We have made several attempts to reach a compromised settlement with  Appeals, but in January 2013, we were notified  that Appeals had rejected our latest settlement of fer and plans to issue a formal notice of deficiency within three to six months.  Based on these recent developments, we do not currently believe that a settlement is likely . Upon receipt of the notice of  deficiency, we will have ninety days to either pay the deficiency amount in full or petition the U.S.  Tax Court to litigate the  deficiency amount. Litigation of the deficiency amount may result in substantial legal expenses and the litigation process could  take several years to resolve. We can provide no assurance regarding the outcome of any such litigation. Radian Group has assumed the obligation to pay the ultimate tax liability by indemnifying CMAC of  Texas for such  liability, including any portion of the “qualified deposits” that is used to satisfy the IRS. See “ Radian Group’s sources of  liquidity may be insufficient to fund its obligations .” There is significant uncertainty around the timing and amount of this  potential payment. If the final resolution dif fers materially from our current expectations there could be a material impact on  our effective tax rate, financial condition, results of operations and cash flows.  As of December 31, 2012, we had deferred tax assets (“DT A”), net of deferred tax liabilities, of approximately  $989.7  million. At December 31, 2012, our total valuation allowance was approximately  $989.7 million and is equal to all of our net  DTA. Our ability to realize these tax benefits ultimately depends on the existence of suf ficient taxable income of the appropriate  character (ordinary income or capital gains) within the applicable carryback and carryforward periods provided under the tax  law. Based on our current projections, we believe our DT A (and the associated valuation allowance) may increase. Further ,  while we project long-term profitability , we have incurred significant losses on our insured products as a result of the economic  downturn and, in light of the ongoing economic uncertainty and relative weakness in the housing markets, it remains uncertain  if and when we may return to profitability on a consistent basis, which could significantly delay our ability to realize our future  tax benefit. Even if we return to a period of sustained profitability , there is a risk that such period of profitability will not be  long enough in duration to generate suf ficient future taxable income to permit us to realize some or all of our tax benefits.  We have generated substantial NOLs, loss carryforwards and other tax attributes for U.S. tax purposes that can be used to  reduce our future federal income tax obligations. Our ability to fully utilize these tax assets (including NOLs of approximately  $1.9 billion as of December 31, 2012) will be adversely affected if we have an “ownership change” within the meaning of  Section 382 of the Internal Revenue Code (“Section 382”).  An ownership change is generally defined as a greater than 50  percentage point increase in equity ownership by “five-percent shareholders” (as that term is defined for purposes of  Section 382) in any three-year period. We may experience an “ownership change” in the future as a result of changes in our  stock ownership. On October 8, 2009, our board of directors adopted a  Tax Benefit Preservation Plan (the “Plan”), which, as amended, was  approved by our stockholders at our 2010 annual meeting.  We also adopted certain amendments to our amended and restated  bylaws (the “Bylaw Amendment”) and at our 2010 annual meeting, our stockholders approved certain amendments to our  amended and restated certificate of incorporation (the “Charter  Amendment”). The Plan, the Bylaw Amendment and the Charter  Amendment were implemented in order to protect our ability to utilize our NOLs and other tax assets and prevent an  “ownership change” under U.S. federal income tax rules by restricting or discouraging certain transfers of our common stock  that would: (i) create or result in a person becoming a five-percent shareholder under Section 382; or (ii) increase the stock  ownership of any existing five-percent shareholder under Section 382.  The Plan, the Bylaw Amendment and the Charter  Amendment are subject to the approval of the Plan and the relevant section of our amended and restated certificate of  incorporation by our stockholders every three years and there can be no assurance that they will be reapproved by the  stockholders at our 2013 Annual Meeting. There is no guarantee that our tax benefit preservation strategy will be ef fective in protecting our NOLs and other tax  assets. The amount of our NOLs has not been audited or otherwise validated by the IRS.  The IRS could challenge the amount of  our NOLs and other tax assets, which could result in an increase in our liability in the future for income taxes. In addition,  determining whether an “ownership change” has occurred is subject to uncertainty , both because of the complexity and  ambiguity of Section 382 and because of limitations on a publicly traded company’ s knowledge as to the ownership of, and  transactions in, its securities. Therefore, even though we currently have several measures in place to protect our NOLs (such as  the Plan, the Bylaw Amendment and the Charter Amendment), we cannot provide any assurance that the IRS or other taxing  authority will not claim that we have experienced an “ownership change” and attempt to reduce the benefit of our tax assets. 80 Our ability to recognize tax benefits on future U.S. tax losses and our existing U.S. loss positions may be limited under  applicable tax laws. We may not be able to realize all of our deferred tax assets in the future.