9. Income Tax Benefit

There was no current tax benefit or provision for the years ended March 31, 2016, 2015 and 2014 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 for the years ended March 31, 2016 and 2015 as a result of the establishment of a full valuation allowance against net deferred tax assets at the beginning and end of such periods. The income tax benefit in the Statement of Changes in Net Assets in Liquidation for year ended March 31, 2014 was determined by computing the deferred tax provision using the GUC Trust’s statutory tax rate of 39.6% that became effective on April 1, 2013.

Deferred taxes in the accompanying Statement of Net Assets in Liquidation at March 31, 2016 and 2015 are comprised of the following components:


(in thousands)	2016			2015
Deferred tax assets:
Reserves for expected costs of liquidation	$	9,421		$	10,066
Net operating and capital loss carryovers		112,442			108,227

Gross deferred tax assets		121,863			118,293
Less: Valuation allowance		(121,486	)		(35,966	)

Deferred tax asset, net of valuation allowance		377			82,327
Deferred tax liabilities:
Fair value in excess of tax basis of holdings of New GM Securities		(—	)		(71,560	)
Accrued investment income		(377	)		(10,767	)

Gross deferred tax liabilities		(377	)		(82,327	)

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 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, 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 has 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 net capital gains generated in the year ended March 31, 2016, from the new tax position, which aggregate $182.4 million, along with net operating loss carryovers generated through March 31, 2016 aggregating $101.5 million, could be subject to examination by the Internal Revenue Service in subsequent years when those losses, if any, 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 $112.4 million (reflected in the table above).

A full valuation allowance against net deferred tax assets aggregating $121.5 million and $36.0 million was established as of March 31, 2016 and 2015, respectively, because the deferred tax assets are not realizable. The valuation allowance increased by $85.5 million and decreased by $35.2 million during the years ended March 31, 2016 and 2015, respectively.