Note 5: Income Taxes

For the year ended December 31, 2015, the Company recorded a net loss of approximately $61.8 million, and recorded net income for the years ended December 31, 2014 and December 31, 2013, of $3.1 million and $0.3 million, respectively. The Company has not recorded an income tax expense or benefit for the years ended December 31, 2015, 2014 or 2013.

	2015		2014		2013
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 U.S. federal statutory rate and our effective rate were as follows:

	Year Ended			Year Ended			Year Ended
	December 31, 2015			December 31, 2014			December 31, 2013
Income tax at the federal statutory rate of 35%		35	%		35	%		35	%
Effect of:
Dividends on Preferred Securities	(8)			—			—
Worthless stock deduction	—			—			13
As filed adjustments	—			—			(14,505)
Adjustments to NOL due to 382 limitation	—			(9)			—
Change in valuation allowance	(27)			(26)			14,457
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% to taxable income, in accordance with the provisions of the Code that apply to property and casualty insurance companies. WMIH, 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 WMIH during the years ending December 31, 2015, 2014, or 2013 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, derivate liabilities, net operating losses, and unrealized gains and losses on investments. As of December 31, 2015, 2014 and 2013, the Company recorded a valuation allowance equal to 100% 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, 2015, 2014 and 2013, respectively, are as follows:

	Year Ended		Year Ended		Year Ended
	December 31, 2015		December 31, 2014		December 31, 2013
Deferred federal income tax asset:
Net operating loss carryforward	$	2,102,482	$	2,098,597	$	2,087,490
Accruals and reserves		3,481		4,531		16,387
Derivative liabilities		19,117		—		—
Losses and loss adjustments expense		—		—		143
Restricted stock grants		160		—		—
As filed adjustments		—		214		130
Net unrealized loss on investments		16		—		—
Capital loss carryforward		52,490		52,603		52,756
Total deferred federal income tax asset		2,177,746		2,155,945		2,156,906
Deferred federal income tax liabilities:
Net unrealized gain on investments		—		154		425
Losses and loss adjustments expense		411		102		—
Total deferred federal income tax liabilities		411		256		425
Less: Valuation allowance		2,177,335		2,155,689		2,156,481
Net deferred federal income tax asset	$	—	$	—	$	—

On March 19, 2012, WMIH 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% 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, 2015 is approximately $6.0 billion. At December 31, 2015, 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 tax 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 years ended December 31, 2015, December 31, 2014 and December 31, 2013.