9. Income Taxes

The provision for income taxes from continuing operations for the years ended December 31, 2013, 2012 and 2011 consists of the following:

	2013

	(in thousands)
Currently payable:
Federal	$	131,000	104,922	93,677
State		12,197	9,335	9,033
Foreign		37	—	—


		143,234	114,257	102,710
Deferred taxes		(3,001)	(5,782)	2,004


Provision for income taxes	$	140,233	108,475	104,714

The following table reconciles the statutory federal income tax rate with our effective income tax rate from continuing operations for the years ended December 31, 2013, 2012 and 2011:



Statutory federal income tax rate	35.0%	35.0%	35.0%
State income taxes, net of federal tax benefits	2.2	2.2	2.4
State tax incentives	(0.1)	(0.2)	(0.2)
Valuation allowance on losses capital in nature	(1.8)	(0.8)	(0.2)
Other items	0.4	(0.2)	0.8


Effective income tax rate	35.7%	36.0%	37.8%

The tax effect of temporary differences that give rise to significant portions of deferred tax liabilities and deferred tax assets at December 31, 2013 and 2012 are as follows:

	2013

	(in thousands)
Deferred tax liabilities:
Deferred sales commissions	$	(6,928)	(7,405)
Property and equipment		(6,706)	(8,010)
Benefit plans		(10,620)	(9,723)
Identifiable intangible assets		(16,697)	(16,041)
Unrealized gains on investment securities		(1,853)	(1,084)
Prepaid expenses		(2,100)	(2,138)


Total gross deferred liabilities		(44,904)	(44,401)


Deferred tax assets:
Accrued compensation		10,893	8,491
Additional pension and postretirement liability		11,663	28,935
Other accrued expenses		5,151	5,167
Unrealized losses on investment securities		962	843
Unrealized losses on investment in partnerships		2,031	789
Capital loss carryforwards		9,474	169
Excess tax basis on investment in subsidiary		—	17,921
Nonvested stock		21,860	21,070
Unused state tax credits		866	972
State net operating loss carryforwards		6,521	6,284
Other		3,962	4,230


Total gross deferred assets		73,383	94,871
Valuation allowance		(16,986)	(24,695)


Net deferred tax asset	$	11,493	25,775

In 2012, a deferred tax asset was established for the excess tax basis in the Company's investment in Legend. Upon the realization of the capital loss from the sale of Legend in 2013, the deferred tax asset for excess tax basis converted into a deferred tax asset for capital loss carryforward. Due to the character of the loss and the limited carryforward period permitted by law, the Company may not realize the full tax benefit of the capital loss. The capital loss is available to offset capital gains realized in 2013 and potential future gains. The capital loss carryforward, if not utilized, will expire in 2018.

As of December 31, 2013, the Company had a deferred tax asset for a capital loss carryforward of $9.5 million related to the sale of Legend. Other deferred tax assets that could generate potential future capital losses, if realized, include unrealized losses on investment securities of $1.0 million and unrealized losses on investments in partnerships of $2.0 million. Deferred tax liabilities that could generate potential future capital gains include unrealized gains on investment securities of $1.9 million. As of December 31, 2012, the Company had deferred tax assets for a capital loss carryforward of $0.2 million and excess tax basis in Legend of $17.9 million. Other deferred tax assets that could generate potential future capital losses, if realized, include unrealized losses on investment securities of $0.8 million and unrealized losses on investments in partnerships of $0.8 million. Deferred tax liabilities that could generate potential future capital gains include unrealized gains on investment securities of $1.1 million.

Management believes it is not more likely than not that the Company will generate sufficient future capital gains to realize the full benefit of these capital losses and accordingly, a valuation allowance in the amount of $10.6 million and $18.6 million has been recorded at December 31, 2013 and 2012, respectively. During 2013, realized capital gains on securities in the Company's investment portfolios and capital gain distributions from investments decreased the valuation allowance by $7.6 million. A reduction in the tax loss on the sale of Legend resulted in a decrease to the valuation allowance of $0.8 million. These decreases were partially offset by losses from partnership investments which increased the valuation allowance by $1.2 million. The remaining $0.8 million decrease in the valuation allowance resulted from appreciation in the fair value of the Company's available for sale securities portfolio, which was recorded as an increase to accumulated other comprehensive income.

Certain subsidiaries of the Company have net operating loss carryforwards in certain states in which these companies file on a separate company basis. The deferred tax asset, net of federal tax effect, relating to the carryforwards as of December 31, 2013 and 2012 is approximately $6.5 million and $6.3 million, respectively. The carryforwards, if not utilized, will expire between 2014 and 2033. Management believes it is not more likely than not that these subsidiaries will generate sufficient future taxable income in these states to realize the benefit of the net operating loss carryforwards and, accordingly, a valuation allowance in the amount of $6.4 million and $6.1 million has been recorded at December 31, 2013 and 2012, respectively. The Company has state tax credit carryforwards of $0.9 million and $1.0 million as of December 31, 2013 and 2012, respectively. Of these state tax credit carryforwards, $0.6 million will expire between 2024 and 2029 if not utilized and $0.3 million will expire in 2026 if not utilized. The Company anticipates these credits will be fully utilized prior to their expiration date.

As of January 1, 2013, the Company had unrecognized tax benefits, including penalties and interest, of $10.8 million ($7.5 million net of federal benefit) that, if recognized, would impact the Company's effective tax rate. As of December 31, 2013, the Company had unrecognized tax benefits, including penalties and interest, of $12.0 million ($8.4 million net of federal benefit) that, if recognized, would impact the Company's effective tax rate. The unrecognized tax benefits that are not expected to be settled within the next 12 months are included in other liabilities in the accompanying consolidated balance sheets; unrecognized tax benefits that are expected to be settled within the next 12 months are included in income taxes payable.

The Company's accounting policy with respect to interest and penalties related to income tax uncertainties is to classify these amounts as income taxes. As of January 1, 2013, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $2.5 million ($2.0 million net of federal benefit). The total amount of penalties and interest, net of federal benefit, related to tax uncertainties recognized in the statement of income for the period ended December 31, 2013 was $0.6 million. The total amount of accrued penalties and interest related to uncertain tax positions at December 31, 2013 of $3.0 million ($2.5 million net of federal benefit) is included in the total unrecognized tax benefits described above.

The following table summarizes the Company's reconciliation of unrecognized tax benefits, excluding penalties and interest, for the years ended December 31, 2013, 2012 and 2011:

	2013

	(in thousands)
Balance at January 1	$	8,322	7,467	4,759
Increases during the year:
Gross increases - tax positions in prior period		644	275	1,684
Gross increases - current-period tax positions		1,355	2,215	1,844
Decreases during the year:
Gross decreases - tax positions in prior period		(71)	(429)	(183)
Decreases due to settlements with taxing authorities		(154)	-	-
Decreases due to lapse of statute of limitations		(1,083)	(1,206)	(637)


Balance at December 31	$	9,013	8,322	7,467

In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain. In addition, respective tax authorities periodically audit our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions. During 2013, the Company settled four open tax years that were undergoing audit by a state jurisdiction in which the Company operates. During 2012, the Company settled three open tax years that were undergoing audit by a state jurisdiction in which the Company operates. No audits were settled in 2011. The 2010 through 2013 federal income tax returns are open tax years that remain subject to potential future audit. State income tax returns for all years after 2009 and, in certain states, income tax returns for 2009, are subject to potential future audit by tax authorities in the Company's major state tax jurisdictions.

The Company is currently being audited in various state jurisdictions. It is reasonably possible that the Company will settle the audits in these jurisdictions within the next 12-month period. It is estimated that the Company's liability for unrecognized tax benefits, including penalties and interest, could decrease by up to $2.6 million ($1.7 million net of federal benefit) upon settlement of these audits. Such settlements are not anticipated to have a significant impact on the results of operations.