AGL and its Bermuda subsidiaries AG Re, AGRO, and Cedar Personnel Ltd. (Bermuda Subsidiaries) are not subject to any income, withholding or capital gains taxes under current Bermuda law. The Company has received an assurance from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, AGL and its Bermuda Subsidiaries will be exempt from taxation in Bermuda until March 31, 2035. AGL's U.S., U.K. and French subsidiaries are subject to income taxes imposed by U.S., U.K. and French authorities, respectively, and file applicable tax returns. In addition, AGRO, a Bermuda domiciled company, has elected under Section 953(d) of the U.S. Internal Revenue Code (the Code) to be taxed as a U.S. domestic corporation.

In November 2013, AGL became tax resident in the U.K. although it remains a Bermuda-based company and its administrative and head office functions continue to be carried on in Bermuda.

AGUS files a consolidated federal income tax return with all of its U.S. subsidiaries. Assured Guaranty Overseas US Holdings Inc. and its subsidiaries AGRO and AG Intermediary Inc. file their own consolidated federal income tax return.

The CARES (Coronavirus Aid, Relief, and Economic Security) Act became law on March 27, 2020 and was updated on April 9, 2020. The CARES Act, among other tax changes, accelerates the ability of companies to receive refunds of alternative minimum tax (AMT) credits related to tax years beginning in 2018 and 2019. As a result, the Company has recognized a current tax asset of $12 million of AMT credits that had been recorded as a deferred tax asset as of December 31, 2019.

The Company has $13 million of foreign tax credits (FTC) carryovers from previous acquisitions and $23 million of FTC due to the 2017 Tax Cuts and Jobs Act for use against regular tax in future years. FTCs will begin to expire in 2020 and will fully expire by 2027. In analyzing the future realizability of FTCs, the Company notes limitations on future foreign source income due to overall foreign losses as negative evidence. After reviewing positive and negative evidence, the Company came to the conclusion that it is more likely than not that the FTC of $36 million will not be utilized, and therefore recorded a valuation allowance with respect to this tax attribute.

The Company came to the conclusion that it is more likely than not that the remaining deferred tax assets will be fully realized after weighing all positive and negative evidence available as required under GAAP. The positive evidence that was considered included the cumulative income the Company has earned over the last three years, and the significant unearned premium income to be included in taxable income. The positive evidence outweighs any negative evidence that exists. As such, the Company believes that no valuation allowance is necessary in connection with the remaining deferred tax assets. The Company will continue to analyze the need for a valuation allowance on a quarterly basis.

The Company's provision for income taxes for interim financial periods is not based on an estimated annual effective rate due, for example, to the variability in loss reserves, fair value of its credit derivatives and VIEs, and foreign exchange gains and losses which prevents the Company from projecting a reliable estimated annual effective tax rate and pretax income for the full year 2020. A discrete calculation of the provision is calculated for each interim period.

The effective tax rates reflect the proportion of income recognized by each of the Company’s operating subsidiaries, with U.S. subsidiaries taxed at the U.S. marginal corporate income tax rate of 21%, U.K. subsidiaries taxed at the U.K. marginal corporate tax rate of 19%, French subsidiaries taxed at the French marginal corporate tax rate of 28%, and no taxes for the Company’s Bermuda Subsidiaries unless subject to U.S. tax by election. The Company’s overall effective tax rate fluctuates based on the distribution of income across jurisdictions.

A reconciliation of the difference between the provision for income taxes and the expected tax provision at statutory rates in taxable jurisdictions is presented below.


	Third Quarter						Nine Months
	2020			2019			2020			2019
	(in millions)
Expected tax provision (benefit)	$	19		$	17		$	50		$	64
Tax-exempt interest	(5)			(5)			(13)			(15)
Change in liability for uncertain tax positions	(17)			1			(17)			1
Effect of provision to tax return filing adjustment	(7)			(6)			(7)			(6)
State taxes	1			—			2			1
Foreign taxes	(4)			6			3			11
Taxes on reinsurance	4			5			3			9
Deferred compensation	—			(1)			—			(3)
Other	(1)			—			(1)			(1)
Total provision (benefit) for income taxes	$	(10)		$	17		$	20		$	61
Effective tax rate	(12.0)		%	19.2		%	8.4		%	18.6		%

The expected tax provision (benefit) is calculated as the sum of pretax income in each jurisdiction multiplied by the statutory tax rate of the jurisdiction by which it will be taxed. Where there is a pretax loss in one jurisdiction and pretax income in another, the total combined expected tax rate may be higher or lower than any of the individual statutory rates.


	Third Quarter				Nine Months
	2020		2019		2020		2019
	(in millions)
U.S.	$	72	$	101	$	244	$	326
Bermuda	(14)		10		1		26
U.K. and other	21		(25)		(6)		(26)
Total	$	79	$	86	$	239	$	326


	Third Quarter				Nine Months
	2020		2019		2020		2019
	(in millions)
U.S.	$	200	$	186	$	606	$	562
Bermuda	35		37		94		110
U.K. and other	33		(17)		36		(5)
Total	$	268	$	206	$	736	$	667

As of September 30, 2020, AGUS had open tax years with the U.S. Internal Revenue Service (IRS) for 2017 to present. In July 2020, the IRS issued a Revenue Agent Report for the 2016 tax year which did not identify any material adjustments. In September 2020, the Company received a letter from the Joint Committee on Taxation identifying no exceptions to the conclusions reached by the IRS to close the audit with no additional findings or changes. As a result the Company released, in Third Quarter 2020, previously recorded uncertain tax position reserves and accrued interest of approximately $17 million. Assured Guaranty Overseas US Holdings Inc. has open tax years of 2017 forward but is not currently under audit with the IRS. The Company's U.K. subsidiaries are not currently under examination and have open tax years of 2017 forward.

The Company's policy is to recognize interest related to uncertain tax positions in income tax expense and has accrued $0.3 million for Nine Months 2020 and $1 million for the full year 2019. As of September 30, 2020 and December 31, 2019, the Company has accrued $0.1 million and $2 million of interest, respectively.

The total amount of reserves for unrecognized, uncertain tax positions, including accrued interest, as of September 30, 2020 and December 31, 2019 that would affect the effective tax rate, if recognized, was $0.4 million and $17 million, respectively. In connection with the closing of the 2016 audit year, the Company released $17 million of previously recorded reserves for uncertain tax positions in both Third Quarter 2020 and Nine Months 2020.