INCOME TAXES

The Company files a consolidated U.S. income tax return that includes its more than 80%-owned U.S. subsidiaries. The amounts provided for income taxes are as follows:



	Year Ended December 31,
	2015			2014		2013
Current:
U.S. Federal	$	40,542		$	8,809	$	20,808
State	13,886			2,416		3,521
	$	54,428		$	11,225	$	24,329
Deferred:
U.S. Federal	$	(9,943	)	$	16,484	$	(372	)
State	(3,252		)	5,456		(285		)
	(13,195		)	21,940		(657		)
Total	$	41,233		$	33,165	$	23,672

The tax effect of temporary differences which give rise to a significant portion of deferred tax assets and liabilities are as follows:



	December 31, 2015			December 31, 2014
Deferred tax assets:
Employee benefit accruals	$	16,201		$	11,678
Impairment of investments	4,332			—
Impact of timing of settlement payments	39,840			33,485
Various U.S. state tax loss carryforwards	6,713			8,339
Other	—			—
	67,086			53,502
Less: Valuation allowance	(3,900		)	(4,933		)
Net deferred tax assets	$	63,186		$	48,569

Deferred tax liabilities:
Excess of tax basis over book-basis non-consolidated entities	$	(7,292	)	$	(6,190	)
Book/tax differences on fixed and Intangible assets	(52,598		)	(52,972		)
Capitalized interest expense	(4,080		)	—
Book/tax differences on inventory	(16,891		)	(20,062		)
Book/tax differences on long-term investments	(29,701		)	(32,756		)
Impact of accounting on convertible debt	(30,494		)	(31,033		)
Other	(1,559		)	(1,460		)
	$	(142,615	)	$	(144,473	)

Net deferred tax liabilities	$	(79,429	)	$	(95,904	)

Vector Tobacco had tax effected state and local net operating loss carryforwards of $6,713 and $8,339, respectively, at December 31, 2015 and 2014, expiring through tax year 2027. The Company provides a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The valuation allowance of $3,900 and $4,933 at December 31, 2015 and 2014, respectively, consisted primarily of a reserve against Vector Tobacco’s state and local net operating loss carryforwards. The valuation allowance was decreased in 2015 and 2014, respectively, as a result of changes in estimates in Vector Tobacco’s ability to utilize state tax net operating losses in future years because of changes in state tax apportionment and projected taxable income.

The consolidated balance sheets of the Company include deferred income tax assets and liabilities, which represent temporary differences in the application of accounting rules established by generally accepted accounting principles and income tax laws.

Deferred federal income tax expense differs in 2015, 2014 and 2013 due to the nature of the items in current and deferred tax liabilities. The deferred tax expense in 2015 results primarily from the capitalization of interest expense on the Company's equity method real estate investments. The deferred tax expense in 2014 results primarily from the recognition of temporary differences (related to litigation accruals) at the Tobacco segment. The deferred tax expense in 2013 results primarily from the utilitization of state tax net operating losses.

Differences between the amounts provided for income taxes and amounts computed at the federal statutory tax rate are summarized as follows:



	Year Ended December 31,
	2015			2014			2013
Income before income taxes	$	107,705		$	82,279		$	60,720
Federal income tax expense at statutory rate	37,697			28,798			21,252
Increases (decreases) resulting from:
State income taxes, net of federal income tax benefits	6,862			4,804			2,050
Impact of non-controlling interest	(2,516		)	(4,290		)	88
Non-deductible expenses	2,941			2,581			2,698
Impact of domestic production deduction	(3,436		)	(248		)	(1,889		)
Tax credits	(265		)	(275		)	(433		)
Other	152			—			—
Inclusion of tax liabilities from unincorporated entities	831			1,374			—
Changes in valuation allowance, net of equity and tax audit adjustments	(1,033		)	421			(94		)
Income tax expense	$	41,233		$	33,165		$	23,672

The following table summarizes the activity related to the unrecognized tax benefits:



Balance at January 1, 2013	$	6,269
Additions based on tax positions related to prior years	179
Settlements	(250		)
Expirations of the statute of limitations	(3,076		)
Balance at December 31, 2013	3,122
Additions based on tax positions related to prior years	318
Settlements	(442		)
Expirations of the statute of limitations	(1,254		)
Balance at December 31, 2014	1,744
Additions based on tax positions related to prior years	265
Settlements	(132		)
Expirations of the statute of limitations	(354		)
Balance at December 31, 2015	$	1,523

In the event the unrecognized tax benefits of $1,523 and $1,744 at December 31, 2015 and 2014, respectively, were recognized, such recognition would impact the annual effective tax rates. During 2015, the accrual for potential penalties and interest related to these unrecognized tax benefits was decreased by $28, and in total, as of December 31, 2015, a liability for potential penalties and interest of $219 has been recorded. During 2014, the accrual for potential penalties and interest related to these unrecognized tax benefits was decreased by $529, and in total, as of December 31, 2014, a liability for potential penalties and interest of $247 has been recorded.

It is reasonably possible the Company may recognize up to approximately $107 of currently unrecognized tax benefits over the next 12 months, pertaining primarily to expiration of statutes of limitations of positions reported on state and local income tax returns. The Company files U.S. and state and local income tax returns in jurisdictions with varying statutes of limitations.

In 2013, the Internal Revenue Service concluded an audit of the Company’s income tax return for the year ended December 31, 2009. There was no material impact on the Company’s consolidated financial statements as a result of the audit.