9. Income Tax Benefit (Provision)

The income tax benefit (provision) in the Statements of Changes in Net Assets in Liquidation for years ended March 31, 2015, 2014 and 2013 was determined by computing the deferred tax provisions using the GUC Trust’s statutory tax rate of 39.6% that became effective on April 1, 2013. There was no current tax benefit or provision in any of such years 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 benefit (provision) in the Statements of Changes in Net Assets in Liquidation for years ended March 31, 2015, 2014 and 2013 are as follows:


(in thousands)	2015		2014		2013
Current	$	—	$	—	$	—
Deferred		—		164,845		(56,262	)

Total	$	—	$	164,845	$	(56,262	)

Deferred taxes in the accompanying Statement of Net Assets in Liquidation at March 31, 2015 and 2014 are comprised of the following components:


(in thousands)	2015			2014
Deferred tax assets:
Reserves for expected costs of liquidation	$	10,066		$	13,414
Net operating and capital loss carryovers		108,227			106,867

Gross deferred tax assets		118,293			120,281
Less: Valuation allowance		(35,966	)		(71,197	)

Deferred tax asset, net of valuation allowance		82,327			49,084
Deferred tax liabilities:
Fair value in excess of tax basis of holdings of New GM Securities		(71,560	)		(49,084	)
Accrued dividends and interest		(10,767	)		—

Gross deferred tax liabilities		(82,327	)		(49,084	)

Net deferred tax liability	$	—		$	—

As previously disclosed, during the quarter ended September 30, 2013, the GUC Trust made a determination to file its U.S. federal income tax returns taking the position that beneficial ownership for a substantial majority of New GM Securities was 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 the 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 new tax position has not been sustained on examination by the Internal Revenue Service as of the date hereof. However, 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 will be sustained on examination by the Internal Revenue Service based on the technical merits of the position. Accordingly, this new tax position has been recognized in the current and deferred income tax liabilities and the income tax provision in the GUC Trust’s financial statements since the quarter ended September 30, 2013.

Following the GUC Trust’s determination to utilize the new tax position set forth above, the GUC Trust filed its U.S. federal income tax returns for the years ended March 31, 2014 and 2013 with the Internal Revenue Service using such new tax position. Such tax returns were accompanied by requests for prompt determination of tax liability pursuant to Section 505(b) of the Bankruptcy Code and the statutory notification period set forth in Section 505(b) of the Bankruptcy Code with respect to the GUC Trust’s U.S. federal income tax returns for the years ended March 31, 2014 and prior years have expired. Accordingly, the tax liabilities set forth in the GUC Trust’s U.S. federal income tax returns for the years ended March 31, 2014 and prior years are no longer subject to examination by the Internal Revenue Service. However, remaining capital loss carryovers that were generated in those years combined with capital losses generated in the year ended March 31, 2015, from the new tax position, which aggregate $187.1 million, along with net operating loss carryovers generated through March 31, 2015 aggregating $86.2 million, could be subject to examination by the Internal Revenue Service in subsequent years when those losses are utilized. The capital loss carryovers begin to expire on March 31, 2017 and the net operating loss carryovers begin to expire on March 31, 2032. These loss carryovers in the aggregate result in a deferred tax asset of $108.2 million (reflected in the table above).

A full valuation allowance against net deferred tax assets aggregating $36.0 million and $71.2 million was established as of March 31, 2015 and 2014, respectively, due to uncertainty as to whether the deferred tax assets are realizable. The valuation allowance as of March 31, 2015 was decreased by $35.2 million from the full valuation allowance against net deferred tax assets established as of March 31, 2014. The valuation allowance was increased by $71.2 million during the year ended March 31, 2014. Realization of the net deferred tax assets is primarily 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.