Income Taxes

12 Months Ended

Dec. 31, 2019

Income tax expense (benefit) consisted of the following for the periods indicated:



	Year Ended December 31,
	2019		2018		2017
Current tax expense (benefit):
Federal	$	9	$	3	$	(6	)
Total current tax expense (benefit)	9		3		(6		)
Deferred tax expense (benefit):
Federal	23		58		(95		)
Total deferred tax expense (benefit)	23		58		(95		)
Total income tax expense (benefit)	$	32	$	61	$	(101	)

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 periods indicated:



	Year Ended December 31,
	2019			2018				2017
Income (loss) before income taxes	$	332		$	506			$	14
Tax rate	21.0		%	21.0		%		35.0		%
Income tax expense (benefit) at federal statutory rate	70			106				5
Tax effect of:
Dividends received deduction	(35		)	(49		)		(36		)
Valuation allowance	—			9				(5		)
Tax Attribute	(4		)	—				5
Effect of Tax Reform	—			—			—	(71		)
Other	1			(5		)		1
Income tax expense (benefit)	$	32		$	61			$	(101	)
Effective tax rate	9.6		%	12.1		%		(721.4		)%

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("Tax Reform"). Tax Reform made broad changes to U.S. federal tax law, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) changing the computations of the dividends received deduction, tax reserves, and deferred acquisition costs; (3) eliminating the net operating loss (“NOL”) carryback and limiting the NOL carryforward deduction to 80% of taxable income for losses arising in taxable years beginning after December 31, 2017; and (4) changing how alternative minimum tax (AMT) credits can be realized. Tax Reform eliminated the corporate AMT and allows the AMT credit carryforward to be refunded over the next 4 years. Any refundable corporate AMT credit is not subject to the sequestration requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended.

Temporary Differences

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of the dates indicated, are presented below.



	December 31,
	2019			2018
Deferred tax assets
Insurance reserves	$	107		$	74
Investments	23			79
Compensation and benefits	57			58
Other assets	34			34
Total gross assets	221			245

Deferred tax liabilities
Net unrealized investment (gains) losses	(424		)	(45		)
Deferred policy acquisition costs	(101		)	(205		)
Total gross liabilities	(525		)	(250		)
Net deferred income tax asset (liability)	$	(304	)	$	(5	)

Valuation allowances are provided when it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2019 and 2018, the Company had no valuation allowance. However, the application of intra-period tax allocation rules to benefits associated with capital deferred tax assets resulted in a valuation allowance as of December 31, 2019 and 2018 of $128 in continuing operations, offset by a corresponding benefit in Other comprehensive income.

For the year ended December 31, 2019, the application of the intra-period tax allocation rules to capital deferred assets did not result in changes to the valuation allowance within continuing operations or Other comprehensive income. For the year ended December 31, 2018, the application of the intra-period tax allocation rules to capital deferred assets resulted in an increase of $9 in the valuation allowance within continuing operations, offset by a benefit of $9 within Other comprehensive income.

For the year ended December 31, 2017, the decrease in the valuation allowance was $5, all of which was allocated to continuing operations.

Tax Sharing Agreement

As of December 31, 2019 and 2018, the Company had a receivable from Voya Financial of $9 and $32, 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 Voya Financial. 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 Topic 740) as if the Company were a separate taxpayer rather than a member of Voya Financial'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. If the Company instead were to follow a separate taxpayer approach without any exceptions, there would be no impact to income tax expense (benefit) for the periods indicated above. However, any current tax benefit related to the Company's tax attributes realized by virtue of its inclusion in the consolidated tax return of Voya Financial would have been recorded directly to equity rather than income. Under the tax sharing agreement, Voya Financial 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 benefit of losses generated.

Unrecognized Tax Benefits

The Company had no unrecognized tax benefits as of December 31, 2019 and December 31, 2018.

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, 2019 and December 31, 2018.

Tax Regulatory Matters

For the tax years 2017 through 2020, Voya Financial, Inc. participates in the IRS Compliance Assurance Process (CAP), which is

a continuous audit program provided by the IRS. The IRS finalized the audit of Voya Financial, Inc. for the periods ended December

31, 2017 and December 31, 2018. For the periods ended December 31, 2019 and December 31, 2020, the IRS has determined that

Voya Financial, Inc. would be in the Compliance Maintenance Bridge (Bridge) phase of CAP. In the Bridge phase, the IRS does

not intend to conduct any review or provide any letters of assurance for the tax year.