Note 4. Income Taxes

The company files a consolidated federal income tax return. Net cash paid for taxes was $120.5 million, $72.4 million and $46.9 million for the years ended December 31, 2014, 2013, and 2012, respectively. The current and deferred federal and state income tax expense (benefit) for the years ended December 31 is as follows (in thousands):

	2014			2013		2012
Current income tax expense	$	94,312		$	72,599	$	11,334
Deferred income tax expense (benefit)		(21,159	)		26,715		50,451

Total income tax expense	$	73,153		$	99,314	$	61,785

A reconciliation of the statutory tax rates to the actual effective tax rates for the years ended December 31, are as follows:

	2014			2013			2012
Statutory federal tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		4.6			3.8			3.4
Domestic manufacturing deduction		(4.8	)		(2.0	)		(2.3	)
Noncontrolling interests		13.9			3.4			3.6
Federal research and development tax credits		(1.5	)		(2.5	)		—
Audit settlements		—			—			(9.6	)
Other permanent differences		(2.8	)		0.1			0.2

Effective tax rate		44.4	%		37.8	%		30.3	%

Significant components of the company's deferred tax assets and liabilities at December 31 are as follows (in thousands):

	2014			2013
Deferred tax assets
Accrued expenses and allowances	$	22,780		$	23,497
Inventories		20,546			3,621
Net operating loss carryforwards		33,347			18,690
Other		5,571			6,238

Subtotal		82,244			52,046
Less: valuation allowance		(21,586	)		(10,641	)

Total net deferred tax assets		60,658			41,405

Deferred tax liabilities
Property, plant and equipment		(449,939	)		(474,088	)
Intangible assets		(108,840	)		(94,936	)
Other		(8,359	)		(10,426	)

Total deferred tax liabilities		(567,138	)		(579,450	)

Net deferred tax liability	$	(506,480	)	$	(538,045	)

Certain wholly-owned and controlled subsidiaries of the company file separate federal and state income tax returns. These subsidiaries have generated federal net operating loss carryforwards of $56.3 million which expire in 2032 to 2034, and state net operating loss carryforwards which principally expire in the years 2024 to 2034. Management has considered the scheduled reversal of the deferred tax liabilities, historical taxable losses, projected taxable income and tax planning strategies in determining that it is more likely than not that the some of the deferred tax assets relating to the tax loss carryforwards of the subsidiaries will not be realized. Based on these evaluations, valuation allowances of $21.6 million and $10.6 million have been recorded as of December 31, 2014, and 2013, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2014			2013			2012
Balance at January 1	$	26,564		$	22,245		$	64,555
Increases related to current year tax positions		1,050			1,050			—
Increases related to prior year tax positions		653			3,760			741
Decreases related to prior year tax positions		(2,298	)		(491	)		(40,741	)
Settlements with taxing authorities		(8,631	)		—			(2,310	)

Balance at December 31	$	17,338		$	26,564		$	22,245

Included in the balance of unrecognized tax benefits at December 31, 2014, are potential benefits of $12.5 million that, if recognized, would affect the effective tax rate. The company recognizes interest and penalties related to its tax contingencies on a net-of-tax basis in income tax expense. During the year ended December 31, 2014, the company recognized benefits from the reduction of interest expense of $1.1 million, net of tax. In addition to the unrecognized tax benefits in the table above, the company had $5.5 million accrued for the payment of interest and penalties at December 31, 2014.

The company files income tax returns in the U.S. federal jurisdiction as well as income tax returns in various state jurisdictions. The Internal Revenue Service (IRS) has completed its examinations of the years 2004 through 2009 and has settled those years with the company. The IRS is currently examining the company's federal income tax returns for the years 2010 and 2011. At this time the company does not believe there will be any significant examination adjustments that would result in a material change to the company's financial position, results of operations or cash flows. It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months as a result of these federal income tax audits, and state income tax audits. Based on the current audits in process, the payment of taxes as a result of audit settlements could be in an amount from zero to $8.1 million by the end of 2015. With the exception of the 2010 federal return which is currently under examination, the company is no longer subject to federal, state and local income tax examinations by tax authorities for years ended before 2011.