18.INCOME TAXES

The Company’s effective income tax rate related to continuing operations varied from the maximum federal income tax rate as follows:

	For The Year Ended December 31,
	2014		2013		2012
Statutory federal income tax rate applied to pre-tax income	35.0	%	35.0	%	35.0	%
State income taxes	0.5		0.4		0.4
Investment income not subject to tax	(2.7	)	(4.4	)	(3.1	)
Uncertain tax positions	0.5		0.1		0.2
Other	0.1		(0.1	)	0.4
	33.4	%	31.0	%	32.9	%

The annual provision for federal income tax in these financial statements differs from the annual amounts of income tax expense reported in the respective income tax returns. Certain significant revenues and expenses are appropriately reported in different years with respect to the financial statements and the tax returns.

The components of the Company’s income tax are as follows:

	For The Year Ended December 31,
	2014			2013			2012
	(Dollars In Thousands)
Current income tax expense:
Federal	$	176,238		$	(18,076	)	$	78,510
State	5,525			(222		)	2,496
Total current	$	181,763		$	(18,298	)	$	81,006
Deferred income tax expense:
Federal	$	65,566		$	149,288		$	66,375
State	(491		)	(93		)	3,662
Total deferred	$	65,075		$	149,195		$	70,037

The components of the Company’s net deferred income tax liability are as follows:

	As of December 31,
	2014			2013
	(Dollars In Thousands)
Deferred income tax assets:
Premium receivables and policy liabilities	$	154,720		$	275,355
Loss and credit carryforwards	35,642			104,530
Deferred compensation	104,117			104,062
Invested assets (other than unrealized gains)	2,960			—
Valuation allowance	(791		)	(780		)
	296,648			483,167
Deferred income tax liabilities:
Deferred policy acquisition costs and value of business acquired	1,073,499			1,034,614
Invested assets (other than unrealized gains)	—			147,446
Net unrealized gains (losses) on investments	798,529			290,062
Other	36,484			52,465
	1,908,512			1,524,587
Net deferred income tax liability	$	(1,611,864	)	$	(1,041,420	)

The Company’s income tax returns, except for MONY which files separately, are included in PLC’s consolidated U.S. income tax return.

The deferred tax assets reported above include certain deferred tax assets related to nonqualified deferred compensation and other employee benefit liabilities. These liabilities were assumed by AXA; they were not acquired by the Company in connection with the acquisition of MONY discussed in Note 3, Significant Acquisitions. The future tax deductions stemming from these liabilities will be claimed by the Company on MONY’s tax returns in its post-acquisition periods. These deferred tax assets have been estimated as of the MONY Acquisition date (and through the December 31, 2014 reporting date) based on all available information. However, it is possible that these estimates may be adjusted in future reporting periods based on actuarial changes to the projected future payments associated with these liabilities. Any such adjustments will be recognized by the Company as an adjustment to income tax expense during the period in which they are realized.

In management’s judgment, the gross deferred income tax asset as of December 31, 2014, will more likely than not be fully realized. The Company has recognized a valuation allowance of $1.2 million and $1.2 million as of December 31, 2014 and 2013, respectively, related to state-based loss carryforwards that it has determined are more likely than not to expire unutilized. Since there was no change in the valuation allowance, there were no impact to state income tax expense in 2014.

As of December 31, 2014 and 2013, some of the Company’s fixed maturities were reported at an unrealized loss. If the Company were to realize a tax-basis net capital loss for a year, then such loss could not be deducted against that year’s other taxable income. However, such a loss could be carried back and forward against prior year or future year tax-basis net capital gains. Therefore, the Company has relied upon a prudent and feasible tax-planning strategy regarding its fixed maturities that were reported at an unrealized loss. The Company has the ability and the intent to either hold such fixed maturities to maturity, thereby avoiding a realized loss, or to generate an offsetting realized gain from unrealized gain fixed maturities if such unrealized loss fixed maturities are sold at a loss prior to maturity. As of December 31, 2014, the Company recorded a net unrealized gain on its fixed maturities.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	As of December 31,
	2014			2013			2012
	(Dollars In Thousands)
Balance, beginning of period	$	85,846		$	74,335		$	4,318
Additions for tax positions of the current year	57,392			7,464			9,465
Additions for tax positions of prior years	34,371			6,787			64,050
Reductions of tax positions of prior years:
Changes in judgment	(9,533		)	(2,740		)	(3,498		)
Settlements during the period	—			—			—
Lapses of applicable statute of limitations	—			—			—
Balance, end of period	$	168,076		$	85,846		$	74,335

Included in the balance above, as of December 31, 2014 and 2013, are approximately $157.3 million and $78.5 million of unrecognized tax benefits, respectively, for which the ultimate deductibility is certain but for which there is uncertainty about the timing of such deductions. Other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective income tax rate but would accelerate to an earlier period the payment of cash to the taxing authority. The total amount of unrecognized tax benefits, if recognized, that would affect the effective income tax rate is approximately $10.7 million and $7.4 million as of December 31, 2014 and as of December 31, 2013, respectively.

Any accrued interest related to the unrecognized tax benefits have been included in income tax expense. There were no amounts included in 2014, 2013 or 2012, as the parent company maintains responsibility for the interest on unrecognized tax benefits. The Company has no accrued interest associated with unrecognized tax benefits as of December 31, 2014 and 2013 (before taking into consideration the related income tax benefit that is associated with such an expense).

During 2012, an IRS audit concluded in which the IRS proposed favorable and unfavorable adjustments to the Company’s 2003 through 2007 reported taxable incomes. The Company protested certain unfavorable adjustments and sought resolution at the IRS’ Appeals Division. In January 2014, the Appeals Division completed its analysis and sent the Company’s case to Congress’ Joint Committee on Taxation for routine review. Although it cannot be certain, the Company believes this review process may conclude within the next 12 months. In addition, an examination of tax years 2008 through 2011 is currently underway. The Company believes that this examination may conclude within the next 12 months. It is possible, therefore, that in the next 12 months approximately $98.4 million of the unrecognized tax benefits on the above chart will be reduced due to the expected closure of the aforementioned Appeals process, the closing of the 2008 through 2011 examination, and the lapsing of various tax years’ statutes of limitations. In general, these reductions would represent the Company’s possible successful negotiation of certain issues, coupled with its payment of the assessed taxes on other issues. This possible scenario includes an assumption that the Company would pay the IRS-asserted deficiencies on issues that it loses at Appeals rather than litigating such issues. These assumed tax payments would not materially impact the Company or its effective tax rate.

During the 12 months ended December 31, 2014 and 2013, discussions with the IRS, related to their ongoing examination of tax years 2008 through 2011 prompted the Company overall to revise upward its measurement of unrecognized tax benefits. These changes underlying this overall increase were almost entirely related to timing issues. Therefore, aside from the cost of interest, such changes did not result in any impact on the Company’s effective tax rate. In addition, during the 12 months ended December 31, 2013, the Company’s uncertain tax position liability decreased in the amount of $2.7 million. This was caused by the interaction of certain limitations regarding the dividends-received deduction and changes to taxable income caused by other uncertain tax positions resulting from new technical guidance, etc. This led the Company to conclude that the full amount of the associated tax benefit was more than 50% likely to be realized.

In general, the Company is no longer subject to U.S. federal, state and local income tax examinations by taxing authorities for tax years that began before 2003.