INCOME TAXES	3 Months Ended
Mar. 31, 2013
INCOME TAXES
INCOME TAXES	15. INCOME TAXES Interim Tax Calculation Method We use the estimated annual effective tax rate method in computing our interim tax provision. Certain items, including those deemed to be unusual, infrequent or that cannot be reliably estimated, are excluded from the estimated annual effective tax rate. In these cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual effective tax rate, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions. Interim Tax Expense (Benefit) For the three month period ended March 31, 2013, the effective tax rate on pretax income from continuing operations was 24.5 percent. The effective tax rate for the three month period ended March 31, 2013, attributable to continuing operations differs from the statutory tax rate of 35 percent primarily due to tax effects associated with tax exempt interest income and a decrease in the life-insurance-business capital loss carryforward valuation allowance primarily attributable to the actual and projected gains on sales of AIG Life and Retirement's available-for-sale securities. These items were partially offset by changes in uncertain tax positions. For the three month period ended March 31, 2012, the effective tax rate on pretax income from continuing operations was 24.2 percent. The effective tax rate for the three-month period ended March 31, 2012, attributable to continuing operations differs from the statutory tax rate of 35 percent primarily due to tax effects associated with tax exempt interest income and investments in partnerships, and a decrease in the life-insurance-business capital loss carryforward valuation allowance primarily attributable to the actual and projected gains on sales of AIG Life and Retirement's available-for-sale securities. Assessment of Deferred Tax Asset Valuation Allowance The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed. Our framework for assessing the recoverability of the deferred tax asset requires us to consider all available evidence, including: • the nature, frequency, and amount of cumulative financial reporting income and losses in recent years; • the sustainability of recent operating profitability of our subsidiaries; • the predictability of future operating profitability of the character necessary to realize the net deferred tax asset; • the carryforward period for the capital loss carryforwards, including the effect of reversing taxable temporary differences; and • prudent and feasible actions and tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax asset. As a result of sales in the ordinary course of business to manage the investment portfolio and the application of prudent and feasible tax planning strategies, during the three months ended March 31, 2013, we determined that an additional portion of the life insurance business capital loss carryforwards will more-likely-than-not be realized prior to their expiration. We released an additional $836 million of the deferred tax asset valuation allowance associated with the life insurance business capital loss carryforwards during the three-month period ended March 31, 2013, of which $755 million was allocated to income from continuing operations and $81 million to other comprehensive income. Additional life insurance business capital loss carryforwards may be realized in the future if and when other prudent and feasible tax planning strategies are identified. Changes in market conditions, including rising interest rates above our projections, may result in a reduction in projected taxable gains and reestablishment of a valuation allowance. Tax Examinations and Litigation On March 29, 2013, the U.S. District Court for the Southern District of New York, denied our motion for partial summary judgment related to the disallowance of foreign tax credits associated with cross border financing transactions. On April 17, 2013, we initiated a request for certification of the court's decision for immediate appeal to the United States Court of Appeals for the Second Circuit. We will vigorously defend our position, and continue to believe that we have adequate reserves for any liability that could result from the IRS actions. Accounting for Uncertainty in Income Taxes At March 31, 2013 and December 31, 2012, our unrecognized tax benefits, excluding interest and penalties, were $4.9 billion and $4.4 billion, respectively. The increase in our unrecognized tax benefits, excluding interest and penalties, was primarily due to foreign tax credits associated with cross border financing transactions. At March 31, 2013 and December 31, 2012, our unrecognized tax benefits included $0.2 billion, related to tax positions that if recognized would not affect the effective tax rate because they relate to the timing, rather than the permissibility, of the deduction. Accordingly, at March 31, 2013 and December 31, 2012, the amounts of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate were $4.7 billion and $4.2 billion, respectively. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At March 31, 2013 and December 31, 2012, we accrued $1.1 billion and $935 million, respectively, for the payment of interest (net of the federal benefit) and penalties. For the three month periods ended March 31, 2013 and 2012, we recognized $156 million and $(37) million, respectively, of income tax expense (benefit) for interest net of the federal benefit (expense) and penalties. Although it is reasonably possible that a change in the balance of unrecognized tax benefits may occur within the next 12 months, at this time it is not possible to estimate the range of the change due to the uncertainty of the potential outcomes.

15. INCOME TAXES

Interim Tax Calculation Method

We use the estimated annual effective tax rate method in computing our interim tax provision. Certain items, including those deemed to be unusual, infrequent or that cannot be reliably estimated, are excluded from the estimated annual effective tax rate. In these cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual effective tax rate, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions.

Interim Tax Expense (Benefit)

For the three month period ended March 31, 2013, the effective tax rate on pretax income from continuing operations was 24.5 percent. The effective tax rate for the three month period ended March 31, 2013, attributable to continuing operations differs from the statutory tax rate of 35 percent primarily due to tax effects associated with tax exempt interest income and a decrease in the life-insurance-business capital loss carryforward valuation allowance primarily attributable to the actual and projected gains on sales of AIG Life and Retirement's available-for-sale securities. These items were partially offset by changes in uncertain tax positions.

For the three month period ended March 31, 2012, the effective tax rate on pretax income from continuing operations was 24.2 percent. The effective tax rate for the three-month period ended March 31, 2012, attributable to continuing operations differs from the statutory tax rate of 35 percent primarily due to tax effects associated with tax exempt interest income and investments in partnerships, and a decrease in the life-insurance-business capital loss carryforward valuation allowance primarily attributable to the actual and projected gains on sales of AIG Life and Retirement's available-for-sale securities.

Assessment of Deferred Tax Asset Valuation Allowance

The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed.

Our framework for assessing the recoverability of the deferred tax asset requires us to consider all available evidence, including:

•: the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
•: the sustainability of recent operating profitability of our subsidiaries;
•: the predictability of future operating profitability of the character necessary to realize the net deferred tax asset;
•: the carryforward period for the capital loss carryforwards, including the effect of reversing taxable temporary differences; and
•: prudent and feasible actions and tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax asset.

As a result of sales in the ordinary course of business to manage the investment portfolio and the application of prudent and feasible tax planning strategies, during the three months ended March 31, 2013, we determined that an additional portion of the life insurance business capital loss carryforwards will more-likely-than-not be realized prior to their expiration.

We released an additional $836 million of the deferred tax asset valuation allowance associated with the life insurance business capital loss carryforwards during the three-month period ended March 31, 2013, of which $755 million was allocated to income from continuing operations and $81 million to other comprehensive income. Additional life insurance business capital loss carryforwards may be realized in the future if and when other prudent and feasible tax planning strategies are identified. Changes in market conditions, including rising interest rates above our projections, may result in a reduction in projected taxable gains and reestablishment of a valuation allowance.

Tax Examinations and Litigation

On March 29, 2013, the U.S. District Court for the Southern District of New York, denied our motion for partial summary judgment related to the disallowance of foreign tax credits associated with cross border financing transactions. On April 17, 2013, we initiated a request for certification of the court's decision for immediate appeal to the United States Court of Appeals for the Second Circuit. We will vigorously defend our position, and continue to believe that we have adequate reserves for any liability that could result from the IRS actions.

Accounting for Uncertainty in Income Taxes

At March 31, 2013 and December 31, 2012, our unrecognized tax benefits, excluding interest and penalties, were $4.9 billion and $4.4 billion, respectively. The increase in our unrecognized tax benefits, excluding interest and penalties, was primarily due to foreign tax credits associated with cross border financing transactions. At March 31, 2013 and December 31, 2012, our unrecognized tax benefits included $0.2 billion, related to tax positions that if recognized would not affect the effective tax rate because they relate to the timing, rather than the permissibility, of the deduction. Accordingly, at March 31, 2013 and December 31, 2012, the amounts of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate were $4.7 billion and $4.2 billion, respectively.

Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At March 31, 2013 and December 31, 2012, we accrued $1.1 billion and $935 million, respectively, for the payment of interest (net of the federal benefit) and penalties. For the three month periods ended March 31, 2013 and 2012, we recognized $156 million and $(37) million, respectively, of income tax expense (benefit) for interest net of the federal benefit (expense) and penalties.

Although it is reasonably possible that a change in the balance of unrecognized tax benefits may occur within the next 12 months, at this time it is not possible to estimate the range of the change due to the uncertainty of the potential outcomes.