Income Tax

12 Months Ended

Dec. 31, 2019

13. Income Tax

The provision for income tax was as follows:



	Years Ended December 31,
	2019			2018			2017
	(In millions)
Current:
Federal	$	(35	)	$	(178	)	$	368
Foreign	—			—			18
Subtotal	(35		)	(178		)	386
Deferred:
Federal	(303		)	331			(1,124		)
Foreign	—			—			—
Subtotal	(303		)	331			(1,124		)
Provision for income tax expense (benefit)	$	(338	)	$	153		$	(738	)

The reconciliation of the income tax provision at the statutory tax rate to the provision for income tax as reported was as follows:



	Years Ended December 31,
	2019			2018			2017
	(In millions)
Tax provision at statutory rate	$	(241	)	$	235		$	(567	)
Tax effect of:
Excess loss account - Separation from MetLife (1)	—			(2		)	1,088
Rate revaluation due to tax reform (2)	—			—			(696		)
Dividend received deduction (3)	(38		)	(40		)	(116		)
Prior year tax	—			(1		)	(4		)
Tax credits	(29		)	(24		)	(29		)
Release of valuation allowance	—			(11		)	—
Goodwill impairment	—			—			(288		)
Sale of subsidiary	—			—			(136		)
Other, net	(30		)	(4		)	10
Provision for income tax expense (benefit)	$	(338	)	$	153		$	(738	)
Effective tax rate	30		%	14		%	46		%

_______________


(1)	For the year ended December 31, 2017, the Company recognized a non-cash charge to provision for income tax expense and corresponding capital contribution from MetLife. This tax obligation was in connection with the Separation. MetLife, Inc. is responsible for this obligation through the Tax Separation Agreement.


(2)	For the year ended December 31, 2017, the Company recognized a $696 million benefit in net income from remeasurement of net deferred tax liabilities in connection with the Tax Act.

(3)

For the year ended December 31, 2018, the Tax Act changed the dividend received deduction amount applicable to insurance companies to a 70% company share and a 50% dividend received deduction for eligible dividends. The dividend received deduction reduces the amount of dividend income subject to tax and is a significant component of the difference between the actual tax expense and expected amount determined using the statutory tax rate.

Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following at:



	December 31,
	2019			2018
	(In millions)
Deferred income tax assets:
Investments, including derivatives (1)	$	213		$	44
Net operating loss carryforwards	1,082			1,025
Tax credit carryforwards	105			58
Employee benefits	4			4
Intangibles	97			159
Other	18			—
Total deferred income tax assets	1,519			1,290
Deferred income tax liabilities:
Policyholder liabilities and receivables (1)	1,307			1,386
Net unrealized investment gains	858			198
DAC	655			633
Other	—			17
Total deferred income tax liabilities	2,820			2,234
Net deferred income tax asset (liability)	$	(1,301	)	$	(944	)

_______________

(1)

The Company reclassified certain components of the 2018 net deferred income tax asset (liability) upon completion of a Separation related deferred tax basis study in 2019. Total deferred income tax assets and total deferred income tax liabilities increased by $44 million at December 31, 2018 as compared to the amounts previously presented. There was no change in total net deferred income tax asset (liability) resulting from these reclassifications at December 31, 2018.

The following table sets forth the net operating loss carryforwards for tax purposes at December 31, 2019.



	Net Operating Loss Carryforwards
	(In millions)
Expiration
2034-2038	$	3,034
Indefinite	2,119
	$	5,153

The following table sets forth the general business credits and foreign tax credits available for carryforward for tax purposes at December 31, 2019.



	Tax Credit Carryforwards
	General Business Credits		Foreign Tax Credits
	(In millions)
Expiration
2020-2024	$	—	$	18
2025-2029	—		70
2030-2034	—		—
2035-2039	17		—
Indefinite	—		—
	$	17	$	88

The Company’s liability for unrecognized tax benefits may increase or decrease in the next 12 months. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate in the future.

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



	Years Ended December 31,
	2019		2018		2017
	(In millions)
Balance at January 1,	$	34	$	22	$	38
Additions for tax positions of prior years	—		12		—
Reductions for tax positions of prior years	—		—		(4		)
Additions for tax positions of current year	—		—		3
Reductions for tax positions of current year	—		—		(2		)
Settlements with tax authorities	—		—		(13		)
Balance at December 31,	$	34	$	34	$	22
Unrecognized tax benefits that, if recognized would impact the effective rate	$	34	$	34	$	22

The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses, while penalties are included in income tax expense. Interest related to unrecognized tax benefits was not significant. The Company had no penalties for each of the years ended December 31, 2019, 2018 and 2017.

The Company is under continuous examination by the Internal Revenue Service and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject to federal, state or local income tax examinations for years prior to 2007. Management believes it has established adequate tax liabilities, and final resolution of the audit for the years 2007 and forward is not expected to have a material impact on the Company’s consolidated financial statements.

Tax Sharing Agreements

For the periods prior to the Separation, the Company filed a consolidated federal life and non-life income tax return in accordance with the provisions of the Tax Code. Current taxes (and the benefits of tax attributes such as losses) are allocated to the Company, and its includable subsidiaries, under the consolidated tax return regulations and a tax sharing agreement with MetLife. This tax sharing agreement states that federal taxes will be computed on a modified separate return basis with benefits for losses.

For periods after the Separation, the Company and any directly owned life insurance and reinsurance subsidiaries (including BHNY and BRCD) entered in a tax sharing agreement to join a life consolidated federal income tax return. The nonlife subsidiaries of the Company will file their own federal income tax returns. The tax sharing agreements state that federal taxes are computed on a modified separate return basis with benefit for losses.

Income Tax Transactions with Former Parent

The Company entered into a Tax Separation Agreement. Among other things, the Tax Separation Agreement governs the allocation between MetLife and the Company of the responsibility for the taxes of the MetLife group. The Tax Separation Agreement also allocates rights, obligations and responsibilities in connection with certain administrative matters relating to the preparation of tax returns and control of tax audits and other proceedings relating to taxes. In October 2017, MetLife paid $723 million to the Company under the Tax Separation Agreement. At December 31, 2017, the current income tax recoverable included $857 million related to this agreement. In November 2018, MetLife paid $894 million to the Company under the Tax Separation Agreement. In November 2019, the Company paid MetLife $2 million under the Tax Separation Agreement. At December 31, 2019, the current income tax recoverable included a $115 million payable to MetLife related to this agreement.