6) INCOME TAXES

Components of income tax expense/(benefit) are as follows (amounts in thousands):


	Year Ended December 31,
	2014		2013		2012
Current
Federal	$	248,172	$	256,545	$	254,021
Foreign		4,167		1,655		9,084
State		23,224		28,490		39,076

		275,563		286,690		302,181
Deferred
Federal and foreign		41,583		25,341		(21,408	)
State		7,525		3,278		(6,157	)

		49,108		28,619		(27,565	)

Total	$	324,671	$	315,309	$	274,616

Deferred taxes are required to be classified based on the financial statement classification of the related assets and liabilities which give rise to temporary differences. Deferred taxes result from temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The components of deferred taxes are as follows (amounts in thousands):


	Year Ended December 31,
	2014			2013
Deferred income tax assets:
Self-insurance reserves	$	84,915		$	87,483
Compensation accruals		55,788			49,302
State and foreign net operating loss carryforwards and other state and foreign deferred tax assets		60,521			57,204
Other currently non-deductible accrued liabilities		16,739			24,587
Net pension liability—OCI only		11,746			6,390
Doubtful accounts and other reserves		18,428			33,905
Other combined items—OCI only		2,615			9,018

		250,752			267,889
Less: Valuation Allowance		(52,764	)		(46,841	)

Net deferred income tax assets:		197,988			221,048
Deferred income tax liabilities:
Depreciable and amortizable assets		(362,674	)		(337,669	)
Other deferred tax liabilities		(2,963	)		(2,624	)

Net deferred income tax liabilities	$	(167,649	)	$	(119,245	)

There was no material impact of deferred taxes recorded in conjunction with the acquisition of Prominence Health Plan, the Psychiatric Institute of Washington and Cygnet Health Care.

The effective tax rates, as calculated by dividing the provision for income taxes by income before income taxes, were as follows for each of the years ended December 31, 2014, 2013 and 2012 (dollar amounts in thousands):


	2014			2013			2012
Provision for income taxes	$	324,671		$	315,309		$	274,616
Income before income taxes		929,667			869,332			763,663

Effective tax rate		34.9	%		36.3	%		36.0	%

Impacting the effective tax rates during 2014, 2013 and 2012 were favorable discrete tax items of approximately $1 million recorded during each year to adjust the estimated liabilities for uncertain tax positions.

The foreign provision for income taxes is based on foreign pre-tax earnings of $15 million, $6 million, and $38 million in 2014, 2013, and 2012, respectively. The Company’s consolidated financial statements provide for any related tax liability on undistributed earnings that the Company does not intend to be indefinitely reinvested outside the U.S. Certain of the Company’s undistributed international earnings intended to be indefinitely reinvested in operations outside the U.S. have a statutory rate of 21%. As of December 31, 2014, U.S. income taxes have not been provided on a cumulative total of $10 million of such earnings. The amount of unrecognizable deferred tax liability related to these temporary differences is estimated to be approximately $4 million.

A reconciliation between the federal statutory rate and the effective tax rate is as follows:


	Year Ended December 31,
	2014			2013			2012
Federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal income tax benefit		2.3			2.5			3.0
Nondeductible transaction costs		—			—			0.2
Divestiture gain		—			0.3			—
Other items		—			0.4			0.1
Impact of income attributable to noncontrolling interests		(2.4	)		(1.9	)		(2.3	)

Effective tax rate		34.9	%		36.3	%		36.0	%

Included in “Other current assets” on our Consolidated Balance Sheet are prepaid federal, foreign, and state income taxes amounting to approximately $17 million and $5 million as of December 31, 2014 and 2013, respectively.

The net deferred tax assets and liabilities are comprised as follows (amounts in thousands):


	Year Ended December 31,
	2014			2013
Current deferred taxes
Assets	$	115,870		$	121,097
Liabilities		(1,305	)		(1,194	)

Total deferred taxes-current		114,565			119,903

Noncurrent deferred taxes
Assets		85,792			103,221
Liabilities		(368,006	)		(342,369	)

Total deferred taxes-noncurrent		(282,214	)		(239,148	)

Total deferred tax liabilities	$	(167,649	)	$	(119,245	)

The assets and liabilities classified as current relate primarily to the allowance for uncollectible patient accounts, compensation-related accruals and the current portion of the temporary differences related to self- insurance reserves. At December 31, 2014, state net operating loss carryforwards (expiring in years 2015 through 2034), and credit carryforwards available to offset future taxable income approximated $1.11 billion representing approximately $54 million in deferred state tax benefit (net of the federal benefit). At December 31, 2014, there were foreign net operating loss carryforwards of approximately $7 million expiring through 2022 representing approximately $3 million in deferred foreign tax benefit.

A valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. Based on available evidence, it is more likely than not that certain of our state tax benefits will not be realized. Therefore, valuation allowances of approximately $50 million and $44 million have been reflected as of December 31, 2014 and 2013, respectively. During 2014, the valuation allowance on these state tax benefits increased by approximately $6 million due to additional net operating losses incurred. In addition, valuation allowances of approximately $3 million have been reflected as of December 31, 2014 and 2013 related to foreign net operating losses. There were no significant increases in valuation allowances as a result of the acquisition of Prominence Health Plan, the Psychiatric Institute of Washington and Cygnet Health Care.

We adopted the provisions of Accounting for Uncertainty in Income Taxes effective January 1, 2007. During 2014 and 2013, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were increased less than $1 million due to tax positions taken in the current and prior years. During 2014, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were reduced due to the lapse of the statute of limitations resulting in a net income tax benefit of approximately $1 million. The balance at each of December 31, 2014 and 2013, if subsequently recognized, that would favorably affect the effective tax rate and the provision for income taxes is approximately $2 million for each date.

We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2014 and 2013, we have accrued interest and penalties of less than $1 million as of each date. The U.S. federal statute of limitations remains open for the 2011 and subsequent years. Foreign and U.S. state and local jurisdictions have statutes of limitations generally ranging for 3 to 4 years. The statute of limitations on certain jurisdictions could expire within the next twelve months. It is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months, however, it is anticipated that any such change, if it were to occur, would not have a material impact on our results of operations.

The tabular reconciliation of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 is as follows (amounts in thousands).


	As of December 31,
	2014			2013			2012
Balance at January 1,	$	3,369		$	6,824		$	7,403
Additions based on tax positions related to the current year		50			50			200
Additions for tax positions of prior years		195			283			386
Reductions for tax positions of prior years		(1,212	)		(1,260	)		(1,165	)
Settlements		—			(2,528	)		—

Balance at December 31,	$	2,402		$	3,369		$	6,824