Allstate (ALL)

Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”)

In July 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”. FIN 48 requires an entity to recognize the tax benefit of uncertain tax positions only when it is more likely than not, based on the position’s technical merits, that the position would be sustained upon examination by the respective taxing authorities. The tax benefit is measured as the largest benefit that is more than fifty-percent likely of being realized upon final settlement with the respective taxing authorities. On January 1, 2007, the Company adopted the provisions of FIN 48, which were effective for fiscal years beginning after December 15, 2006. No cumulative effect of a change in accounting principle or adjustment to the liability for unrecognized tax benefits was recognized as a result of the adoption of FIN 48. Accordingly, the adoption of FIN 48 did not have an effect on the results of operations or financial position of the Company.

The liability for net unrecognized tax benefits at January 1, 2007 was $48 million. The liability balance for unrecognized tax benefits increased to $61 million at September 30, 2007, primarily due to the receipt during the second quarter of a tax refund of $11 million related to prior years’ tax returns. This liability represents an accrual relating to uncertain income tax positions the Company has taken or expects to take on its tax returns. The Company believes it is reasonably possible that the liability balance will be reduced by $61 million within the next 12 months with the resolution of an outstanding issue resulting from the Internal Revenue Service (“IRS”) examination of the 2003 and 2004 tax years.

The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. During the nine months ended September 30, 2007, the balance of interest expense accrued with respect to unrecognized tax benefits increased to $7 million from a receivable balance of $9 million at January 1, 2007, primarily due to the receipt of interest income accrued on the $11 million tax refund received during the second quarter. No amounts have been accrued for penalties.

The IRS has completed its examination of the Company’s federal income tax returns for 2003—2004 and the case is under consideration at the IRS Appeals Office. The Company’s tax years prior to 2003 have been examined by the IRS and the statute of limitations has expired on those years.

Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”)

In July 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”.  FIN 48 requires an entity to recognize the tax benefit of uncertain tax positions only when it is more likely than not, based on the position’s technical merits, that the position would be sustained upon examination by the respective taxing authorities.  The tax benefit is measured as the largest benefit that is more than fifty-percent likely of being realized upon final settlement with the respective taxing authorities.  On January 1, 2007, the Company adopted the provisions of FIN 48, which were effective for fiscal years beginning after December 15, 2006.  No cumulative effect of a change in accounting principle or adjustment to the liability for unrecognized tax benefits was recognized as a result of the adoption of FIN 48.  Accordingly, the adoption of FIN 48 did not have an effect on the results of operations or financial position of the Company.

The liability for net unrecognized tax benefits at January 1, 2007 was $48 million.  During the second quarter of 2007, the liability balance for unrecognized tax benefits increased to $61 million, primarily due to the receipt of a tax refund of $11 million related to prior years’ tax returns.  This liability represents an accrual relating to uncertain income tax positions the Company has taken or expects to take on its tax returns.  The Company believes it is reasonably possible that the liability balance will not significantly increase or decrease within the next 12 months.

The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense.  During the six months ended June 30, 2007, the balance of interest expense accrued with respect to unrecognized tax benefits increased to $7 million from a receivable balance of $9 million at January 1, 2007, primarily due to the receipt of interest income accrued on the $11 million tax refund received.

The Internal Revenue Service (“IRS”) has completed its review of the Company’s federal income tax returns through the 2002 tax year and the statute of limitations has expired on those years.  The IRS is currently examining the Company’s federal income tax returns for the 2003 and 2004 tax years.