Income Tax Provision

The income tax provision in the Condensed Statements of Changes in Net Assets in Liquidation for the three and six months ended September 30, 2015 and 2014 was determined by computing the current and deferred tax provisions for the interim periods using the GUC Trust’s statutory tax rate of 39.6%. There was no current tax benefit or provision in such periods due to cumulative net operating and capital losses, and no income taxes have been paid by the GUC Trust. There also was no deferred tax benefit or provision in such periods as a result of the establishment of a full valuation allowance against net deferred tax assets at the beginning and end of such periods.

Deferred taxes in the accompanying Condensed Statement of Net Assets in Liquidation at September 30, 2015 are comprised of the following components:


Deferred tax assets:
Reserves for expected costs of liquidation	$	11,534
Net operating and capital loss carryovers		109,051

Gross deferred tax assets		120,585
Less: Valuation allowance		(120,021	)

Deferred tax asset, net of valuation allowance		564
Deferred tax liabilities:
Accrued investment income		(564	)

Gross deferred tax liabilities		(564	)

Net deferred taxes	$	—

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 any current and deferred income tax liabilities and 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, 2015, 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 year ended March 31, 2015 and prior years have expired. Accordingly, the tax liabilities set forth in the GUC Trust’s U.S. federal income tax returns for the year ended March 31, 2015 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 gains and losses generated in the six months ended September 30, 2015, from the new tax position, which aggregate $182.4 million, along with net operating loss carryovers generated through September 30, 2015 aggregating $92.9 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 $109.1 million (reflected in the table above).

A full valuation allowance against net deferred tax assets aggregating $120.0 million was established as of September 30, 2015 because the deferred tax assets are not realizable. Such valuation allowance was increased by $22.0 million and $84.1 million from the full valuation allowance against net deferred tax assets established as of June 30, 2015 and March 31, 2015, respectively.