Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes [Abstract]

Income Taxes

Note 12 — Income Taxes

For the three and six months ended June 30, 2012, the Company had $10.2 million and $18.0 million, respectively, of income tax expense on pre-tax (loss) income of $(14.9) million and $3.2 million, respectively, resulting from the non-deductibility of certain legal accruals and related expenses. The Company paid $0.7 million and $0.8 million of federal and state income taxes for the three and six months ended June 30, 2012, respectively.

For the three months ended June 30, 2011, the Company had $2.9 million of income tax expense on pre-tax income of $29.3 million, primarily reflecting $2.9 million of tax on an investment security settlement received in the second quarter of 2011. For the six months ended June 30, 2011, the Company had nominal income tax benefit on pre-tax income of $40.4 million, reflecting a discrete benefit of $3.5 million for the reversal of a portion of the valuation allowance on domestic deferred tax assets, which was partially offset by the $2.9 million of tax on an investment security settlement. The Company paid $0.4 million and $0.5 million of federal and state income taxes for the three and six months ended June 30, 2011, respectively.

Changes in facts and circumstances may cause the Company to record additional tax expense or benefits in the future.

For the three and six months ended June 30, 2012, interest and penalties for unrecognized tax benefits were $0.1 million and $0.2 million, respectively, compared to nominal amounts for both the three and six months ended June 30, 2011. The Company records interest and penalties for unrecognized tax benefits in “Income tax expense (benefit)” in the Consolidated Statements of (Loss) Income. As of June 30, 2012 and December 31, 2011, the Company had a liability of $1.7 million and $1.6 million, respectively, for interest and penalties within “Accounts payable and other liabilities” in the Consolidated Balance Sheets.

During the second quarter of 2010, the Internal Revenue Service (the “IRS”) completed its examination of the Company’s consolidated income tax returns for 2005 to 2007 and issued a Notice of Deficiency related to these items in April 2012 (the “2005-2007 Notice of Deficiency”). The Company is also currently under examination for its 2008 and 2009 tax returns, which had similar deductions, and received a Revenue Agent Report (“RAR”) for 2008 and 2009 in April 2012. The Company anticipates receiving a Notice of Deficiency for 2008 and 2009 within the next 12 months. The Company filed a petition with the United States Tax Court on May 14, 2012 contesting the adjustments in the 2005-2007 Notice of Deficiency and plans to petition the United States Tax Court for 2008 and 2009 as well. Approximately $955.0 million of cumulative deductions were taken for net securities losses in its 2007, 2008 and 2009 tax returns. As of June 30, 2012, the Company has recognized a cumulative benefit of approximately $136.1 million relating to these deductions. The Company continues to believe that the amounts recorded in its consolidated financial statements reflect its best estimate of the ultimate outcome of this matter.