NOTE 16. INCOME TAXES

The provision for income taxes for continuing operations for the years ended December 31, 2014, 2013 and 2012 consists of the following:


	Year Ended December 31,
	2014		2013		2012
Current tax expense (benefit):
Federal	$	(12)	$	2	$	(3)
State		18		4		11
		6		6		8
Deferred tax expense (benefit):
Federal		46		(56)		117
State		(3)		(15)		—
		43		(71)		117
	$	49	$	(65)	$	125

A reconciliation between the amount of reported income tax expense (benefit) and the amount computed by multiplying income (loss) from continuing operations before income taxes by the statutory federal income tax rate is shown below. State income tax for the year ended December 31, 2014 includes $34 million of expense related to the write off of expired unutilized state net operating loss carryforwards for which a full valuation allowance had been provided in prior years. A corresponding tax benefit of $34 million is included for the year ended December 31, 2014 to reflect the reduction in the valuation allowance.


	Year Ended December 31,
	2014		2013		2012
Tax expense at statutory federal rate of 35%	$	52	$	(55)	$	117
State income taxes, net of federal income tax benefit		5		1		13
Expired state net operating losses, net of federal income tax benefit		34		—		—
Tax attributable to noncontrolling interests		(23)		(10)		(4)
Nondeductible acquisition costs		2		6		—
Nondeductible health insurance provider fee		3		—		—
Changes in valuation allowance		(20)		(2)		(5)
Change in tax contingency reserves, including interest		(2)		(7)		(1)
Prior-year provision to return adjustment and other changes in deferred taxes		(5)		3		3
Other items		3		(1)		2
	$	49	$	(65)	$	125

Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The following table discloses those significant components of our deferred tax assets and liabilities, including any valuation allowance:


	December 31, 2014				December 31, 2013
	Assets		Liabilities		Assets		Liabilities
Depreciation and fixed-asset differences	$	—	$	847	$	—	$	681
Reserves related to discontinued operations and restructuring charges		28		—		20		—
Receivables (doubtful accounts and adjustments)		173		—		252		—
Deferred gain on debt exchanges		—		42		—		53
Accruals for retained insurance risks		329		—		335		—
Intangible assets		—		157		—		147
Other long-term liabilities		166		—		81		—
Benefit plans		451		—		294		—
Other accrued liabilities		83		—		97		—
Investments and other assets		—		4		—		27
Net operating loss carryforwards		659		—		708		—
Stock-based compensation		31		—		31		—
Other items		80		—		37		—
		2,000		1,050		1,855		908
Valuation allowance		(87)		—		(107)		—
	$	1,913	$	1,050	$	1,748	$	908

Below is a reconciliation of the deferred tax assets and liabilities and the corresponding amounts reported in the accompanying Consolidated Balance Sheets.


	December 31,
	2014		2013
Current portion of deferred income tax asset	$	747	$	692
Deferred income tax asset, net of current portion		116		148
Net deferred tax asset	$	863	$	840

During the year ended December 31, 2014, the valuation allowance decreased by $20 million primarily due to the expiration of unutilized state net operating loss carryforwards. The remaining balance in the valuation allowance as of December 31, 2014 is $87 million. During the year ended December 31, 2013, the valuation allowance increased by $51 million, $34 million due to the acquisition of Vanguard and $17 million primarily due to the adjustment of deferred tax assets for state net operating loss carryforwards that have a full valuation allowance. During the year ended December 31, 2012, we reduced the valuation allowance by an additional $5 million based on 2012 profits and projected profits for 2013.

We account for uncertain tax positions in accordance with ASC 740-10-25, which prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The table below summarizes the total changes in unrecognized tax benefits during the year ended December 31, 2014. The additions and reductions for tax positions include the impact of items for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductions. Such amounts include unrecognized tax benefits that have impacted deferred tax assets and liabilities at December 31, 2014, 2013 and 2012.


	Continuing		Discontinued
	Operations		Operations		Total
Balance at December 31, 2011	$	34		1	$	35
Additions for prior-year tax positions		—		—		—
Reductions for tax positions of prior years		(2)		—		(2)
Additions for current-year tax positions		2		—		2
Reductions for current-year tax positions		—		—		—
Reductions due to settlements with taxing authorities		(3)		—		(3)
Reductions due to a lapse of statute of limitations		—		—		—
Balance at December 31, 2012		31		1		32
Additions for prior-year tax positions		15		—		15
Reductions for tax positions of prior years		—		—		—
Additions for current-year tax positions		3		—		3
Reductions for current-year tax positions		—		—		—
Reductions due to settlements with taxing authorities		—		—		—
Reductions due to a lapse of statute of limitations		(6)		(1)		(7)
Balance at December 31, 2013		43	$	—		43
Additions for prior-year tax positions		—		—		—
Reductions for tax positions of prior years		(1)		—		(1)
Additions for current-year tax positions		1		—		1
Reductions for current-year tax positions		—		—		—
Reductions due to settlements with taxing authorities		—		—		—
Reductions due to a lapse of statute of limitations		(5)		—		(5)
Balance at December 31, 2014	$	38	$	—	$	38

The total amount of unrecognized tax benefits as of December 31, 2014 was $38 million, of which $31 million, if recognized, would affect our effective tax rate and income tax expense (benefit) from continuing operations. Income tax expense in the year ended December 31, 2014 includes a benefit of $6 million in continuing operations attributable to a decrease in our estimated liabilities for uncertain tax positions, net of related deferred tax effects. The total amount of unrecognized tax benefits as of December 31, 2013 was $43 million, of which $34 million, if recognized, would affect our effective tax rate and income tax expense (benefit) from continuing operations. Income tax expense in the year ended December 31, 2013 includes a benefit of $1 million in continuing operations attributable to a decrease in our estimated liabilities for uncertain tax positions, net of related deferred tax effects. The total amount of unrecognized tax benefits as of December 31, 2012 was $32 million which, if recognized, would affect our effective tax rate and income tax expense (benefit) from continuing and discontinued operations. Income tax expense in the year ended December 31, 2012 includes expense of $3 million in continuing operations attributable to an increase in our estimated liabilities for uncertain tax positions, net of related deferred tax effects.

Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense in our consolidated statements of operations. Approximately $1 million of interest and penalties related to accrued liabilities for uncertain tax positions related to continuing operations are included in the accompanying Consolidated Statement of Operations for the year ended December 31, 2014. Total accrued interest and penalties on unrecognized tax benefits as of December 31, 2014 were $4 million, all of which related to continuing operations.

The Internal Revenue Service (“IRS”) has completed audits of our tax returns for all tax years ending on or before December 31, 2007, and of Vanguard’s tax returns for fiscal years ending on or before June 30, 2004. All disputed issues with respect to these audits have been resolved and all related tax assessments (including interest) have been paid. Our tax returns for years ended after December 31, 2007, and Vanguard’s tax returns for fiscal years ended after June 30, 2004 remain subject to examination by the IRS.

As of December 31, 2014, approximately $2 million of unrecognized federal and state tax benefits, as well as reserves for interest and penalties, may decrease in the next 12 months as a result of the settlement of audits, the filing of amended tax returns or the expiration of statutes of limitations.

At December 31, 2014, our carryforwards available to offset future taxable income consisted of (1) federal net operating loss (“NOL”) carryforwards of approximately $1.6 billion pretax expiring in 2024 to 2033, (2) approximately $28 million in alternative minimum tax credits with no expiration, (3) general business credit carryforwards of approximately $19 million expiring in 2023 through 2034, and (4) state NOL carryforwards of $3.3 billion expiring in 2014 through 2033 for which the associated deferred tax benefit, net of valuation allowance and federal tax impact, is $18 million. Our ability to utilize NOL carryforwards to reduce future taxable income may be limited under Section 382 of the Internal Revenue Code if certain ownership changes in our company occur during a rolling three-year period. These ownership changes include purchases of common stock under share repurchase programs (see Note 2), the offering of stock by us, the purchase or sale of our stock by 5% shareholders, as defined in the Treasury regulations, or the issuance or exercise of rights to acquire our stock. If such ownership changes by 5% shareholders result in aggregate increases that exceed 50 percentage points during the three-year period, then Section 382 imposes an annual limitation on the amount of our taxable income that may be offset by the NOL carryforwards or tax credit carryforwards at the time of ownership change.