INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES

INCOME TAXES

21. Income Taxes

U.S. TAX LAW CHANGES

The IRS has continued to issue new guidance in relation to the Tax Cuts and Jobs Act (the Tax Act) enacted in 2017. Guidance has been issued covering provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries, foreign tax credits by which the U.S. mitigates double taxation of foreign operations, and other elements of tax law. Changes to this guidance, and other provisions of tax law, are expected in future periods. Such guidance may result in changes to the interpretations and assumptions we made and actions we may take, which may impact amounts recorded with respect to international provisions of the Tax Act, possibly materially. Consistent with accounting guidance, we have made an accounting policy election to treat GILTI taxes as a period tax charge in the period the tax is incurred.

On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act to mitigate the economic impacts of the COVID-19 pandemic. The tax provisions of the CARES Act have not had and are currently not expected to have a material impact on AIG’s U.S. federal tax liabilities.

On November 15, 2021, the U.S. enacted the Infrastructure Investment and Jobs Act to improve infrastructure in the U.S. The tax provisions of the Infrastructure Investment and Jobs Act have not had and are currently not expected to have a material impact on AIG’s U.S. federal tax liabilities.

Reclassification of Certain Tax Effects from AOCI

We use an item-by-item approach to release the stranded or disproportionate income tax effects in AOCI related to our available-for-sale securities. Under this approach, a portion of the disproportionate tax effects is assigned to each individual security lot at the date the amount becomes lodged. When the individual securities are sold, mature, or are otherwise impaired on an other-than-temporary basis, the assigned portion of the disproportionate tax effect is reclassified from AOCI to income (loss) from continuing operations.

EFFECTIVE TAX RATE

The following table presents income (loss) from continuing operations before income tax expense (benefit) by U.S. and foreign location in which such pre-tax income (loss) was earned or incurred:

Years Ended December 31,
(in millions)		2021		2020		2019
U.S.	$	9,838	$	(8,396)	$	3,825
Foreign		2,261		1,103		1,462
Total	$	12,099	$	(7,293)	$	5,287

The following table presents the income tax expense (benefit) attributable to pre-tax income (loss) from continuing operations:

Years Ended December 31,
(in millions)		2021		2020		2019
Foreign and U.S. components of actual income tax expense (benefit):
U.S.:
Current	$	(216)	$	(57)	$	278
Deferred		2,190		(1,676)		633
Foreign:
Current		171		274		267
Deferred		31		(1)		(12)
Total	$	2,176	$	(1,460)	$	1,166

Our actual income tax expense (benefit) differs from the statutory U.S. federal amount computed by applying the federal income tax rate due to the following:

Years Ended December 31,	2021						2020							2019
		Pre-Tax		Tax	Percent of			Pre-Tax		Tax		Percent of			Pre-Tax		Tax		Percent of
		Income		Expense/	Pre-Tax			Income		Expense/		Pre-Tax			Income		Expense/		Pre-Tax
(dollars in millions)		(Loss)		(Benefit)	Income (Loss)			(Loss)		(Benefit)	Income (Loss)				(Loss)		(Benefit)	Income (Loss)
U.S. federal income tax at statutory
rate	$	12,099	$	2,540	21.0	%	$	(7,288)	$	(1,531)		21.0	%	$	5,336	$	1,120		21.0	%
Adjustments:
Tax exempt interest				(18)	(0.1)					(19)		0.3					(25)		(0.5)
Uncertain tax positions*				(9)	(0.1)					165		(2.3)					258		4.8
Reclassifications from AOCI				(109)	(0.9)					(101)		1.4					(113)		(2.1)
Dispositions of subsidiaries				11	0.1					180		(2.5)					21		0.4
Non-controlling interest				(97)	(0.8)					(12)		0.2					(5)		(0.1)
Non-deductible transfer pricing
charges				16	0.1					11		(0.2)					15		0.3
Dividends received deduction				(37)	(0.3)					(39)		0.5					(40)		(0.7)
Effect of foreign operations				134	1.1					76		(1.0)					82		1.5
Share-based compensation
payments excess tax effect				16	0.1					35		(0.5)					27		0.5
State income taxes				37	0.3					15		(0.2)					13		0.2
Expiration of tax attribute
carryforwards				16	0.1					221		(3.0)					-		-
Tax audit resolution				(935)	(7.6)					(379)		5.2					-		-
Other*				(107)	(0.9)					(16)		0.2					(134)		(2.5)
Effect of discontinued operations				-	-					-		-					(8)		(0.1)
Valuation allowance:
Continuing operations				718	5.9					(65)		0.9					(44)		(0.8)
Consolidated total amounts		12,099		2,176	18.0			(7,288)		(1,459)		20.0			5,336		1,167		21.9
Amounts attributable to discontinued
operations		-		-	-			5		1		20.0			49		1		2.0
Amounts attributable to continuing
operations	$	12,099	$	2,176	18.0	%	$	(7,293)	$	(1,460)		20.0	%	$	5,287	$	1,166		22.1	%

*2020 includes a net charge of $67 million related to the accrual of IRS interest, of which $139 million tax expense is reported in Uncertain tax positions and $72 million tax benefit is reported in Other. 2019 includes a net charge of $96 million related to the accrual of IRS interest, of which $207 million tax expense is reported in Uncertain tax positions and $(111) million tax benefit is reported in Other.

For the year ended December 31, 2021, the effective tax rate on income (loss) from continuing operations was 18.0 percent. The effective tax rate on income (loss) from continuing operations differs from the statutory tax rate of 21 percent primarily due to tax benefits of $935 million associated with the release of reserves for uncertain tax positions, penalties and interest related to the recent completion of audit activity by the IRS, as well as release of reserves for uncertain tax positions and interest related to a New York State tax settlement based on the completion of recent audit activity, $109 million of reclassifications from AOCI to income (loss) from continuing operations related to the disposal of available for sale securities, $97 million related to income attributable to non-controlling interests, and $55 million associated with tax exempt income. These tax benefits were partially offset by a tax charge of $700 million associated with the establishment of U.S. federal valuation allowance related to certain tax attribute carryforwards, $134 million associated with the effect of foreign operations, and $37 million of state and local income taxes. Effect of foreign operations is primarily related to income and losses in our foreign operations taxed at statutory tax rates different than 21 percent, and foreign income subject to U.S. taxation.

For the year ended December 31, 2020, the effective tax rate on income (loss) from continuing operations was 20.0 percent. The effective tax rate on income (loss) from continuing operations differs from the statutory tax rate of 21 percent primarily due to $186 million related to tax effects of the Majority Interest Fortitude Sale, tax charge of $150 million associated with the establishment of U.S. federal valuation allowance related to certain tax attribute carryforwards, a $165 million net charge associated with changes in uncertain tax positions primarily driven by the accrual of IRS interest, $76 million associated with the effect of foreign operations, and $35 million of excess tax charges related to share-based compensation payments recorded through the income statement. These tax charges were partially offset by tax benefits of $379 million associated with the remeasurement of tax liabilities, penalties and interest primarily related to the IRS audit settlement for tax years 1991-2006, $101 million of reclassifications from AOCI to income (loss) from continuing operations related to the disposal of available for sale securities, and $58 million associated with tax exempt income. We also recognized a $221 million tax charge associated with reduction of net operating loss deferred tax assets in certain foreign jurisdictions, with a corresponding decrease in the related deferred tax asset valuation allowance. Effect of foreign operations is primarily related to income and losses in our foreign operations taxed at statutory tax rates different than 21 percent, and foreign income subject to U.S. taxation. As discussed further below, AIG and the IRS entered into a binding settlement agreement related to

tax years 1991-2006. The impact of receiving the final settlement agreement resulted in a remeasurement of tax principal, penalties and interest based on agreed upon settlement amounts.

For the year ended December 31, 2019, the effective tax rate on income (loss) from continuing operations was 22.1 percent. The effective tax rate on income (loss) from continuing operations differs from the statutory tax rate of 21 percent primarily due to a $96 million net charge principally related to the accrual of IRS interest (including interest related to uncertain tax positions), $82 million associated with the effect of foreign operations, $37 million of tax charges and related interest associated with increases in uncertain tax positions primarily related to open tax issues and audits in state and local jurisdictions, $27 million of excess tax charges related to share-based compensation payments recorded through the income statement, and $15 million of non-deductible transfer pricing charges, partially offset by tax benefits of $113 million of reclassifications from AOCI to income (loss) from continuing operations related to the disposal of available for sale securities, $65 million associated with tax exempt income, and $44 million of valuation allowance activity related to certain foreign subsidiaries and state jurisdictions. Effect of foreign operations is primarily related to income and losses in our foreign operations taxed at statutory tax rates different than 21 percent, and foreign income subject to U.S. taxation.

For the year ended December 31, 2021, we consider our foreign earnings with respect to certain operations in Canada, South Africa, Japan, Latin America, Bermuda as well as the European, Asia Pacific and Middle East regions to be indefinitely reinvested. These earnings relate to ongoing operations and have been reinvested in active business operations. While, following the enactment of the Tax Act, distributions from foreign affiliates are, generally, not subject to U.S. income tax, such distributions may be subject to non-U.S. withholding taxes. A deferred tax liability of approximately $74 million related to such withholding taxes has not been recorded for those foreign subsidiaries whose earnings are considered to be indefinitely reinvested. Additionally, as of December 31, 2021, we do not project any significant potential U.S. tax with respect to foreign currency gains or losses accumulated on previously taxed unremitted foreign earnings and therefore no deferred tax has been recorded. Deferred taxes, if necessary, have been provided on earnings of non-U.S. affiliates whose earnings are not indefinitely reinvested. Given the uncertainties around the impact from the COVID-19 pandemic, including the significant global economic slowdown, we continue to monitor and review its impact on our reinvestment considerations, including regulatory oversight in the relevant jurisdictions.

The following table presents the components of the net deferred tax assets (liabilities):

December 31,
(in millions)		2021		2020
Deferred tax assets:
Losses and tax credit carryforwards	$	7,291	$	9,257
Basis differences on investments		2,944		3,718
Fortitude Re funds withheld embedded derivative		543		1,193
Life policy reserves		3,751		2,396
Accruals not currently deductible, and other		634		632
Investments in foreign subsidiaries		-		146
Loss reserve discount		455		423
Loan loss and other reserves		509		560
Unearned premium reserve reduction		283		326
Fixed assets and intangible assets		1,262		1,077
Other		247		-
Employee benefits		407		567
Total deferred tax assets		18,326		20,295
Deferred tax liabilities:
Investments in foreign subsidiaries		(15)		-
Deferred policy acquisition costs		(2,054)		(2,026)
Unrealized gains related to available for sale debt securities		(2,791)		(4,328)
Other		-		(221)
Total deferred tax liabilities		(4,860)		(6,575)
Net deferred tax assets before valuation allowance		13,466		13,720
Valuation allowance		(1,987)		(1,330)
Net deferred tax assets (liabilities)	$	11,479	$	12,390

The following table presents our U.S. consolidated federal income tax group tax losses and credits carryforwards as of December 31, 2021.

																		Unlimited
																	Carryforward
																		Period and
December 31, 2021																	Carryforward
				Tax	Carryforward Period Ending Tax Year(b)													Periods(b)
(in millions)		Gross		Effected		2022		2023		2024		2025		2026		2027	2028 - After
Net operating loss carryforwards	$	27,597	$	5,795	$	-	$	-	$	-	$	-	$	-	$	-	$	5,795
Capital loss carryforwards	$	-		-		-		-		-		-		-		-		-
Foreign tax credit carryforwards				284		-		284		-		-		-		-		-
Other carryforwards				-		-		-		-		-		-		-		-
Total AIG U.S. consolidated federal income
tax group tax losses and credits
carryforwards on a U.S. GAAP basis(a)			$	6,079	$	-	$	284	$	-	$	-	$	-	$	-	$	5,795

(a)Financial reporting basis reflects the impact of unrecognized tax benefits for tax years in which tax attributes can be realized through carryback upon settlement. (b)Carryforward periods are based on U.S. tax laws governing utilization of tax attributes. Expiration periods are based on the year the carryforward was generated.

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, including forecasts of future income for each of our businesses and actual and planned business and operational changes;

 the carryforward periods for the net operating loss, capital loss and foreign tax credit 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.

In performing our assessment of the recoverability of the deferred tax asset under this framework, we consider tax laws governing the utilization of the net operating loss, capital loss and foreign tax credit carryforwards in each applicable jurisdiction. Under U.S. tax law, a company generally must use its net operating loss carryforwards before it can use its foreign tax credit carryforwards, even though the carryforward period for the foreign tax credit is shorter than for the net operating loss. Our U.S. consolidated federal income tax group includes both life companies and non-life companies. While the U.S. taxable income of our non-life companies can be offset by our net operating loss carryforwards, only a portion (no more than 35 percent) of the U.S. taxable income of our life companies can be offset by those net operating loss carryforwards. The remaining tax liability of our life companies can be offset by the foreign tax credit carryforwards. Accordingly, we are able to utilize both the net operating loss and foreign tax credit carryforwards concurrently.

Recent events, including the impact of the recent completion of audit activity by the IRS, the COVID-19 pandemic, changes in target interest rates by the Board of Governors of the Federal Reserve System, and significant market volatility, continue to impact actual and projected results of our business operations as well as our views on potential effectiveness of certain prudent and feasible tax planning strategies. In order to demonstrate the predictability and sufficiency of future taxable income necessary to support the realizability of the net operating losses and foreign tax credit carryforwards, we have considered forecasts of future income for each of our businesses, including assumptions about future macro-economic and AIG-specific conditions and events, and any impact these conditions and events may have on our prudent and feasible tax planning strategies. We also subjected the forecasts to a variety of stresses of key assumptions and evaluated the effect on tax attribute utilization.

The carryforward period of our foreign tax credit carryforwards runs through 2023. Carryforward periods for our net operating losses extend from 2028 forward. However, utilization of a portion of our net operating losses is limited under separate return limitation year rules. During the first quarter of 2021, the recent completion of audit activity by the IRS and subsequent release of certain reserves for uncertain tax positions resulted in an initial recognition of additional net operating loss and foreign tax credit carryforwards arising in

prior years. Taking into account this initial recognition of additional carryforwards as well as other events and our analysis of their potential impact on utilization of our tax attributes, for the three months ended March 31, 2021, we recorded an increase of $700 million in valuation allowance related to a portion of our tax attribute carryforwards that are no longer more-likely-than-not to be realized. No additional activity was recorded for the remainder of 2021. Accordingly, during the year ended December 31, 2021, we have recorded a $700 million valuation allowance through continuing operations.

As of December 31, 2021, the balance sheet reflects a valuation allowance of $850 million related to a portion of our tax attribute carryforwards that are no longer more-likely-than-not to be realized.

Estimates of future taxable income, including income generated from prudent and feasible actions and tax planning strategies, impact of settlements with taxing authorities, and any changes to interpretations and assumptions related to the impact of the Tax Act could change in the near term, perhaps materially, which may require us to consider any potential impact to our assessment of the recoverability of the deferred tax asset. Additionally, estimates of future taxable income, including prudent and feasible tax planning strategies, may be further impacted by market developments arising from the COVID-19 pandemic and uncertainty regarding its outcome. Such potential impact could be material to our consolidated financial condition or results of operations for an individual reporting period.

Further, the planned separation of the Life and Retirement business from AIG, if completed, would result in tax deconsolidation of these entities from the AIG Consolidated Federal Tax Group and potentially impact our ability to utilize certain tax loss and credit carryforwards. Such potential impact could result in valuation allowance being established with respect to such tax attributes in the reporting period in which tax deconsolidation occurs.

For the year ended December 31, 2021, recent changes in market conditions, including the COVID-19 pandemic and interest rate fluctuations, impacted the unrealized tax gains and losses in the available for sale securities portfolios of both our U.S. Life Insurance and non-life insurance companies, resulting in deferred tax liabilities related to net unrealized tax capital gains. As of December 31, 2021, based on all available evidence, we concluded that no valuation allowance is necessary related to our available for sale securities portfolios.

For the year ended December 31, 2021, we recognized a net $18 million increase in deferred tax asset valuation allowance associated with certain foreign and state jurisdictions, primarily attributable to current year activity. The net increase also reflects an increase in valuation allowance due to a corresponding increase in foreign net operating loss deferred tax assets as a result of tax benefits expected to be realized in certain tax jurisdictions. The increase is partially offset by a decrease in deferred tax asset valuation allowance associated with certain foreign jurisdictions due to a corresponding reduction in foreign net operating loss deferred tax assets resulting from the expiration of a portion of net operating losses prior to utilization in Japan.

The following table presents the net deferred tax assets (liabilities) at December 31, 2021 and 2020 on a U.S. GAAP basis:

December 31,
(in millions)		2021		2020
Net U.S. consolidated return group deferred tax assets	$	14,616	$	16,502
Net deferred tax assets (liabilities) in AOCI		(2,764)		(4,259)
Valuation allowance		(859)		(237)
Subtotal		10,993		12,006
Net foreign, state and local deferred tax assets		1,849		1,711
Valuation allowance		(1,128)		(1,093)
Subtotal		721		618
Subtotal - Net U.S., foreign, state and local deferred tax assets		11,714		12,624
Net foreign, state and local deferred tax liabilities		(235)		(234)
Total AIG net deferred tax assets (liabilities)	$	11,479	$	12,390

Deferred Tax Asset of U.S. Consolidated FEDERAL Income Tax Group

At December 31, 2021 and 2020, our U.S. consolidated federal income tax group had net deferred tax assets after valuation allowance of $11.0 billion and $12.0 billion, respectively. At December 31, 2021 and 2020, our U.S. consolidated income tax group had valuation allowances of $859 million and $237 million, respectively. During the year ended December 31, 2021, we recorded an increase of $700 million in valuation allowance related to a portion of our tax attribute carryforwards that are no longer more-likely-than-not to be realized. The valuation allowance activity in 2021 also includes a decrease in valuation allowance due to a corresponding reduction in deferred tax asset resulting from disallowed deductions from prior tax years.

Deferred Tax ASSET – Foreign, State and Local

At December 31, 2021 and 2020, we had net deferred tax assets (liabilities) of $486 million and $384 million, respectively, related to foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that file separate tax returns.

At both December 31, 2021 and 2020, we had deferred tax asset valuation allowances of $1.1 billion related to foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that file separate tax returns. We maintained these valuation allowances following our conclusion that we could not demonstrate that it was more likely than not that the related deferred tax assets will be realized. This was primarily due to factors such as cumulative losses in recent years and the inability to demonstrate profits within the specific jurisdictions over the relevant carryforward periods.

Tax Examinations and Litigation

We file a consolidated U.S. federal income tax return with our eligible U.S. subsidiaries. Income earned by subsidiaries operating outside the U.S. is taxed, and income tax expense is recorded, based on applicable U.S. and foreign laws.

We are currently under examination by the IRS for the tax years 2011 through 2013.

In September 2020, we received the IRS Revenue Agent Report containing agreed and disagreed issues for the audit of tax years 2007-2010. In October 2020, we filed a protest of the disagreed issues with the IRS Independent Office of Appeals (IRS Appeals). In March 2021, the IRS audit team issued their rebuttal to the protest of disagreed issues to IRS Appeals. We had an IRS Appeals conference in October 2021 and are continuing to engage in the Appeals process.

In 2009, after paying amounts due on a statutory notice of deficiency related to the disallowance of foreign tax credits associated with cross border financing transactions, we filed a refund lawsuit in the Southern District of New York (Southern District) with respect to tax year 1997. During the fourth quarter of 2020, the parties executed a binding settlement agreement with respect to the underlying issues in the lawsuit. On October 22, 2020, the Southern District dismissed the case based upon the settlement reached between AIG and the government. The parties continue to review the related interest calculations based on the settlement agreement, which will become due upon the IRS’ issuance of a Notice and Demand for Payment. During June 2021 and October 2021, AIG made additional payments of $354 million and $10 million to the U.S. Treasury with respect to this matter.

Accounting For Uncertainty in Income Taxes

The following table presents a reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits:

Years Ended December 31,
(in millions)		2021		2020		2019
Gross unrecognized tax benefits, beginning of year	$	2,343	$	4,762	$	4,709
Increases in tax positions for prior years		22		45		51
Decreases in tax positions for prior years		(1,233)		(131)		(1)
Increases in tax positions for current year		37		13		4
Settlements		(12)		(2,346)		(1)
Gross unrecognized tax benefits, end of year	$	1,157	$	2,343	$	4,762

At December 31, 2021, 2020 and 2019, our unrecognized tax benefits, excluding interest and penalties, were $1.2 billion, $2.3 billion and $4.8 billion, respectively. The activity for the year ended December 31, 2021 is primarily attributable to the recent completion of audit activity by the IRS and New York State. The activity for the year ended December 31, 2020 includes the impact of the binding settlement agreement with the IRS for tax years 1991-2006 with respect to cross border financing transactions. After remeasurement based on the settlement terms, the remaining balances of the unrecognized tax benefits, penalties and interest related to the 1991-2006 tax years are no longer presented as uncertain tax positions and were reclassified as prior year current tax payable. The activity for the year ended December 31, 2019 includes increases primarily related to open tax issues and audits in state and local jurisdictions.

At December 31, 2021, 2020 and 2019, our unrecognized tax benefits related to tax positions that, if recognized, would not affect the effective tax rate because they relate to such factors as the timing, rather than the permissibility, of the deduction were $22 million, $44 million and $43 million, respectively. Accordingly, at December 31, 2021, 2020 and 2019, the amounts of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate were $1.1 billion, $2.3 billion and $4.7 billion, respectively.

Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2021, 2020, and 2019, we had accrued liabilities of $69 million, $286 million, and $2.4 billion, respectively, for the payment of interest (net of the federal benefit) and penalties. For the years ended December 31, 2021, 2020, and 2019, we accrued expense (benefit) of $(207) million, $128 million and $236 million, respectively, for the payment of interest and penalties. The activity in 2021 is primarily related to the recent completion of audit activity by the IRS and New York State. The activity in 2020 also includes a net decrease of $2.2 billion, which is attributable to decreases and settlements of interest and penalties associated with the completion of the IRS examination for tax years 1991-2006.

We believe it is reasonably possible that our unrecognized tax benefits could decrease within the next 12 months by as much as $15 million, principally as a result of potential resolutions or settlements of prior years’ tax items. The prior years’ tax items include unrecognized tax benefits related to the deductibility of certain expenses.

Listed below are the tax years that remain subject to examination by major tax jurisdictions:

At December 31, 2021	Open Tax Years
Major Tax Jurisdiction
United States	2007-2020
Australia	2017-2020
Canada	2014-2020
France	2019-2020
Japan	2015-2020
Korea	2014-2020
Singapore	2017-2020
United Kingdom	2020-2020