Income Taxes

12 Months Ended

Dec. 31, 2019

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,
	2019				2018				2017
	(Dollars in millions)
Current income tax benefit (provision)		$	(2,089	)		$	114			$	600
Deferred income tax provision⁽¹⁾		(1,328		)		(4,254		)		(16,584		)
Provision for federal income taxes		$	(3,417	)		$	(4,140	)		$	(15,984	)


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

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



	For the Year Ended December 31,
	2019				2018				2017
Statutory corporate tax rate		21.0		%		21.0		%		35.0		%
Equity investments in affordable housing projects		(0.2	)			(0.6	)			(1.4	)
Effect of corporate tax rate change		—				—				53.6
Change in unrecognized tax benefits		(1.2	)			—				—
Other		(0.2	)			0.2				(0.6	)
Effective tax rate		19.4		%		20.6		%		86.6		%

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 rates for the years 2019, 2018, and 2017 were impacted by the benefits of our investments in housing projects eligible for low-income housing tax credits. Our effective tax rate for 2019 was also impacted by the favorable resolution of our uncertain tax position which reduced our provision for federal income taxes by $205 million. The effective tax rate in 2017 was impacted by the re-measurement of our net deferred tax assets in the fourth quarter of 2017 as a result of the federal statutory corporate tax rate change from 35% to 21%.

Deferred Tax Assets and Liabilities

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, 2019, we continued to conclude that the positive evidence in favor of the recoverability of our deferred tax assets 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, to the extent it exists, 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; and


•	the funding available to us under the senior preferred stock purchase agreement.

The following table displays our deferred tax assets and deferred tax liabilities.



	As of December 31,
	2019			2018
	(Dollars in millions)
Deferred tax assets:
Mortgage and mortgage-related assets		$	9,290		$	9,285
Allowance for loan losses and basis in acquired property, net		1,240			2,065
Debt and derivative instruments		627			687
Partnership credits		—			161
Partnership and other equity investments		152			223
Interest-only securities		788			738
Other, net		—			102
Total deferred tax assets		12,097			13,261
Deferred tax liabilities:
Unrealized gains on AFS securities, net		26			73
Other, net		161			—
Total deferred tax liabilities		187			73
Deferred tax assets, net		$	11,910		$	13,188

Unrecognized Tax Benefits

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



	For the Year Ended December 31,
	2019				2018				2017
	(Dollars in millions)
Unrecognized tax benefits as of January 1		$	416			$	514			$	—
Gross increases - tax positions in current year		—				—				514
Gross decreases - tax positions in current year		—				(98		)		—
Gross decreases - tax positions in prior years		(416		)		—				—
Unrecognized tax benefits as of December 31⁽¹⁾		$	—			$	416			$	514


⁽¹⁾	Amount excludes tax credits of $151 million, and $220 million as of 2018, and 2017, respectively. We had no unrecognized tax benefits as of December 31, 2019.

Our tax years 2007 through 2018 remain open to assessment by the IRS.