Income Taxes

Income tax expense (benefit) consisted of the following for the years ended December 31, 2012, 2011 and 2010.



	2012			2011			2010
Current tax expense (benefit):
Federal	$	200.9		$	60.3		$	73.2
Total current tax expense (benefit)	200.9			60.3			73.2
Deferred tax expense (benefit):
Federal	(9.7		)	(65.3		)	35.8
Total deferred tax expense (benefit)	(9.7		)	(65.3		)	35.8
Total income tax expense (benefit)	$	191.2		$	(5.0	)	$	109.0

Income taxes were different from the amount computed by applying the federal income tax rate to income (loss) before income taxes for the following reasons for the years ended December 31, 2012, 2011 and 2010:




	2012			2011			2010
Income (loss) before income taxes	$	516.6		$	315.3		$	486.9
Tax rate	35.0		%	35.0		%	35.0		%
Income tax expense (benefit) at federal statutory rate	180.8			110.4			170.4
Tax effect of:
Dividends received deduction	(18.6		)	(37.0		)	(23.3		)
Valuation allowance	—			(87.0		)	(13.7		)
IRS audit adjustment	(0.3		)	3.7			(26.8		)
Prior year tax	28.1			—			—
State tax expense (benefit)	—			—			0.6
Other	1.2			4.9			1.8
Income tax expense (benefit)	$	191.2		$	(5.0	)	$	109.0

Based on its 2011 tax return as filed, the Company decreased its estimated deferred tax assets by $28.1.

Temporary Differences

The tax effects of temporary differences that give rise to Deferred tax assets and Deferred tax liabilities as of December 31, 2012 and 2011, are presented below.



	2012			2011
Deferred tax assets:
Insurance reserves	$	255.4		$	269.6
Investments	87.5			89.2
Postemployment benefits	50.6			97.1
Compensation and benefits	44.4			22.9
Other assets	24.5			22.5
Total gross assets before valuation allowance	462.4			501.3
Less: Valuation allowance	11.1			11.1
Assets, net of valuation allowance	451.3			490.2

Deferred tax liabilities:
Net unrealized investment (gains) losses	(482.4		)	(357.5		)
Deferred policy acquisition costs	(143.8		)	(127.0		)
Value of business acquired	(332.2		)	(360.9		)
Total gross liabilities	(958.4		)	(845.4		)
Net deferred income tax liability	$	(507.1	)	$	(355.2	)

Net unrealized capital losses are presented as a component of other comprehensive income (loss) in Shareholder's equity, net of deferred taxes.

Valuation allowances are provided when it is considered unlikely that deferred tax assets will be realized. As of December 31, 2012 and 2011, the Company had a tax valuation allowance of $62.8 that was allocated to Net income (loss) and $(51.7) that was allocated to Other comprehensive income. As of December 31, 2012 and 2011, the Company had a full valuation allowance of $11.1 related to foreign tax credits, the benefit of which is uncertain.

Tax Sharing Agreement

The Company had a payable to ING U.S., Inc. of $32.1 and $1.3 for federal income taxes as of December 31, 2012 and 2011, 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 U.S., Inc. 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 U.S., Inc.'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 U.S., Inc. states that for each taxable year prior to January 1, 2013 during which the Company is included in a consolidated federal income tax return with ING U.S., Inc., ING U.S., Inc. 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.

Effective January 1, 2013, the Company entered into a new tax sharing agreement with ING U.S., Inc. which provides that, for 2013 and subsequent years, ING U.S., Inc. will pay the Company for the tax benefits of ordinary and capital losses only in the event that the consolidated tax group actually uses the tax benefits of losses generated.

Unrecognized Tax Benefits

Reconciliations of the change in the unrecognized income tax benefits for the years ended December 31, 2012 and 2011 are as follows:



	2012		2011
Balance at beginning of period	$	—	$	23.0
Additions for tax positions related to prior years	—		4.5
Reductions for tax positions related to prior years	—		(4.5		)
Reductions for settlements with taxing authorities	—		(23.0		)
Balance at end of period	$	—	$	—

The Company had no unrecognized tax benefits as of December 31, 2012 and 2011 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, 2012 and 2011.

Tax Regulatory Matters

In March 2012, the Internal Revenue Service ("IRS") completed its examination of the Company's return for tax year 2010. The 2010 audit settlement did not have a material impact on the financial statements.

The Company is currently under audit by the IRS for tax years 2011 through 2012 and it is expected that the examination of tax year 2011 will be finalized within the next twelve months. The Company and the IRS have agreed to participate in the Compliance Assurance Program ("CAP") for tax years 2011, 2012 and 2013.