INCOME TAXES

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Tax Disclosure [Text Block]

10. FEDERAL INCOME TAXES

The Company accounts for current and deferred income taxes in the manner prescribed by FASB ASC Topic 740. A summary of the components of income tax (benefit) expense in the consolidated statements of operations for the years endedDecember 31is as follows:

	2011		2010		2009
Income tax (benefit) expense:
Current	$	(30,769)	$	(78,166)	$	40,092
Deferred		(49,932)		149,377		295,557
Total income tax (benefit) expense related to
continuing operations	$	(80,701)	$	71,211	$	335,649
Total income tax expense related to
discontinued operations	$	-	$	-	$	40,690

Federal income taxes attributable to the Company's consolidated operations are different from the amounts determined by multiplying income before federal income taxes by the expected federal income tax rate of 35%. The following is a summary of the differences between the expected income tax (benefit) expense at the prescribed U.S. federal statutory income tax rate and the total amount of income tax (benefit) expense that the Company has recorded.

		2011		2010		2009
Expected federal income tax expense	$	(64,336)	$	71,920	$	424,261
Low income housing tax credits		(1,885)		(2,028)		(3,880)
Separate account dividends received deduction		(14,702)		(14,702)		(16,232)
Prior year adjustments/settlements		(968)		5,243		1,320
Valuation allowance-capital losses		-		-		(69,670)
Goodwill impairment		2,450		11,559		-
Adjustments to tax contingency reserves		-		305		1,605
Other items		(1,265)		(1,358)		(1,949)
Federal income tax (benefit) expense		(80,706)		70,939		335,455
State income tax expense		5		272		194
Total income tax (benefit) expense related to
continuing operations	$	(80,701)	$	71,211	$	335,649
Total income tax expense related to
discontinued operations	$	-	$	-	$	40,690

10. FEDERAL INCOME TAXES (CONTINUED)

The net deferred tax asset represents the tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. The components of the Company's net deferred tax asset as of December 31were as follows:

		2011		2010
Deferred tax assets:
Actuarial liabilities	$	689,286	$	155,285
Tax loss carryforwards		251,591		347,172
Investments, net		79,417		188,110
Goodwill and other impairments		34,573		47,303
Other		15,897		74,218
Gross deferred tax assets		1,070,764		812,088
Valuation allowance		-		-
Total deferred tax assets		1,070,764		812,088
Deferred tax liabilities:
Deferred policy acquisition costs		(622,388)		(417,791)
Total deferred tax liabilities		(622,388)		(417,791)
Net deferred tax asset	$	448,376	$	394,297

Under the applicable asset and liability method for recording deferred income taxes, deferred taxes are recognized when assets and liabilities have different values for financial statement and tax reporting purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company's net deferred tax asset at December 31, 2011 and 2010 was comprised of gross deferred tax assets and gross deferred tax liabilities. The gross deferred tax asset was primarily related to unrealized investment security losses, actuarial liabilities and net operating loss (“NOL”) carryforwards, as well as a capital loss carryforward generated in 2009. At December 31, 2011, the Company had $698.9 million of NOL carryforwards and $20.0 million of capital loss carryforward. At December 31, 2010, the Company had $958.2 million of NOL carryforwards and $33.7 million of capital loss carryforward. If not utilized, the NOL carryforwards will begin to expire in 2023 and the capital loss carryforward will expire in 2014.The Company's net deferred tax asset was $448.4 million and $394.3 million at December 31, 2011 and 2010, respectively.

10. FEDERAL INCOME TAXES (CONTINUED)

The Company performs the required recoverability (realizability) test in terms of its ability to realize its recorded net deferred tax asset. In making this determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income and sources of capital gains, the Company utilizes historical and current operating results and incorporates assumptions including the amount of future federal and state pre-tax operating income, the reversal of temporary differences, and the implementation of prudent and feasible tax planning strategies.

During the year ended December 31, 2011, no valuation allowance was recorded against the deferred tax asset for investment losses. The Company believes that it is more likely than not that the deferred tax asset related to impairment losses will be realized due to tax planning strategies related to certain mortgage-backed securities, the Company's intent and ability to hold the related investment securities to maturity, and other tax planning strategies. For the remaining unrealized losses, the Company believes that it is more likely than not that the related deferred tax asset will be realized due to the Company's intent and ability to hold the related investment securities to recovery of amortized cost.

FASB ASC Topic 740 establishes a comprehensive reporting model which addresses how a business entity should recognize, measure, present and disclose uncertain tax positions that the entity has taken or plans to take on a tax return.

The liability for unrecognized tax benefits (“UTBs”) related to permanent and temporary tax adjustments, exclusive of interest, was $32.9 million, $31.2 million and $42.0 million at December 31, 2011, 2010 and 2009, respectively. Of the $32.9 million, $1.6 million represents the amount of UTBs that, if recognized, would favorably affect the Company's effective income tax rate in future periods, exclusive of any related interest.

The netincrease (decreases) in the tax liability for UTBs of $1.7 million, $(10.8) million and $(8.7) million in the years endedDecember 31,2011, 2010 and 2009, respectively, resulted from the following:

	2011		2010		2009
Balance at January 1	$	31,217	$	41,989	$	50,679
Gross increases related to tax positions in prior years		13,855		23,214		7,950
Gross decreases related to tax positions in prior years		(4,472)		(16,170)		(16,640)
Settlements		(7,659)		(20,187)		-
Close of tax examinations/statutes of limitations		-		2,371		-
Balance at December 31	$	32,941	$	31,217	$	41,989

10. FEDERAL INCOME TAXES (CONTINUED)

The Company has elected to recognize interest and penalties accrued related to UTBs in interest expense (income). During the years endedDecember 31,2011, 2010and 2009, the Company recognized $2.6million, $6.4 million and $(9.0) million, respectively, in gross interest expense (income)related to UTBs. The Company had approximately $9.2 million and $6.6 million of interest accrued at December 31, 2011 and 2010, respectively. During2010, the Company settled interest assessments of $4.6 million with the Internal Revenue Service (the “IRS”) for the 2001 and 2002 tax years. The Company did not accrue any penalties.

While the Company expects the amount of unrecognized tax liabilities to change in the next twelve months, it does not expect the change to have a significant impact on its results of operations or financial position.

The Company files federal income tax returns and income tax returns in various state and local jurisdictions. With few exceptions, the Company is no longer subject to examinations by the tax authorities in these jurisdictions for tax years before 2003. In August 2006, the IRS issued a Revenue Agent's Report for the Company's 2001 and 2002 tax years. The Company disagreed with some of the proposed adjustments, filed a protest, and the case was assigned to the Appeals division of the IRS (“Appeals”). A settlement was reached and formally approved by the Company on January 11, 2010. The effects of the settlement are in line with previous expectations and had no material impact on the Company's consolidated financial statements.

On August 4, 2011, the IRS held an Opening Conference with the Company for the audit of the tax years 2007-2009. The Company is in the process of responding to the IRS requests for information. The Company also provided a disclosure letter to the IRS on September 21, 2011, informing the IRS of potential issues in the tax years under audit.

On January 6, 2011, the IRS issued a Revenue Agent's Report for the Company for tax years 2005 and 2006. The Company disagrees with some of the issues and is in the process of filing a protest. While the final outcome of the appeal and ongoing tax examinations is not determinable, the Company has adequate liabilities accrued and does not believe that any adjustments would be material to its financial position.

In October 2008, the IRS issued a Revenue Agent's Report for the Company's tax years 2003 and 2004. The Company disagreed with some of the adjustments and filed a protest, which was assigned to Appeals in 2009. On May 27, 2010, the IRS held an opening conference for the 2003 and 2004 Appeals. The Company is involved in discussions with the IRS to reach a resolution.

The Company will file a consolidated federal income tax return with SLC – U.S. Ops Holdings for the year endedDecember 31, 2011,as the Company did for the years endedDecember 31, 2010and 2009.

Effective December 31, 2009, the Company paid a dividend of all of the issued and outstanding common stock of Sun Life Vermont to the Parent. Sun Life Vermont continues to be included in the consolidated federal income tax return of the Parent after 2009.

The Company makes or receives payments under certain tax sharing agreements with SLC – U.S. Ops Holdings. Under these agreements, such payments are determined based upon the Company's stand-alone taxable income (as if it were filing as a separate company) and based upon the SLC – U.S. Ops Holdings consolidated group's overall taxable position. Under the terms of the tax sharing agreements, deferred tax assets for tax attributes are realized by the Company when the tax attributes are utilized by the consolidated group. The Company received income tax refunds of $21.0 million and $107.1 million in 2011 and 2010, respectively, and made income tax payments of $21.1 million in 2009.