Note 6: Income Taxes

For the years ended December 31, 2014 and December 31, 2013, the Company recorded net income of approximately $3.1 million and $0.3 million, respectively, and recorded a net loss for the year ended December 31, 2012, of $15.8 million. The Company has not recorded an income tax expense or benefit for the years ended December 31, 2014, 2013 or 2012.

	2014		2013		2012
Current federal income tax expense	$	—	$	—	$	—
Provision for doubtful federal income tax receivable		—		—		—
Deferred federal income tax (benefit) expense		—		—		—
Federal income tax benefit	$	—	$	—	$	—

The items accounting for the difference between income taxes computed at the US federal statutory rate and our effective rate were as follows:

	Successor									Predecessor
	Year Ended			Year Ended			Period from			Period from
	December 31, 2014			December 31, 2013			March 20, 2012 through December 31, 2012			January 1, 2012 through March 19, 2012
Income tax at the federal statutory rate of 35%		35	%		35	%		-35	%		-35	%
Effect of:
Worthless stock deduction	—			13			(23,718)			—
Cancelation of debt	—			—			2,401			—
As filed adjustments	—			(14,505)			—			—
Adjustments to NOL due to 382 limitation	(9)			—			4,518			—
Change in valuation allowance	(26)			14,457			16,834			35
Effective rate	—		%	—		%	—		%	—		%

The Company files a consolidated federal income tax return. Pursuant to a tax sharing agreement, WMMRC’s federal income tax liability is calculated on a separate return basis determined by applying 35 percent to taxable income, in accordance with the provisions of the Code that apply to property and casualty insurance companies. WMIHC, as WMMRC’s parent, pays federal income taxes on behalf of WMMRC and settles the federal income tax obligation on a current basis in accordance with the tax sharing agreement. WMMRC made no tax payments to WMIHC during the years ending December 31, 2014, 2013, or 2012 associated with the Company’s tax liability from the preceding year.

Deferred federal income taxes arise from temporary differences between the valuation of assets and liabilities as determined for financial reporting purposes and income tax purposes. Temporary differences principally relate to discounting of loss reserves, accruals, net operating losses, and unrealized gains and losses on investments. As of December 31, 2014, 2013 and 2012, the Company recorded a valuation allowance equal to 100 percent of the net deferred federal income tax asset due to uncertainty regarding the Company’s ability to realize these benefits in the future.

The components of the net deferred tax asset as of December 31, 2014 and 2013, respectively, are as follows:

	2014		2013
Deferred federal income tax asset:
Losses and loss adjustments expenses	$	—	$	143
Net operating loss carryforward		2,098,597		2,087,490
Accruals and reserves		4,531		16,387
As filed adjustments		214		130
Capital loss carryforward		52,603		52,756
Total deferred federal income tax asset		2,155,945		2,156,906
Deferred federal income tax liabilities:
Net unrealized gains on investments		154		425
Losses and loss adjustments expenses		102		—
Total deferred federal income tax liabilities		256		425
Less: Valuation allowance		2,155,689		2,156,481
Net deferred federal income tax asset	$	—	$	—

On March 19, 2012, WMIHC emerged from bankruptcy. Prior to emergence, WMI abandoned the stock of WMB, thereby generating a worthless stock deduction of approximately $8.37 billion which gives rise to an NOL for the year ended December 31, 2012. Under Section 382 of the Code, and based on the Company’s analysis, we believe that the Company experienced an “ownership change” (generally defined as a greater than 50 percent change (by value) in our equity ownership over a three-year period) on March 19, 2012, and our ability to use our pre-change of control NOLs and other pre-change tax attributes against our post-change income was limited. The Section 382 limitation is applied annually so as to limit the use of our pre-change NOLs to an amount that generally equals the value of our stock immediately before the ownership change multiplied by a designated federal long-term tax-exempt rate. Due to applicable limitations under Section 382 and a reduction of tax attributes due to cancellation of indebtedness, a portion of these NOLs were limited and will expire unused. We believe that the total available and utilizable NOL carry forward at December 31, 2014 is approximately $6.00 billion. At December 31, 2014, there was no limitation on the use of these NOLs. These NOLs will begin to expire in 2031. The Company’s ability to utilize the NOLs or realize any benefits related to the NOLs is subject to a number of risks.

The Company accounts for uncertain tax positions in accordance with the income taxes accounting guidance. The Company has analyzed filing positions in the federal and state jurisdiction where it is required to file tax returns, as well as the open tax years in these jurisdictions. Tax years 2011 to present are subject to examination by the Internal Revenue Service. The Company believes that its federal income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain federal income tax positions have been recorded. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the provision for federal income taxes. The Company did not incur any federal income tax related interest income, interest expense or penalties for the periods ended December 31, 2014, 2013 and 2012.