The Internal Revenue Service's settlement with Radian Group may result in a $74 million tax benefit for the mortgage insurer that could improve its second-quarter results.
Radian estimates the settlement and related tax benefits from the reversal of certain previously accrued state and local tax liabilities will increase its second-quarter net income per share by $0.34. The company's consensus forecast for second-quarter earnings per share previously was $0.59, according to Zacks Investment Research. Radian will report second-quarter earnings on July 26.
In comparison, the company's diluted net income per share during the second quarter of 2017 was a loss of $0.13 or $0.48 when adjusted for one-time after-tax noncash impairment charge. Its diluted net income per share for the first quarter of this year was $0.52.
The settlement, which is pending tax court approval, would resolve a dispute over adjustments the IRS made when it examined the companies consolidated federal income tax returns filed between 2000 and 2007.
The IRS had disputed Radian's recognition of certain tax losses and deductions related to mortgage-related investments the company had made. The investments were in noneconomic residual interests in real estate mortgage investment conduit securities.
To avoid accruing interest on the IRS's proposed adjustments to taxes paid on the REMIC interests, Radian had previously made an $89 million qualified deposit with the U.S. Treasury.
Under the terms of the settlement, Radian would submit $31 million of that deposit to the U.S. Treasury, which would decrease its available holding company liquidity by that amount.