Income Taxes

12 Months Ended

Dec. 31, 2019

ALIC and its subsidiaries (the “Allstate Life Group”) join with the Corporation (the “Allstate Group”) in the filing of a consolidated federal income tax return and are party to a federal income tax allocation agreement (the “Allstate Tax Sharing Agreement”). Under the Allstate Tax Sharing Agreement, the Allstate Life Group pays to or receives from the Corporation the amount, if any, by which the Allstate Group’s federal income tax liability is affected by virtue of inclusion of the Allstate Life Group in the consolidated federal income tax return. Effectively, this results in the Allstate Life Group’s annual income tax provision being computed, with adjustments, as if the Allstate Life Group filed a separate return.

Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted through income tax expense as changes in tax laws or rates are enacted.

The Internal Revenue Service (“IRS”) is currently examining the Allstate Group’s 2015 and 2016 federal income tax returns and is expected to complete its exam by mid-2020. The 2017 and 2018 audit cycle is expected to begin mid-2020. The 2013 and

2014 federal income tax return audit is complete through the exam phase and the Allstate Group has reached a tentative agreement on one outstanding issue, pending final review by the Joint Committee of Taxation expected in 2020. Any adjustments that may result from IRS examinations of the Allstate Group’s tax returns are not expected to have a material effect on the consolidated financial statements.

The Company recognizes tax positions in the consolidated financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the consolidated financial statements.

The Company had $14 million, $14 million and $2 million liability for unrecognized tax benefits as of December 31, 2019, 2018 and 2017, respectively. The change in the liability for unrecognized tax benefits in 2018 related to the increase for tax positions taken in the current year. The Company believes it is reasonably possible that a decrease of up to $2 million in unrecognized tax benefits may occur within the next twelve months due to IRS settlements.

The components of the deferred income tax assets and liabilities as of December 31 are as follows:



($ in millions)	2019			2018
Deferred tax assets
Deferred reinsurance gain	$	6		$	7
Other assets	1			1
Total deferred tax assets	7			8
Deferred tax liabilities
Life and annuity reserves	(253		)	(223		)
Unrealized net capital gains	(245		)	(65		)
Investments	(185		)	(131		)
DAC	(169		)	(201		)
Other liabilities	(49		)	(51		)
Total deferred tax liabilities	(901		)	(671		)
Net deferred tax liability	$	(894	)	$	(663	)

Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized based on the Company’s assessment that the deductions ultimately recognized for tax purposes will be fully utilized.

The components of income tax expense (benefit) for the years ended December 31 are as follows:



($ in millions)	2019		2018			2017
Current	$	76	$	116		$	104
Deferred	52		(99		)	(382		)
Total income tax expense (benefit)	$	128	$	17		$	(278	)

The Company paid taxes of $62 million and $30 million in 2019 and 2018, respectively, and received refunds of $1 million in 2017. The Company had current income tax payable of $29 million and $78 million as of December 31, 2019 and 2018, respectively.

A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations for the years ended December 31 is as follows:



($ in millions)	2019		2018		2017
Statutory federal income tax rate - expense	21.0	%	21.0	%	35.0	%
Tax credits	(1.9	)	(3.2	)	(1.7	)
Dividends received deduction	(0.5	)	(0.7	)	(0.6	)
State income taxes	0.5		1.5		0.6
Adjustments to prior year tax liabilities	0.2		(0.3	)	(0.3	)
Non-deductible expenses	0.1		—		0.1
Tax Legislation benefit	—		(14.0	)	(71.8	)
Other	—		0.1		—
Effective income tax rate expense (benefit)	19.4	%	4.4	%	(38.7	)%