Bailed Out AIG Posts Huge "Beat" On Tax Gimmick, Will Avoid Paying Taxes For Years

Tyler Durden's picture




 

AIG just conducted a two-fold master class of i) how to confuse Wall Street of having "superb" earnings, and ii) how to avoid paying any corporate taxes for years to come. Because as part of the company's just announced massive $19.8 billion profit, a whopping $17.8 billion was nothing short of the oldest tax accounting gimmick in the book - the release of a valuation allowance (i.e., deferred tax liability vs deferred tax asset conversion). In other words, apples to apples, the real Net Income attributable to shareholders was not $19.8 billion but realistically $2 billion, which would compare to last year's $11.2 billion if only it was not for a $13.5 billion gain on divested business posted in Q4 2011, when the company again was fudging numbers like a drunken sailor. Anyway, we are confident even the algos will figure it out eventually. But the real slap in the face coming from this bailed out company is that as a result of this accounting change, AIG will essentially not pay any taxes for years to come, most likely until its next insolvency.

 Reuters explains: "Bailed-out insurer American International Group reported a profit of $19.8 billion for the fourth quarter, after an accounting determination that it is likely to post future profits let it release the value of some tax benefits. The move essentially means AIG will not pay tax on tens of billions of dollars of income in the coming years, thanks to benefits that stem from its financial crisis-era losses." In other words, the company that is still primarily held by the Treasury, i.e., America's taxpayers, has just repaid its generous bailout provider by halting all tax payments on future profits, courtesy of some bespectacled tax accountant in some dark room agreeing that AIG can now use its NOL carryforward in perpetuity, as the firm is now "viable."

And that is how corporate cronysim thrives in what what is without a doubt the world's most laughable banana republic (after Bavaria Sachs of course).

From Reuters:

AIG said in the third quarter that its results in the fourth quarter would determine whether it could release a so-called valuation allowance against the tax assets.

 

Having determined it is more likely than not to be consistently profitable in the future, it released most of the allowance in the quarter.

 

Some of the allowance, related to the company's life insurance business, was not released, a recognition that future profits are not as immediately certain there.

And from the company itself:

Net income reflected a U.S. consolidated income tax group deferred tax asset valuation allowance release of $17.7 billion for the quarter and $16.6 billion for full year 2011. As previously disclosed, AIG established a framework for assessing the recoverability of its deferred tax assets. Based on the application of this framework, AIG concluded that it is more likely than not that a substantial portion of the deferred tax assets of the U.S. consolidated income tax group will be realized, and therefore released the valuation allowance equal to that portion in the fourth quarter 2011.

But at least the stock is up mildly in the after hours. We dare not even ask how many Italian bonds the insurer was long in the past quarter, and avoided to take marks on courtesy of MTM still being dead in the abovementioned banana republic.

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Thu, 02/23/2012 - 17:45 | 2190740 hidingfromhelis
hidingfromhelis's picture

Ha!  In US, corporations don't pay taxes; taxes pay corporation.  What a wonderful country!

Thu, 02/23/2012 - 18:00 | 2190785 bdc63
bdc63's picture

so, 50% of the population doesn't pay taxes ... and corporations don't pay taxes ...

I'm really starting to feel like a real smuck ...

Thu, 02/23/2012 - 18:07 | 2190813 greased up deaf guy
greased up deaf guy's picture

congrats, aig execs.  bonuses all around.

Thu, 02/23/2012 - 18:11 | 2190825 johnu1978
Thu, 02/23/2012 - 18:23 | 2190879 CompassionateFascist
CompassionateFascist's picture

Good on 'ya, AIG: starve the Socialist Beast. Steepen the walls of the global Ponzi. IIIIIIIIIIIIIIIIIII like it! Gazes lovingly at M1A leaning against wall, unholsters S&W hand cannon...

Fri, 02/24/2012 - 07:09 | 2192156 Optimusprime
Optimusprime's picture

Thanks for the Elpel link.

Thu, 02/23/2012 - 20:14 | 2191220 non_anon
non_anon's picture

i wonder who the jew was behind this facade?

"All Hank Greenberg ever wanted was "an unfair advantage." That is the phrase that Ron Shelp chooses to sum up Maurice R. Greenberg, the deposed chairman of the American International Group and the subject of his “Fallen Giant: The Amazing Story of Hank Greenberg and the History of A.I.G.,” and it would be hard to improve on.

http://www.amazon.co.uk/Fallen-Giant-Amazing-Greenberg-History/dp/047191696X

Thu, 02/23/2012 - 21:34 | 2191408 Hive Raid
Hive Raid's picture

Seems to me that this is a non-issue.

The fake financial loss will offset the fake financial profit in the long term, and the associated fake tax benefit will offset the fake increase in taxes (from the fake financial profit) in the long term.

It all zeroes out. Any tax experts out there?

It's an exciting headline, just like the "GE pays no taxes" thing, but perhaps that's the result of the arithmetic being one step too complicated for people to make sense of.

I was more galled by Malcolm-O's plan to increase capital gains tax to something over 50%.

Thu, 02/23/2012 - 22:44 | 2191587 StormShadow
StormShadow's picture

Fuck this! Only bailout bonus any corporation execs get from now on is a cross, a few nails, 5 gallons of gas, n a match.

Fri, 02/24/2012 - 00:36 | 2191816 Hive Raid
Hive Raid's picture

Point being that the travesty is the bailout/theft itself, and not the long-term-neutral tax effects of wildly fluctuating valuation account balances.

Thu, 02/23/2012 - 18:11 | 2190826 johnnynaps
johnnynaps's picture

I felt the same way 2 years ago. Now, because jobs are so plentiful I just exist here in the US. At least I get to milk my wife's gment bennies while I watch my daughter grow up. It is a good feeling not contributing to this insanity.

Thu, 02/23/2012 - 18:13 | 2190837 Rogier
Rogier's picture

People not paying taxes, corporations not paying taxes, the BLS and NAR and the CBO cooking the books. Hum, smells like... Greece!

Thu, 02/23/2012 - 18:13 | 2190839 johnnynaps
johnnynaps's picture

Yep, you pay taxes for the pleasure of being enslaved by corporate Amerika.

Thu, 02/23/2012 - 19:26 | 2191016 vast-dom
vast-dom's picture

Elect me Prez (of no party) and let me run this country back into solvency and I promise to let you in on this little gov accounting gimmick secret: personal income taxes are a scam: the gov don't need that money when they print and bail out everyone, including foreign nations = personal income taxes are simply for exploiting and controlling the populace (don't believe me? look at discrepency between actual net collection of personal income taxes vs. net tax allowances ie tax forgiveness to large corps like AIG and EXXON and you quickly realize what the IRS and the gov are really doing).

Fri, 02/24/2012 - 07:12 | 2192157 Optimusprime
Optimusprime's picture

Be careful--you are using your mind for thinking about reality.  It can be lonely.

Thu, 02/23/2012 - 19:26 | 2191085 Offtheradar
Offtheradar's picture

God, I'm glad i'm an american.  Shit like this makes me proud!

Thu, 02/23/2012 - 17:47 | 2190743 AC_Doctor
AC_Doctor's picture

With help of the US Government fudge packer accountants, of course.

Thu, 02/23/2012 - 17:47 | 2190744 navy62802
navy62802's picture

Mussolini would be proud.

Thu, 02/23/2012 - 17:48 | 2190750 I think I need ...
I think I need to buy a gun's picture

is anyone paying attention to muni bonds looks like they are about to roll over, the final shearing of the sheep has finally arrived

Thu, 02/23/2012 - 17:58 | 2190764 LouisDega
LouisDega's picture

I thought Muni was dead. Bullish for Dave Herman

Thu, 02/23/2012 - 17:56 | 2190769 bdc63
bdc63's picture

paging Whitney ... Meredith Whitney ... you're wanted on line 2 ...

Thu, 02/23/2012 - 17:52 | 2190756 Dr. Engali
Dr. Engali's picture

I'll bet you won't see this on the front pages anywhere.

Thu, 02/23/2012 - 17:53 | 2190760 I should be working
I should be working's picture

Wait, they get to write off losses that the US taxpayer bailed them out of?  So they don't have to pay taxes to the US government?  WTF

Thu, 02/23/2012 - 17:53 | 2190762 thetruthseeker
thetruthseeker's picture

If in the land of the insane the sane man is insane, then I must be absolutely batshit crazy after reading this farcical mess.  We live in Orwell's 1984 where 2+2=5.

I just went over Salesforce.com's earnings and came across "unbilled deferred revenue" in their report.  Ironically, I actually signed up for a 14-day free trial today for my small business (no credit card info given).  Here is your question of the day.  Does my signing up for a free trial constitute "unbilled deferred revenue" under their method of accounting?  

Thu, 02/23/2012 - 18:03 | 2190796 adr
adr's picture

Salesforce would rahter not have you look over their earnings report. Plesase defer to reading headlines and continuing to trade your hard earned cash for Salesforce stock. Our directors would like to sell more shares at a higher price.

Thu, 02/23/2012 - 17:57 | 2190772 Dr. Engali
Dr. Engali's picture

Is GE any different?

Thu, 02/23/2012 - 18:45 | 2190952 Rainman
Rainman's picture

Is GM any different ?

Fri, 02/24/2012 - 08:32 | 2192218 kralizec
kralizec's picture

Down arrow on GM?  Who is that loser?

Accounting rules are accounting rules, want to change them?  Change Congress and change the laws.  Put the emphsasis where it should be!

Thu, 02/23/2012 - 17:59 | 2190778 Xkwisetly Paneful
Xkwisetly Paneful's picture

Who's paying that effective 99.8% tax on interest income known as 2/10ths of 1% paid on savings?

Thu, 02/23/2012 - 17:59 | 2190779 Zero Govt
Zero Govt's picture

AIG avoiding taxation for years?

My Hero has been found ...couldn't squeeze in another 260 million people could ya?

Thu, 02/23/2012 - 18:00 | 2190782 YesWeKahn
YesWeKahn's picture

Absolutely a great honest company, time to buy AIG.

Thu, 02/23/2012 - 19:11 | 2191038 weinerdog43
weinerdog43's picture

Meanwhile, what about AIG's competitors?  Must be nice not having to worry about taxes when all your competitors still are on the hook.

Thu, 02/23/2012 - 18:00 | 2190788 adr
adr's picture

I can't really comment anymore. It is just too insane. We just found $18 billion by changing the rules of math.

Does money even exist anymore, or is it just a figment of some accountant's imagination????

Thu, 02/23/2012 - 18:03 | 2190799 bdc63
bdc63's picture

what a great time to pull out one of my all time favorite quotes:

"Gold is money.  Everything else is just credit."  J. P. Morgan testifying to congress, 1912

Thu, 02/23/2012 - 18:08 | 2190815 mayhem_korner
mayhem_korner's picture

Does money even exist anymore...?

 

Santa doesn't exist but presents from him show up under the tree every year for believers.  As long as someone (greater fool) is willing to give you something valuable in exchange for paper with a dead person's picture on it, money exists.

Thu, 02/23/2012 - 18:05 | 2190804 fuu
fuu's picture

We're through the looking glass here people.

Thu, 02/23/2012 - 18:20 | 2190824 bdc63
bdc63's picture

Yeah, but I don't think we're gonna end up in "wonderland" this time ...

Thu, 02/23/2012 - 19:36 | 2191118 fuu
fuu's picture

We've slipped and slid down that slope already.

Thu, 02/23/2012 - 18:06 | 2190805 pods
pods's picture

Perfect.  Now we can use this model for the rest of the US and things will be right as rain!

 

Thu, 02/23/2012 - 18:09 | 2190820 ljag
ljag's picture

Can someone tweet that to Rush to get his opinion. His left vs. right paradigm is priceless. LOL!!!!!!!!!

Thu, 02/23/2012 - 18:10 | 2190822 mayhem_korner
mayhem_korner's picture

 

 

Where's the bottom of the barrel these days...working for AIG, GM, or the IRS?

Thu, 02/23/2012 - 18:33 | 2190907 JohnG
JohnG's picture

NY Fed.

Thu, 02/23/2012 - 18:13 | 2190835 dime2962
dime2962's picture

I need a synthetic short on this bitch

Thu, 02/23/2012 - 18:20 | 2190869 ebworthen
ebworthen's picture

Wow, so glad we bailed them out so they could pay all those claims to Japan and Thailand and not have to pay any U.S. taxes.

In other words, the taxpaying American is paying AIG's claims for them to foreign clients.

SSDD considering the IMF tithing, currency swaps, and FED liquidity injections.

 

Thu, 02/23/2012 - 18:37 | 2190922 youngman
youngman's picture

Wait until they get hit with all the CDS´s they sold on Greece.......oops.....calling Bernanke..calling Bernanke....and don´t worry Goldman..you will be made whole

Thu, 02/23/2012 - 18:50 | 2190977 ??
??'s picture

Benmosche was not available for comment as he is tending to  his vineyard in Croatia

Thu, 02/23/2012 - 18:57 | 2190997 ??
??'s picture

between GMs "record" profit and this BS, the stench of politics  is only superceded by the brainless sheep who will watch Brian Williams tonight and fall for it hook line and sinker all the way to November

Go O

Thu, 02/23/2012 - 19:30 | 2191099 mind_imminst
mind_imminst's picture

Isn't GM's record profit also misleading. I thought that they are not paying taxes right now either, due to their bankruptcy terms. Something like they don't have to pay taxes for 3 years. Can anyone confirm this?

Thu, 02/23/2012 - 19:17 | 2191059 RopeADope
RopeADope's picture

Seriously TD...AIG paying taxes would be like the DoD paying taxes. Last time I checked AIG was 90% government owned.

Thu, 02/23/2012 - 19:46 | 2191158 ebworthen
ebworthen's picture

I wonder if AIG has billed the DoD for $2 billion worth of gold plated toilet seats yet?

Maybe they are holding off until bonus time next year?

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