Income Taxes

Income tax expense (benefit) consisted of the following for the years ended December 31, 2011, 2010, and 2009.



	2011			2010		2009
Current tax expense (benefit):
Federal	$	60.3		$	73.2	$	27.5
State	—			—		(0.9		)
Total current tax expense	60.3			73.2		26.6
Deferred tax expense (benefit):
Federal	(65.3		)	35.8		5.6
Total deferred tax expense (benefit)	(65.3		)	35.8		5.6
Total income tax expense	$	(5.0	)	$	109.0	$	32.2

Income taxes were different from the amount computed by applying the federal income tax rate to income before income taxes for the following reasons for the years ended December 31, 2011, 2010, and 2009.



	2011			2010			2009
Income before income taxes	$	315.3		$	486.9		$	353.6
Tax rate	35.0		%	35.0		%	35.0		%
Income tax expense at federal statutory rate	110.4			170.4			123.8
Tax effect of:
Dividend received deduction	(37.0		)	(23.3		)	(2.6		)
Tax valuation allowance	(87.0		)	(13.7		)	(92.2		)
State audit settlement	—			—			(1.2		)
IRS audit settlement	3.7			(26.8		)	(0.1		)
State tax expense	—			0.6			0.1
Other	4.9			1.8			4.4
Income tax expense	$	(5.0	)	$	109.0		$	32.2

Temporary Differences

The tax effects of temporary differences that give rise to Deferred tax assets and Deferred tax liabilities at December 31, 2011 and 2010, are presented below.



	2011			2010
Deferred tax assets:
Insurance reserves	$	269.6		$	187.1
Investments	89.2			112.5
Postemployment benefits	97.1			83.7
Compensation	22.9			45.9
Other	22.5			22.1
Total gross assets before valuation allowance	501.3			451.3
Less: valuation allowance	(11.1		)	(120.1		)
Assets, net of valuation allowance	490.2			331.2
Deferred tax liabilities:
Net unrealized gain	(357.5		)	(106.8		)
Value of business acquired	(360.9		)	(377.0		)
Deferred policy acquisition costs	(127.0		)	(117.1		)
Total gross liabilities	(845.4		)	(600.9		)
Net deferred income tax liability	$	(355.2	)	$	(269.7	)

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. At December 31, 2011, the Company did not have a tax valuation allowance related to realized and unrealized capital losses. At December 31, 2010, the Company had a tax valuation allowance of $109.0 related to realized and unrealized capital losses. As of December 31, 2011 and 2010, the Company had full tax valuation allowances of $11.1 related to foreign tax credits, the benefit of which is uncertain. The change in net unrealized capital gains (losses) includes an increase (decrease) in the tax valuation allowance of $(22.0), $(68.7), and $(38.3) for the years ended December 31, 2011, 2010, and 2009, respectively.

Tax Sharing Agreement

The Company had a payable to ING AIH of $1.3 and $49.3 for federal income taxes as of December 31, 2011 and 2010, respectively, for federal income taxes under the intercompany tax sharing agreement.

The results of the Company's operations are included in the consolidated tax return of ING AIH. Generally, the Company's consolidated financial statements recognize the current and deferred income tax consequences that result from the Company's activities during the current and preceding periods pursuant to the provisions of Income Taxes (ASC 740) as if the Company were a separate taxpayer rather than a member of ING AIH's consolidated income tax return group with the exception of any net operating loss carryforwards and capital loss carryforwards, which are recorded pursuant to the tax sharing agreement. The Company's tax sharing agreement with ING AIH states that for each taxable year during which the Company is included in a consolidated federal income tax return with ING AIH will pay to the Company an amount equal to the tax benefit of the Company's net operating loss carryforwards and capital loss carryforwards generated in such year, without regard to whether such net operating loss carryforwards and capital loss carryforwards are actually utilized in the reduction of the consolidated federal income tax liability for any consolidated taxable year.

Unrecognized Tax Benefits

Reconciliations of the change in the unrecognized income tax benefits for the years ended December 31, 2011 and 2010 are as follows:



	2011			2010
Balance at beginning of period	$	23.0		$	12.8
Additions for tax positions related to prior years	4.5			36.2
Reductions for tax positions related to prior years	(4.5		)	(25.8		)
Reductions for settlements with taxing authorities	(23.0		)	(0.2		)
Balance at end of period	$	—		$	23.0

The Company had no unrecognized tax benefits as of December 31, 2011 and 2010, which would affect the Company's effective tax rate if recognized.

Interest and Penalties

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in Current income taxes and Income tax expense on the Consolidated Balance Sheets and the Consolidated Statements of Operations, respectively. The Company had no accrued interest as of December 31, 2011 and 2010. The decrease during the tax period ended December 31, 2011 is primarily related to the settlement of the 2009 federal audit.

Tax Regulatory Matters

In March 2011, the Internal Revenue Service (“IRS”) completed its examination of the Company's returns through tax year 2009. In the provision for the year ended December 31, 2011, the Company reflected an increase in the tax expense based on the results of the IRS examination and monitoring the activities of the IRS with respect to certain issues with other taxpayers and the merits of the Company's position.

The Company is currently under audit by the IRS for tax years 2010 through 2012, and it is expected that the examination of tax year 2010 will be finalized within the next twelve months. The Company and the IRS have agreed to participate in the Compliance Assurance Program (“CAP”) for the tax years 2010 through 2012.