155 / 188
Based upon a review of the Company's anticipated future taxable income, and including all other available evidence,
both positive and negative, the Company's management has concluded that it is more likely than not that the net deferred
tax assets will be realized.
Under U.S. income tax rules, only 35% of non-life operating losses can be offset against life insurance taxable income
each year. For current U.S. income tax purposes, there were no unused operating loss carryforwards available to offset
against future taxable income. The Company has capital loss carryforwards of $9 million available to offset capital gains
which expire in 2021.
The Company files federal income tax returns in the United States and Japan as well as state or prefecture income
tax returns in various jurisdictions in the two countries. The Company is currently under audit by the State of Illinois for tax
years 2006-2012. There are currently no other open Federal, State, or local U.S. income tax audits. U.S. federal income
tax returns for years before 2011 are no longer subject to examination. The Company is currently under a corporate
income tax audit in Japan by the National Tax Agency (NTA) for tax years 2012-2015. Japan corporate income tax returns
for years before 2012 are no longer subject to examination. Management believes it has established adequate tax
liabilities and final resolution of all open audits is not expected to have a material impact on the Company's consolidated
financial statements.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended
December 31:
(In millions)
2016
2015
Balance, beginning of year
$ 264
$ 309
Additions for tax positions of prior years
33
0
Reductions for tax positions of prior years
(3)
(45)
Balance, end of year
$ 294
$ 264
Included in the balance of the liability for unrecognized tax benefits at December 31, 2016, are $293 million of tax
positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such
deductibility, compared with $261 million at December 31, 2015. Because of the impact of deferred tax accounting, other
than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax
rate, but would accelerate the payment of cash to the taxing authority to an earlier period. The Company has accrued
approximately $1 million as of December 31, 2016, for permanent uncertainties, which if reversed would not have a
material effect on the annual effective rate.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.
We recognized approximately $13 million in interest and penalties in 2016, compared with $11 million in 2015 and 2014.
The Company has accrued approximately $26 million for the payment of interest and penalties as of December 31, 2016,
compared with $22 million a year ago.
As of December 31, 2016, there were no material uncertain tax positions for which the total amounts of unrecognized
tax benefits will significantly increase or decrease within the next 12 months.
148
11. SHAREHOLDERS' EQUITY