11.	Income Taxes

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act makes broad changes to U.S. federal tax law including but not limited to a reduction in the federal corporate tax rate from 35% to 21%, and temporary differences related to the computation of tax loss and loss adjustment expense reserves and limitations on the interest expense deduction.

The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting under ASC Topic 740 for certain income tax effects of the Act for the reporting period of enactment. SAB 118 allows the Company to provide a provisional estimate of the impacts of the Act during a measurement period similar to the measurement period used when accounting for business combinations. Adjustments to provisional estimates and additional impacts from Tax Reform must be recorded as they are identified during the measurement period as provided for in SAB 118.

At December 31, 2017, we have made an estimate of the effects on our existing deferred tax balances and recognized a provisional amount of $12.5 million which is included as a component of the provision for income taxes. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is 21% for federal purposes. However, we are still analyzing certain aspects of the Act and refining our calculations which could potentially affect the measurement of these balances as permitted under SAB 118.

The benefit for income taxes consisted of the following (in thousands).

	Year Ended December 31,
	2017		2016			2015
Federal:
Current	$	123	$	—		$	20
Deferred		14,760		(16,024	)		(893	)
		14,883		(16,024	)		(873	)
State:
Current		184		328			255
Deferred		123		(152	)		(24	)
		307		176			231
	$	15,190	$	(15,848	)	$	(642	)

The provision (benefit) for income taxes differs from the amounts computed by applying the statutory federal corporate tax rate of 21% to (loss) income before income taxes as a result of the following (in thousands).

	Year Ended December 31,
	2017			2016			2015
Provision (benefit) for income taxes at statutory rate	$	2,305		$	(15,796	)	$	(900	)
Tax effect of:
Tax-exempt investment income		(66	)		(48	)		(22	)
Change in the beginning of the period balance of the valuation allowance for deferred tax assets allocated to federal income taxes		1			(157	)		9
Stock-based compensation		229			64			22
State income taxes, net of federal income tax benefit and state valuation allowance		243			60			142
Effect of federal tax law change		12,509			-			-
Other items		(31	)		29			107
	$	15,190		$	(15,848	)	$	(642	)

The tax effects of temporary differences that give rise to the net deferred tax assets and liabilities are presented below (in thousands).

	Year Ended December 31,
	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	13,380		$	24,208
Stock-based compensation		164			404
Unearned premiums and loss and loss adjustment expense reserves		5,408			6,752
Goodwill and identifiable intangible assets		853			2,832
Alternative minimum tax (“AMT”) credit carryforwards		1,991			2,015
Accrued expenses and other nondeductible items		1,292			1,345
Other		2,434			3,619
		25,522			41,175
Deferred tax liabilities:
Deferred acquisition costs		(1,039	)		(1,698	)
Identifiable intangible assets		(1,200	)		(1,872	)
Loss reserve discounting		(1,206	)		—
Other		(191	)		(92	)
		(3,636	)		(3,662	)
Total net deferred tax asset		21,886			37,513
Less: Valuation allowance		(1,337	)		(1,872	)
Net deferred tax asset	$	20,549		$	35,641

The Company had a valuation allowance of $1.3 and $1.9 million at December 31, 2017 and 2016, respectively, relating to certain amounts that are more likely than not to be realized. In assessing our ability to realize the deferred tax asset (“DTA”), both positive and negative evidence are used to evaluate the allowance. Although the Company incurred a pre-tax loss of $45.1 million in 2016, which is a source of negative evidence, we placed greater weight on the Company’s outlook for future taxable income over the allowable time period for realization of the DTA, the Company has concluded that it is more likely than not that the remaining DTA will be realized. Regarding the length of time available to realize the DTA, at December 31, 2017, $13.4 million of the DTA related to net operating loss carryforwards do not expire until 2032 through 2036 and $2.0 million in AMT (“Alternative Minimum Tax”) credit carryforwards are fully refundable by 2021 under the new tax legislation if not utilized. The DTA valuation allowance may be adjusted in future periods if management determines that it is more likely than not that some portion or all of the DTA will not be realized. In the event the DTA valuation allowance is adjusted, the Company would record an income tax expense for the adjustment.