Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes

Provision (Benefit) for Income Taxes

We are subject to federal income tax, but we are exempt from state and local income taxes.

The following table displays the components of our provision (benefit) for federal income taxes.



	For the Year Ended December 31,
	2015				2014			2013
	(Dollars in millions)
Current income tax provision (benefit)		$	(271	)		$	1,879		$	3,067
Deferred income tax provision (benefit)⁽¹⁾		5,524				5,062			(48,482		)
Provision (benefit) for federal income taxes		$	5,253			$	6,941		$	(45,415	)

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⁽¹⁾	Amount excludes the income tax effect of items recognized directly in “Fannie Mae stockholders’ equity.”

Current income tax benefit for the year ended December 31, 2015 reflects the recognition of a $1.4 billion income tax receivable expected from an amended federal tax return primarily related to deductions for charged-off nonaccrued interest. This amount was fully offset by a corresponding $1.4 billion decrease in our deferred tax assets resulting in an increase in our deferred income tax provision.

The following table displays the difference between our effective tax rate and the statutory federal tax rate.



	For the Year Ended December 31,
	2015				2014				2013
Statutory corporate tax rate		35.0		%		35.0		%		35.0		%
Equity investments in affordable housing projects		(2.6	)			(1.8	)			(1.5	)
Other		0.9				1.4				—
Valuation allowance		(0.9	)			(1.8	)			(151.3	)
Effective tax rate		32.4		%		32.8		%		(117.8	)	%

Our effective tax rate is the provision (benefit) for federal income taxes expressed as a percentage of income or loss before federal income taxes. Our effective tax rate was different from the federal statutory rate of 35% for the years ended December 31, 2015 and 2014 primarily due to the benefits of our investments in housing projects eligible for low-income housing tax credits. The decrease in our deferred tax valuation allowance in 2015 reflects the utilization of our capital loss carryforwards due to recognition of net capital gains, which allowed us to release the corresponding valuation allowance against our capital loss carryforwards. The decrease in our deferred tax valuation allowance in 2014 reflects the expiration of certain capital loss carryforwards that are included as a component of “Other” in the table above. Our effective tax rate was different from the federal statutory rate of 35% for the year ended December 31, 2013 primarily due to the release of our valuation allowance for our net deferred tax assets that resulted in the recognition of $58.3 billion benefit in our provision (benefit) for income taxes.

Deferred Tax Assets and Liabilities

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under GAAP and their respective tax bases.

We evaluate our deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including our historical profitability and projections of future taxable income.

As of December 31, 2015, we continued to conclude that the positive evidence in favor of the recoverability of our deferred tax asset outweighed the negative evidence and that it is more likely than not that our deferred tax assets will be realized. Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including the sustainability of recent profitability required to realize the deferred tax assets; the cumulative net income or losses in our consolidated statements of operations and comprehensive income in recent years; unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a continuing basis in future years; the funding available to us under the senior preferred stock purchase agreement; and the carryforward periods for any carryforwards of net operating losses, if any, capital losses and tax credits.

The following table displays our deferred tax assets, deferred tax liabilities and valuation allowance.



		As of December 31,
		2015			2014
	(Dollars in millions)
Deferred tax assets:
Mortgage and mortgage-related assets			$	16,956		$	16,250
Allowance for loan losses and basis in acquired property, net			11,760			17,435
Debt and derivative instruments			3,512			4,254
Partnership credits			3,402			2,918
Partnership and other equity investments			745			934
Other, net			1,543			1,699
Total deferred tax assets			37,918			43,490
Deferred tax liabilities:
Unrealized gains on AFS securities, net			731			1,134
Total deferred tax liabilities			731			1,134
Valuation allowance			—			(150		)
Deferred tax assets, net			$	37,187		$	42,206

As of December 31, 2015, we had no net operating loss carryforwards. We had a remaining balance of $3.4 billion of partnership tax credit carryforwards that expire in various years through 2035 and $308 million of alternative minimum tax credit carryforwards that have an indefinite carryforward period.

Unrecognized Tax Benefits

The following table displays the changes in our unrecognized tax benefits.



	For the Year Ended December 31,
	2015				2014				2013
	(Dollars in millions)
Unrecognized tax benefits as of January 1		$	213			$	514			$	648
Gross decreases—tax positions in prior years		(213		)		(301		)		(134		)
Unrecognized tax benefits as of December 31⁽¹⁾		$	—			$	213			$	514

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⁽¹⁾	Amounts exclude tax credits of $91 million and $220 million as of December 31, 2014 and 2013, respectively.