should be determined with reference to the value of such securities on such date instead of December 15, 2011, when record ownership of the remaining New GM Securities still held by MLC was transferred from MLC to the GUC Trust. For the remaining substantial minority of New GM Securities transferred from MLC to the GUC Trust, the GUC Trust determined that transfer of beneficial ownership occurred on other dates for which the tax basis should be determined by reference to the value of such securities on such dates. This new tax position resulted in an increased tax basis of the New GM Securities from the prior tax position and, therefore, reduced taxable gains and increased taxable losses on distributions and sales of New GM Securities since March 31, 2011. The GUC Trust believes, based on the available evidence and consultation with GUC Trust professionals, that it is more likely than not that the new tax position in the amounts reflected in the GUC Trust’s income tax returns, will be sustained on examination by the Internal Revenue Service, based on the technical merits of the position. Although the GUC Trust’s tax liability with respect to its federal income tax returns for the year ended March 31, 2014 and prior years are no longer subject to examination by the Internal Revenue Service as a result of the application of Section 505(b) of the Bankruptcy Code, this new tax position, as of the date hereof, has not been sustained on examination by the Internal Revenue Service. Accordingly, remaining capital loss carryovers of $185.4 million as of March 31, 2014, from the new tax position, along with net operating loss carryovers of $84.5 million as of March 31, 2014, could be subject to examination by the Internal Revenue Service in subsequent years when those losses are utilized.

A full valuation allowance against net deferred tax assets aggregating $79.8 million was established as of December 31, 2014 due to uncertainty as to whether the deferred tax assets are realizable. Such valuation allowance was decreased by $32.7 million and increased by $8.6 million from the full valuation allowance against net deferred tax assets established as of September 30, 2014 and March 31, 2014, respectively. The valuation allowance against deferred tax assets of $103.9 million that was established in the quarter ended September 30, 2013, was reversed during the quarter ended December 31, 2013. Such reversal was due to anticipated taxable gains exceeding deductible items primarily as a result of utilization of net operating loss carryovers in the quarter ended December 31, 2013. Such net operating loss carryovers were utilized as a result of the generation of taxable gains from the sale and distribution of New GM Securities during the quarter. Realization of the net deferred tax assets is dependent upon the generation of taxable gains upon the distribution or sale of New GM Securities in the future, which is not determinable prior to occurrence, or the receipt of future dividends on New GM Common Stock held by the GUC Trust for which a reasonable basis for estimation does not exist at this time.

As of December 31, 2014, the GUC Trust has net operating losses from the current year and carryforwards from prior years aggregating $85.2 million and capital losses from the current year and carryforwards from prior years aggregating $189.3 million (resulting in a deferred tax asset of $108.7 million) after giving effect to the new tax position with respect to the tax basis of New GM Securities described above.