Income Taxes

Significant components of the provision for income taxes for the years ended December 31 are as follows:



(in thousands)	2016		2015		2014
Current:
Federal	$	126,145	$	118,490	$	109,893
State	21,110		17,625		15,482
Foreign	590		430		109
Total current provision	147,845		136,545		125,484
Deferred:
Federal	15,551		18,416		5,987
State	2,612		4,280		1,440
Foreign	—		—		(58		)
Total deferred provision	18,163		22,696		7,369
Total tax provision	$	166,008	$	159,241	$	132,853

A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years ended December 31 is as follows:



	2016	2015	2014
Federal statutory tax rate	35.0%	35.0%	35.0%
State income taxes, net of federal income tax benefit	3.9	3.9	3.3
Non-deductible employee stock purchase plan expense	0.3	0.3	0.3
Non-deductible meals and entertainment	0.3	0.3	0.4
Other, net	(0.3)	0.1	0.1
Effective tax rate	39.2%	39.6%	39.1%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax reporting purposes.

Significant components of Brown & Brown’s current deferred tax assets as of December 31 are as follows:



(in thousands)	2016		2015
Current deferred tax assets:
Deferred profit-sharing contingent commissions	$	10,567	$	9,767
Net operating loss carryforwards	10		10
Accruals and reserves	14,032		14,858
Total current deferred tax assets	$	24,609	$	24,635

Significant components of Brown & Brown’s non-current deferred tax liabilities and assets as of December 31 are as follows:



(in thousands)	2016			2015
Non-current deferred tax liabilities:
Fixed assets	$	6,425		$	8,585
Net unrealized holding (loss)/gain on available-for-sale securities	(12		)	(9		)
Intangible assets	422,478			393,251
Total non-current deferred tax liabilities	428,891			401,827
Non-current deferred tax assets:
Deferred compensation	44,912			38,966
Net operating loss carryforwards	2,384			2,518
Valuation allowance for deferred tax assets	(700		)	(606		)
Total non-current deferred tax assets	46,596			40,878
Net non-current deferred tax liability	$	382,295		$	360,949

Income taxes paid in 2016, 2015 and 2014 were $143.1 million, $132.9 million, and $118.3 million respectively.

At December 31, 2016, Brown & Brown had net operating loss carryforwards of $156,435 and $60.2 million for federal and state income tax reporting purposes, respectively, portions of which expire in the years 2017 through 2036. The federal carryforward is derived from insurance operations acquired by Brown & Brown in 2001. The state carryforward amount is derived from the operating results of certain subsidiaries and from the 2013 stock acquisition of Beecher Carlson Holdings, Inc.

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



(in thousands)	2016			2015			2014
Unrecognized tax benefits balance at January 1	$	584		$	113		$	391
Gross increases for tax positions of prior years	412			773			—
Gross decreases for tax positions of prior years	(41		)	—			(21		)
Settlements	(205		)	(302		)	(257		)
Unrecognized tax benefits balance at December 31	$	750		$	584		$	113

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2016 and 2015, the Company had $86,191 and $102,171 of accrued interest and penalties related to uncertain tax positions, respectively.

The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized was $750,258 as of December 31, 2016 and $583,977 as of December 31, 2015. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

As a result of a 2006 Internal Revenue Service (“IRS”) audit, the Company agreed to accrue at each December 31, for tax purposes only, a known amount of profit-sharing contingent commissions represented by the actual amount of profit-sharing contingent commissions received in the first quarter of the related year, with a true-up adjustment to the actual amount received by the end of the following March. Since this method for tax purposes differs from the method used for book purposes, it will result in a current deferred tax asset as of December 31 each year which will reverse by the following March 31 when the related profit-sharing contingent commissions are recognized for financial accounting purposes.

The Company is subject to taxation in the United States and various state jurisdictions. The Company is also subject to taxation in the United Kingdom. In the United States, federal returns for fiscal years 2013 through 2016 remain open and subject to examination by the IRS. The Company files and remits state income taxes in various states where the Company has determined it is required to file state income taxes. The Company’s filings with those states remain open for audit for the fiscal years 2011 through 2016. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2015 and 2016.

The federal income tax returns of The Wright Insurance Group are currently under IRS audit for the short period ended May 1, 2014. Also during 2016, the Company settled the previously disclosed State of Kansas audit for fiscal years 2012 through 2014 in the amount of $204,695. The Company and one of its subsidiaries, The Advocator Group, LLC, is currently under examination by the State of Massachusetts for the fiscal year 2013 through 2014. There are no other federal or state income tax audits as of December 31, 2016.

In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. As of December 31, 2016, we have not made a provision for U.S. or additional foreign withholding taxes on approximately $2.6 million of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.