The Company's income taxes and the related effective tax rates for the three and six months ended June 30, 2014 and 2013 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
In millions	2014		2013		2014		2013
Income (loss) before income taxes	$	55	$	(264)	$	459	$	(49)
Provision (benefit) for income taxes	$	(65)	$	(86)	$	83	$	(35)
Effective tax rate		-118.2%		32.6%		18.1%		71.4%

For the six months ended June 30, 2014, the Company's effective tax rate applied to its pre-tax income was lower than the U.S. statutory tax rate primarily as a result of the decrease in the valuation allowance against its deferred tax asset.

For the six months ended June 30, 2013, the Company's effective tax rate applied to its pre-tax loss was higher than the U.S. statutory tax rate primarily as a result of the decrease in the valuation allowance against its deferred tax asset.

The Company's provision for income taxes for interim financial periods is not based on an estimated annual effective rate due to the variability in fair value of its credit derivatives, which prevents the Company from projecting a reliable estimated annual effective tax rate and pretax income for the full year of 2014. A discrete calculation of the provision is calculated for each interim period.

The Company establishes a valuation allowance against its deferred tax asset when it is more likely than not that all or a portion of the deferred tax asset will not be realized. All evidence, both positive and negative, needs to be identified and considered in making the determination. Future realization of the existing deferred tax asset ultimately depends, in part, on the generation of sufficient taxable income of appropriate character (for example, ordinary income versus capital gains) within the carryforward period available under the tax law.

As of June 30, 2014, the Company reported a net deferred tax asset of $950 million, net of a $7 million valuation allowance. This valuation allowance related to losses from asset impairments. As of December 31, 2013, the valuation allowance against a portion of the deferred tax asset was $93 million. This decrease in the valuation allowance was primarily due to sales of previously impaired assets.

In accordance with ASU 2013-11, the netting of deferred taxes between different taxpaying jurisdictions is not permitted. As of June 30, 2014, there was a gross deferred tax asset of $986 million and a gross deferred tax liability of $36 million, which was included in “Other liabilities” on the Company's consolidated balance sheet.

The Company has a tax sharing agreement among its members effective January 1, 1987. The agreement was amended and restated effective September 8, 2011 to change the method of calculating each domestic insurer's tax liability to the method permitted by paragraph 3(a) of Department Circular Letter #33 (1979). The agreement was submitted to the NYSDFS for review and non-disapproval pursuant to Section 1505 of the New York Insurance Law. Refer to “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, for further discussion on the Company's tax sharing agreement.

The Company's policy is to record and disclose any change in 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. The amounts in the table below do not include accrued interest of $2 million. All amounts below are reflected before any applicable tax benefit.

In millions
Unrecognized tax benefit as of December 31, 2013		$	65
The gross amount of the increase/(decrease) in the UTB as a result of tax positions taken:
	During a prior year		0
	During the current year		16
The amounts of decreases in the UTB related to settlements with taxing authorities			0
The reduction in the UTB as a result of the applicable statute of limitations			0
Unrecognized tax benefit as of June 30, 2014		$	81

The Company does not anticipate any amount to reverse in the next twelve months based on settling certain issues.

In 2013, the Internal Revenue Service (“IRS”) contacted the Company to review the 2011 consolidated return of MBIA Inc. and its subsidiaries, for the purpose of determining whether to formally examine the tax return. In July of 2014, the IRS concluded its review of the 2011 consolidated tax return with no changes to taxable income.

The U.K. tax authorities are currently auditing tax years 2005 through 2011. On June 5, 2013, the Company met with the HM Revenue & Customs (“HMRC”). During the third and fourth quarters of 2013 the Company sent HMRC additional information supporting its position. On January 24, 2014, the Company provided an independent report to HMRC. On April 8, 2014, HMRC responded with comments. The Company has responded to HMRC's April letter and anticipates another meeting with HMRC. As of June 30, 2014, there has been no resolution.

During 2013, the Company met with New York State Department of Taxation and Finance to discuss the Company's respective tax positions regarding certain issues related to the 2008 tax year. As of June 30, 2014, there has been no resolution.

As of December 31, 2013, the Company's NOL is approximately $2.8 billion which will expire between tax years 2029 through 2033. As of December 31, 2013, the Company has an alternative minimum tax credit carryforward of $22 million, which does not expire. As a result of the commutation of CMBS exposure that occurred during the six months ended June 30, 2014, the Company's NOL is approximately $3.4 billion as of June 30, 2014.

Treatment of Undistributed Earnings of Certain Foreign Subsidiaries – “Accounting for Income Taxes – Special Areas”

U.S. deferred income taxes are provided on the differences in the book and tax basis in the Company's investment in MBIA UK and certain other entities since the Company no longer intends to have these earnings permanently reinvested. The impact is reflected in the Company's current period's provision.