INCOME TAXES |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | INCOME TAXES Income Tax Expense Federal and state income tax expense consist of the following: TABLE 20.1
The following table provides a reconciliation between the statutory tax rate and the actual effective tax rate: TABLE 20.2
The effective tax rates in 2023, 2022 and 2021, respectively, were lower than the 21% statutory federal tax rate primarily due to the tax benefits resulting from renewable energy investment, historic and new market tax credits, tax-exempt income on investments and loans and income from BOLI. For the years ended December 31, 2023, 2022 and 2021, we recognized net investment tax credits, under Internal Revenue Code (IRC) section 48, of $23.7 million, $0 and $0, respectively, using the flow-through method of accounting for income tax credits. Deferred Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. DTAs and DTLs are measured based on the enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. The following table presents the tax effects of significant temporary differences that give rise to federal and state DTAs and DTLs: TABLE 20.3
We establish a valuation allowance when it is more likely than not that we will not be able to realize the benefit of the DTAs or when future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on management’s assessment of realizable DTAs. As of December 31, 2023, the valuation allowance of $32.2 million primarily includes unused federal and state net operating loss carryforwards expiring from 2024 to 2043 and $2.6 million of state tax credit carryforwards. We anticipate that neither the state net operating loss and state tax credit carryforwards nor the other net DTAs at certain of our subsidiaries will be utilized and, as such, have recorded a valuation allowance against the DTAs related to these items. As of December 31, 2023, we had approximately $67.3 million of federal net operating loss and built-in loss carryforwards from acquired companies and $0.8 million of state tax credit carryforwards, net of valuation allowances. The utilization of these tax attributes is subject to annual limitations under Section 382 of the Internal Revenue Code, or a similar state-level statute, which will cause the utilization of these attributes to be deferred over a number of years, not to exceed beyond 2038. We have determined that we will likely have sufficient taxable income in the years during which these tax attributes are available to be utilized and, consequently, have determined that no additional valuation allowance against the recorded DTA is warranted. Uncertain Tax Positions We account for uncertainties in income taxes in accordance with ASC 740, Income Taxes. At December 31, 2023 and 2022, we have approximately $5.0 million and $3.5 million, respectively, of unrecognized tax benefits related to uncertain tax positions. As of December 31, 2023, $4.7 million of these tax benefits would affect the effective tax rate if recognized. We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. To the extent interest is not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. A tabular reconciliation of the unrecognized tax benefits is not presented as the impact of changes to uncertain tax positions on our income tax expense was immaterial. We file numerous income tax returns in the U.S. federal jurisdiction and in several state jurisdictions. We are no longer subject to U.S. federal income tax examinations for years prior to 2020. With limited exception, we are no longer subject to state income tax examinations for years prior to 2020. We currently have one open state examination for the tax year 2018 and do not expect any material adjustments. We also have outstanding refund requests on amended tax returns from an acquisition. We anticipate that a reduction in the unrecognized tax benefit of up to $0.04 million may occur in the next twelve months from the expiration of statutes of limitations which would result in a reduction in income taxes.
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