Income Taxes

12 Months Ended

Dec. 31, 2017

Income Taxes

Provision for Federal 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 for federal income taxes.



	For the Year Ended December 31,
	2017				2016				2015
	(Dollars in millions)
Current income tax benefit (provision)		$	600			$	(2,014	)		$	271
Deferred income tax provision⁽¹⁾		(16,584		)		(4,006		)		(5,524		)
Provision for federal income taxes		$	(15,984	)		$	(6,020	)		$	(5,253	)

__________


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

The current income tax benefit for the year ended December 31, 2017 reflects the recognition of a $3.7 billion income tax receivable from amended federal income tax returns to claim tax deductions for bad debts. This amount was offset by a corresponding $3.7 billion decrease in our net deferred tax assets, resulting in an increase in our deferred income tax provision.

The deferred income tax provision for the year ended December 31, 2017 also reflects the impact of the legislation enacted in the fourth quarter of 2017, which reduced the federal corporate income tax rate to 21% effective January 1, 2018. The effect of this legislation reduced the value of our net deferred tax assets, resulting in an increase in our deferred income tax provision.

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



	For the Year Ended December 31,
	2017				2016				2015
Statutory corporate tax rate		35.0		%		35.0		%		35.0		%
Equity investments in affordable housing projects		(1.4	)			(1.9	)			(2.6	)
Effect of corporate tax rate change		53.6				—				—
Other		(0.6	)			(0.3	)			0.9
Valuation allowance		—				—				(0.9	)
Effective tax rate		86.6		%		32.8		%		32.4		%

Our effective tax rate is the provision 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 corporate rate of 35% for the year ended December 31, 2017 primarily due to the effect of the remeasurement of our net deferred tax assets in the fourth quarter of 2017 as a result of the legislation discussed above.

Our effective tax rates for the years 2017, 2016 and 2015 were impacted by 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.

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, 2017, 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 tax credits.

The following table displays our deferred tax assets and deferred tax liabilities. The deferred tax assets and liabilities as of December 31, 2016 were measured at the applicable statutory corporate tax rate of 35% for the period. The deferred tax assets and liabilities as of December 31, 2017 have been remeasured using the 21% statutory corporate tax rate enacted in the fourth quarter of 2017 with an effective date of January 1, 2018.



	As of December 31,
	2017			2016
	(Dollars in millions)
Deferred tax assets:
Mortgage and mortgage-related assets		$	10,397		$	17,130
Allowance for loan losses and basis in acquired property, net		2,286			9,496
Debt and derivative instruments		1,205			2,989
Partnership credits		1,695			1,968
Partnership and other equity investments		311			667
Other, net		1,621			1,665
Total deferred tax assets		17,515			33,915
Deferred tax liabilities:
Unrealized gains on AFS securities, net		165			385
Total deferred tax liabilities		165			385
Deferred tax assets, net		$	17,350		$	33,530

As of December 31, 2017, we had no net operating loss carryforwards and no capital loss carryforwards. We had a remaining balance of $1.7 billion of partnership tax credit carryforwards that expire in various years through 2037 and $837 million of alternative minimum tax credit carryforwards that will be used by the year 2021.

Unrecognized Tax Benefits

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



	For the Year Ended December 31,
	2017			2016			2015
	(Dollars in millions)
Unrecognized tax benefits as of January 1		$	—		$	—		$	213
Gross increases—tax positions in current year		514			—			—
Gross decreases—tax positions in prior years		—			—			(213		)
Unrecognized tax benefits as of December 31⁽¹⁾		$	514		$	—		$	—

__________


⁽¹⁾	Amount excludes tax credits of $220 million as of December 31, 2017.

We had $514 million of unrecognized tax benefits as of December 31, 2017. If these positions were to resolve favorably, our effective tax would be reduced in future periods by $205 million. We had no unrecognized tax benefits as of December 31, 2016 or December 31, 2015.

Our tax years 2007 through 2016 remain open to assessment by the IRS.