Income Taxes

3 Months Ended

Jun. 30, 2015

Note 9: Income Taxes

The Company’s income taxes and the related effective tax rates for the three and six months ended June 30, 2015 and 2014 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
In millions	2015		2014		2015		2014
Income (loss) before income taxes	$	92	$	55	$	205	$	459
Provision (benefit) for income taxes	$	28	$	(65)	$	72	$	83
Effective tax rate		30.4%		-118.2%		35.1%		18.1%

For the six months ended June 30, 2015, the Company’s effective tax rate applied to its income before income taxes approximates the U.S. statutory tax rate. For the six months ended June 30, 2014, the Company’s effective tax rate applied to its income before income taxes 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.

The Company's 2014 and 2015 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 derivative liabilities, which prevents the Company from projecting a reliable estimated annual effective tax rate and income before taxes for either year. A discrete calculation of the provision is performed for each interim period.

Deferred Tax Asset, Net of Valuation Allowance

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, 2015 and December 31, 2014, the Company’s net deferred tax asset was approximately $1.0 billion, with no valuation allowance as a result of a tax planning strategy to use unrealized gains that are included in “Accumulated other comprehensive income (loss)” on the Company’s consolidated balance sheets against the deferred tax asset related to any remaining asset impairments.

In accordance with accounting guidance for income taxes, the netting of deferred taxes between different taxpaying jurisdictions is not permitted. As of June 30, 2015, there was also a non U.S. deferred tax liability of $33 million included in “Other liabilities” on the Company’s consolidated balance sheet.

Tax Sharing Agreement

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 (“NYIL”). The Company’s tax sharing agreement is filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, for informational purposes only. 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, 2014, for further discussion on the Company’s tax sharing agreement.

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 June 30, 2015 and December 31, 2014, the Company had no UTB outstanding.

MBIA and its U.S. subsidiaries file a U.S. consolidated federal income tax return. Federal income tax returns for 2012 through 2013 have not been examined or surveyed.

The tax authorities in the United Kingdom have been auditing MBIA UK for tax years 2005 through 2012. In April of 2015, MBIA UK received correspondence from the HM Revenue & Customs closing the audit for the years under examination with no change in taxable income.

As of June 30, 2015, the Company’s net operating loss (“NOL”) is approximately $3.1 billion. The NOL will expire between tax years 2029 through 2034. As of June 30, 2015, the Company has an alternative minimum tax credit carryforward of $22 million, which does not expire.