Income Taxes

Income tax expense (benefit) consisted of the following for the periods indicated:



	Year Ended December 31,
	2017			2016			2015
Current tax expense (benefit):
Federal	$	(122	)	$	122		$	202
State	—			—			(11		)
Total current tax expense (benefit)	(122		)	122			191
Deferred tax expense (benefit):
Federal	859			(152		)	(104		)
State	3			1			(3		)
Total deferred tax expense (benefit)	862			(151		)	(107		)
Total income tax expense (benefit)	$	740		$	(29	)	$	84

Income taxes were different from the amount computed by applying the federal income tax rate to Income (loss) before income taxes for the following reasons for the periods indicated:



	Year Ended December 31,
	2017				2016			2015
Income (loss) before income taxes	$	528			$	10		$	476
Tax Rate	35.0		%		35.0		%	35.0		%
Income tax expense (benefit) at federal statutory rate	185				4			167
Tax effect of:
Valuation allowance	(28		)		1			(14		)
Dividend received deduction	(43		)		(37		)	(33		)
State tax expense (benefit)	4				(16		)	2
Noncontrolling interest	(70		)		(10		)	(46		)
Tax credits	14				10			7
Nondeductible expenses	2				2			3
Expirations of federal tax capital loss carryforward	2				17			—
Effect of Tax Reform	679			^*	—			—
Other	(5		)		—			(2		)
Income tax expense (benefit)	$	740			$	(29	)	$	84
Effective tax rate	140.2		%		(290.0		)%	17.6		%

*Effect of Tax Reform includes a tax benefit of $283 related to change in valuation allowance

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("Tax Reform"). Tax Reform makes broad changes to U.S. federal tax law, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) changing the computations of the dividends received deduction, tax reserves, and deferred acquisition costs; (3) further limiting deductibility of executive compensation; (4) changing how alternative minimum tax credits can be realized; and (5) eliminating the net operating loss ("NOL") carryback and limiting the NOL carryforward deduction to 80% of taxable income for losses arising in taxable years beginning after December 31, 2017.

The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting under ASC Topic 740 for certain income tax effects of Tax Reform for the reporting period of enactment. SAB 118 allows the Company to provide a provisional estimate of the impacts of Tax Reform during a measurement period similar to the measurement period used when accounting for business combinations. Adjustments to provisional estimates and additional impacts from Tax Reform must be recorded as they are identified during the measurement period as provided for in SAB 118.

In reliance on SAB 118, the Company provisionally remeasured its deferred tax assets and liabilities based on the 21% tax rate at which they are expected to reverse in the future. The Company continues to analyze the effects of Tax Reform and will record adjustments and additional impacts from Tax Reform as they are identified during the measurement period as provided for in SAB 118.

Temporary Differences

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities were as follows as of the dates indicated:



	December 31,
	2017			2016
Deferred tax assets
Federal and state loss carryforwards	$	1,030		$	1,525
Investments	1,440			2,531
Compensation and benefits	369			548
Other assets	330			397
Total gross assets before valuation allowance	3,169			5,001
Less: Valuation allowance	653			964
Assets, net of valuation allowance	2,516			4,037

Deferred tax liabilities
Net unrealized investment gains	(824		)	(980		)
Insurance reserves	(342		)	(301		)
Deferred policy acquisition costs	(556		)	(1,151		)
Other liabilities	(13		)	(35		)
Total gross liabilities	(1,735		)	(2,467		)
Net deferred income tax asset (liability)	$	781		$	1,570

The following table sets forth the federal, state and capital loss carryforwards for tax purposes as of the dates indicated:



	December 31,
	2017			2016
Federal net operating loss carryforward	$	4,410	⁽¹⁾	$	4,112
State net operating loss carryforward	2,228		⁽¹⁾	2,209
Federal tax capital loss carryforward	30		⁽²⁾	58
Credit carryforward	254		⁽³⁾	268

⁽¹⁾Expire between 2018 and 2037.

⁽²⁾ Expire between 2018 and 2020.

⁽³⁾ Expire between 2018 and 2035 except for $220 of Alternative Minimum Tax ("AMT"), which does not expire.

Valuation allowances are provided when it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2017 and 2016, the Company had a total valuation allowance of $653 and $964, respectively. As of December 31, 2017 and 2016, $1,007 and $1,318, respectively, of this valuation allowance was allocated to continuing operations, $(354) was allocated to Other comprehensive income (loss) related to realized and unrealized capital losses at the end of each period.

For the year ended December 31, 2017, the decrease in the valuation allowance was $311, all of which was allocated to continuing operations. The net decrease in the valuation allowance was primarily related to the reduction of the U.S. federal corporate rate from 35% to 21%, and expiration of foreign tax credits subject to a valuation allowance.

For the year ended December 31, 2016, the increase in valuation allowance was $1, of which an increase of $6 was allocated to continuing operations, and a decrease of $5 was related to additional paid-in capital. The net increase in the valuation allowance was a result of the generation and expiration of certain capital losses and expiration of foreign tax credits subject to a valuation allowance as well as state apportionment changes for certain state deferred tax assets subject to a valuation allowance.

For the year ended December 31, 2015, the decrease in the valuation allowance was $9, of which a decrease of $14 and an increase of $5 were allocated to continuing operations and Additional paid-in capital, respectively. With respect to the 2015 amount allocated to continuing operations, the decrease was mostly due to the impact of state law changes on certain state deferred tax assets subject to valuation allowance.

Unrecognized Tax Benefits

Reconciliations of the change in the unrecognized income tax benefits were as follows for the periods indicated:



	Year Ended December 31,
	2017			2016			2015
Balance at beginning of period	$	36		$	45		$	62
Additions for tax positions related to current year	2			3			3
Additions for tax positions related to prior years	—			—			—
Reductions for tax positions related to prior years	—			(7		)	(18		)
Reductions for settlements with taxing authorities	—			(1		)	(2		)
Reductions for expiring statutes	(1		)	(4		)	—
Balance at end of period	$	37		$	36		$	45

The Company had $8 of unrecognized tax benefits as of December 31, 2017 and 2016, and $9 of unrecognized tax benefits as of December 31, 2015, which would affect the Company's effective rate if recognized.

Interest and Penalties

The Company recognizes interest expense and penalties, if applicable, related to unrecognized tax benefits in tax expense net of federal income tax. The total amounts of gross accrued interest and penalties on the Company's Consolidated Balance Sheets as of December 31, 2017 and 2016 was $1 at the end of each period. The Company recognized no gross interest (benefit) related to unrecognized tax in its Consolidated Statements of Operations years ended December 31, 2017 and 2016. For the year ended December 31, 2015 the Company recognized gross interest (benefit) of $(6).

The timing of the payment of the remaining allowance of $37 cannot be reasonably estimated.

Tax Regulatory Matters

The Company is currently under audit by the IRS, and it is expected that the examination of tax year 2016 will be finalized within the next twelve months. The Company and the IRS have agreed to participate in the Compliance Assurance Process for the tax years 2016 through 2018.