INCOME TAXES

The Company's effective income tax rate related to continuing operations varied from the maximum federal income tax rate as follows:



	Successor Company				Predecessor Company
	For The Year Ended December 31, 2016		February 1, 2015 to December 31, 2015		January 1, 2015 to January 31, 2015		For The Year Ended December 31, 2014
Statutory federal income tax rate applied to pre-tax income	35.0	%	35.0	%	35.0	%	35.0	%
State income taxes	0.8		2.0		0.8		0.8
Investment income not subject to tax	(2.7	)	(4.3	)	(3.2	)	(3.4	)
Uncertain tax positions	(0.3	)	0.2		(0.1	)	1.3
Other	1.0		—		(0.1	)	0.3
	33.8	%	32.9	%	32.4	%	34.0	%

The annual provision for federal income tax in these financial statements differs from the annual amounts of income tax expense reported in the Company's income tax returns. Certain significant revenues and expenses are appropriately reported in different years with respect to the financial statements and the tax returns.

The components of the Company's income tax are as follows:



	Successor Company						Predecessor Company
	For The Year Ended December 31, 2016			February 1, 2015 to December 31, 2015			January 1, 2015 to January 31, 2015			For The Year Ended December 31, 2014
	(Dollars In Thousands)						(Dollars In Thousands)
Current income tax expense:
Federal	$	(50,638	)	$	5,715		$	(32,803	)	$	189,105
State	3,919			(4,244		)	1,685			8,838
Total current	$	(46,719	)	$	1,471		$	(31,118	)	$	197,943
Deferred income tax expense:
Federal	$	240,127		$	118,338		$	30,858		$	1,474
State	7,560			11,734			(67		)	(1,003		)
Total deferred	$	247,687		$	130,072		$	30,791		$	471

The components of the Company's net deferred income tax liability are as follows:



	Successor Company
	As of December 31,
	2016			2015
	(Dollars In Thousands)
Deferred income tax assets:
Loss and credit carryforwards	$	453,880		$	34,340
Deferred compensation	209,979			241,156
Deferred policy acquisition costs	156,012			274,366
Premium on corporate debt	104,839			125,296
Net unrealized loss on investments	353,448			671,540
Other	44,956			81,032
Valuation allowance	(6,007		)	(4,804		)
	1,317,107			1,422,926
Deferred income tax liabilities:
Premium receivables and policy liabilities	884,255			276,919
VOBA and other intangibles	720,750			631,935
Invested assets (other than unrealized gains (losses))	1,311,866			1,511,353
	2,916,871			2,420,207
Net deferred income tax liability	$	(1,599,764	)	$	(997,281	)

The deferred tax assets reported above include certain deferred tax assets related to nonqualified deferred compensation and other employee benefit liabilities that were assumed by AXA and they were not acquired by the Company in connection with the acquisition of MONY. The future tax deductions stemming from these liabilities will be claimed by the Company on MONY's tax returns in its post-acquisition periods. These deferred tax assets have been estimated as of the MONY Acquisition date (and through the December 31, 2016 reporting date) based on all available information. However, it is possible that these estimates may be adjusted in future reporting periods based on actuarial changes to the projected future payments associated with these liabilities. Any such adjustments will be recognized by the Company as an adjustment to income tax expense during the period in which they are realized.

In management's judgment, the gross deferred income tax asset as of December 31, 2016 (Successor Company) will more likely than not be fully realized. The Company has recognized a valuation allowance of $9.2 million and $7.4 million as of December 31, 2016 (Successor Company) and December 31, 2015 (Successor Company), respectively, related to state-based loss carryforwards that it has determined are more likely than not to expire unutilized. This resulting unfavorable change of $1.8 million, before federal income taxes, increased state income tax expense in 2016 by the same amount.

During the twelve months ended December 31, 2016 (Successor Company), the Company entered into a reinsurance transaction, as discussed in Note 3, Significant Transactions. This transaction is expected to generate an operating loss on the Company's consolidated 2016 U.S. income tax return. The Company has evaluated its ability to carry this loss back to receive funds of previously-paid taxes, plus utilize the remaining loss in future years. The Company expects to receive refunds for substantially all of the U.S. income taxes that it paid in 2014 and 2015, as well as fully utilize the remaining operating loss carryforward during the carryforward period. Based on the Company's current assessment of future taxable income, including available tax planning opportunities, the Company anticipates that it is more likely than not that it will generate sufficient taxable income to realize all of its material deferred tax assets. The Company did not record a valuation allowance against its material deferred tax assets as of December 31, 2016.

At December 31, 2016 (Successor Company), the Company has non-life net operating loss carryforwards for federal income tax purposes of $226.6 million, which are available to offset future non-life group federal taxable income (and life group taxable income with limitations) and begin to expire in 2035. The Company also has life net operating loss carryforwards for federal income tax purposes of $1,021.5 million which are available to offset both future life group taxable income and non-life group taxable income through 2031. Foreign tax credits of $5.6 million are available to offset both future life group income tax and non-life group income tax and will begin to expire in 2024. In addition, included in the deferred income tax assets above are approximately $19.8 million in state net operating loss carryforwards attributable to certain jurisdictions, which are available to offset future tax in the respective state jurisdictions, expiring between 2017 and 2036.

As of December 31, 2016 (Successor Company) and December 31, 2015 (Successor Company), some of the Company's fixed maturities were reported at an unrealized loss. If the Company were to realize a tax-basis net capital loss for a year, then such loss could not be deducted against that year's other taxable income. However, such a loss could be carried back and forward against any prior year or future year tax-basis net capital gains. Therefore, the Company has relied upon a prudent and feasible tax-planning strategy regarding its fixed maturities that were reported at an unrealized loss. The Company has the ability and the intent to either hold such fixed maturities to maturity, thereby avoiding a realized loss, or to generate an offsetting realized gain from unrealized gain fixed maturities if such unrealized loss fixed maturities are sold at a loss prior to maturity.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Successor Company						Predecessor Company
	As of December 31, 2016			February 1, 2015 to December 31, 2015			January 1, 2015 to January 31, 2015			As of December 31, 2014
	(Dollars In Thousands)						(Dollars In Thousands)
Balance, beginning of period	$	13,138		$	137,593		$	193,244		$	105,881
Additions for tax positions of the current year	2,122			2,213			(5,010		)	57,463
Additions for tax positions of prior years	1,318			1,811			7,724			39,433
Reductions of tax positions of prior years:
Changes in judgment	(975		)	(16,416		)	(58,365		)	(9,533		)
Settlements during the period	(5,747		)	(112,063		)	—			—
Lapses of applicable statute of limitations	—			—			—			—
Balance, end of period	$	9,856		$	13,138		$	137,593		$	193,244

Included in the end of period balance above, as of December 31, 2016 (Successor Company), the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and as of December 31, 2014 (Predecessor Company), are approximately $0.7 million, $5.6 million, $126.0 million, and $181.9 million of unrecognized tax benefits, respectively, for which the ultimate deductibility is certain but for which there is uncertainty about the timing of such deductions. Other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective income tax rate but would accelerate to an earlier period the payment of cash to the taxing authority. The total amount of unrecognized tax benefits, if recognized, that would affect the effective income tax rate is approximately $9.2 million, $7.5 million, $11.5 million, and $11.3 million for the period ending December 31, 2016 (Successor Company), the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and as of December 31, 2014 (Predecessor Company), respectively.

Any accrued interest related to the unrecognized tax benefits and other accrued income taxes have been included in income tax expense. These amounts were a $3.1 million benefit, a $1.6 million detriment, a $0.9 million benefit, and a $3.9 million detriment for the year ended December 31, 2016 (Successor Company), the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company) and for the years ended December 31, 2014 (Predecessor Company), respectively. The Company has approximately $2.8 million, $15.4 million, $12.7 million, and $14.3 million of accrued interest associated with unrecognized tax benefits as of December 31, 2016 (Successor Company), as of December 31, 2015 (Successor Company), as of January 31, 2015 (Predecessor Company), and as of December 31, 2014 (Predecessor Company), respectively (before taking into consideration the related income tax benefit that is associated with such an expense).

In June 2012, the IRS proposed favorable and unfavorable adjustments to the Company’s 2003 through 2007 reported taxable incomes. The Company protested certain unfavorable adjustments and sought resolution at the IRS’ Appeals Division. In October 2015, Appeals accepted the Company’s earlier proposed settlement offer. In September 2015, the IRS proposed favorable and unfavorable adjustments to the Company’s 2008 through 2011 reported taxable income. The Company agreed to these adjustments. As a result, pending a routine review by Congress' Joint Committee on Taxation, the Company expects to receive an approximate $6.2 million net refund in a future period.

The resulting net adjustment to the Company’s current income taxes for the years 2003 through 2011 will not materially affect the Company or its effective tax rate.

In July 2016, the IRS proposed favorable and unfavorable adjustments to the Company's 2012 and 2013 reported taxable income. The Company agreed to these adjustments. The resulting settlement paid in September 2016 did not materially impact the Company or its effective tax rate.

These agreements with the IRS are the primary cause for the reductions of unrecognized tax benefits shown in the earlier chart. The Company believes that in the next 12 months, none of the unrecognized tax benefits will be significantly increased or reduced. In general, the Company is no longer subject to income tax examinations by taxing authorities for tax years that began before 2014. Nevertheless, certain of these pre-2014 years have pending U.S. tax refunds. Due to their size, these refunds are being reviewed by Congress' Joint Committee on Taxation. Furthermore, due to the aforementioned IRS adjustments to the Company's pre-2014 taxable income, the Company is amending certain of its 2003 through 2013 state income tax returns. Such amendments will cause such years to remain open, pending the states' acceptances of the returns. At this time, the Company believes that the Joint Committee's review of its U.S. tax refunds and the states' acceptance of its amending returns will be completed next year. The underlying statutes of limitations are expected to close in due course on or before December 31, 2017.

During the year ended December 31, 2016 (Successor Company), the Company filed a non-automatic tax accounting method change related to income recognition for unearned premium reserve and discounted loss reserve for claims incurred and is awaiting acceptance by the IRS. If the Company's request for the non-automatic tax accounting method change is accepted as filed, the Company anticipates an overall increase to current tax expense of approximately $1.4 million, which will be reflected on tax returns for the years ended December 31, 2016 through December 31, 2019. Of this amount, a $2.9 million tax benefit will be reflected on the federal tax return for the year ended December 31, 2016 (Successor Company). This change, if approved, is not expected to have a material impact on our effective tax rate.