Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 11: Income Taxes

Income (loss) from continuing operations before provision (benefit) for income taxes consisted of:

	Years Ended December 31,
In millions	2023			2022			2021
Domestic	$	(484	)	$	(148	)	$	(445	)
Foreign		-			-			-
Income (loss) from continuing operations before income taxes	$	(484	)	$	(148	)	$	(445	)

The Company files a consolidated tax return that includes all of its U.S. subsidiaries and foreign branches. The Company also files tax returns in Spain, Mexico, and various state and local jurisdictions. Income tax expense (benefit) on income (loss) and shareholder's equity, net of changes in the Company's valuation allowance, consisted of:

		Years Ended December 31,
In millions		2023		2022		2021
Current taxes:
	Federal	$	-	$	-	$	-
	State		-		-		-
	Foreign		-		1		-
Deferred taxes:
	Federal		-		-		-
	Foreign		-		-		-
Provision (benefit) for income taxes			-		1		-
Income taxes charged (credited) to shareholders' equity related to:
	Change in unrealized gains (losses) on AFS securities		-		-		-
	Change in AFS securities with OTTI		-		-		-
	Change in foreign currency translation		-		-		-
Total income taxes charged (credited) to shareholders' equity			-		-		-
Total effect of income taxes		$	-	$	1	$	-

A reconciliation of the U.S. federal statutory tax rate to the Company's effective income tax rate for the years ended December 31, 2023, 2022 and 2021 is presented in the following table:

		Years Ended December 31,
		2023			2022			2021
Federal income tax computed at the statutory rate			21.0	%		21.0	%		21.0	%
Increase (reduction) in taxes resulting from:
	Change in valuation allowance		(18.8	)%		(9.4	)%		(20.6	)%
	Deferred inventory adjustments		(1.3	)%		(9.3	)%		0.0	%
	Excessive Remuneration Sec. 162(m)		(1.1	)%		(1.7	)%		(0.4	)%
	Other		0.2	%		(1.1	)%		0.0	%
Effective tax rate			0.0	%		(0.5	)%		0.0	%

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 11: Income Taxes (continued)

Deferred Tax Asset, Net of Valuation Allowance

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based off of differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on tax assets and liabilities is recognized in income in the period that includes the enactment date. Valuation allowances are established to reduce deferred tax assets to the amount that is more likely than not will be realized.

The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2023 and 2022 are presented in the following table:

		As of
In millions		December 31, 2023		December 31, 2022
Deferred tax liabilities:
	Unearned premium revenue	$	34	$	36
	Deferred acquisition costs		7		4
	Net gains on financial instruments at fair value and foreign exchange		92		121
	Net deferred taxes on VIEs		11		27
Total gross deferred tax liabilities			144		188
Deferred tax assets:
	Compensation and employee benefits		7		8
	Accrued interest		292		259
	Loss and loss adjustment expense reserves		62		148
	Net operating loss		871		814
	Foreign tax credits		56		57
	Other-than-temporary impairments and capital loss carryforward		55		16
	Net unrealized gains and losses in accumulated other comprehensive income		30		72
	Other		16		13
Total gross deferred tax assets			1,389		1,387
	Valuation allowance		1,245		1,199
Net deferred tax asset		$	-	$	-

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of its existing deferred tax assets. A significant piece of objective negative evidence evaluated was the Company having a three-year cumulative loss. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections of pre-tax income. On the basis of this evaluation, the Company has recorded a full valuation allowance against its net deferred tax asset of $1.2 billion as of December 31, 2023 and December 31, 2022. The Company will continue to analyze the valuation allowance on a quarterly basis.

Net operating losses (“NOLs”) of property and casualty insurance companies are permitted to be carried back two years and carried forward 20 years. NOLs of property and casualty insurance companies are not subject to the 80 percent taxable income limitation and indefinite lived carryforward period required by the Tax Cuts and Jobs Act applicable to general corporate NOLs.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 11: Income Taxes (continued)

Treatment of Undistributed Earnings of Certain Foreign Subsidiaries - "Accounting for Income Taxes - Special Areas"

The Company's amount of undistributed earnings of certain foreign subsidiaries was not material as of December 31, 2023.

Accounting for Uncertainty in Income Taxes

The Company’s policy is to record and disclose any change in unrecognized tax benefit (“UTB”) and related interest and/or penalties to income tax in the consolidated statements of operations. The Company includes interest as a component of income tax expense. As of December 31, 2023 and 2022, the Company had no significant UTB.

Federal income tax returns through 2011 have been examined or surveyed. As of December 31, 2023, the Company’s NOL is approximately $4.1 billion. NOLs generated prior to tax reform and property and casualty NOLs generated after tax reform will expire between tax years 2026 through 2043. As of December 31, 2023, the Company has a foreign tax credit carryforward of $56 million, which will expire between tax years 2023 through 2033.

Section 382 of the Internal Revenue Code

Included in the Company’s Amended By-Laws are restrictions on certain acquisitions of Company stock that otherwise may have increased the likelihood of an ownership change within the meaning of Section 382 of the Internal Revenue Code. With certain exceptions, the By-Laws generally prohibit a person from becoming a “Section 382 five-percent shareholder” by acquiring, directly or by attribution, 5% or more of the outstanding shares of the Company’s common stock.

Inflation Reduction Act

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law and includes several tax changes, notably a new 15% minimum tax on the book income of large corporations and a 1% excise tax on most stock buybacks. The IRA did not have a material impact on the Company’s financial results. Refer to “Note 17: Common and Preferred Stock” for further information about excise tax on stock buybacks.