NOTE 9 Income Taxes

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


*(in thousands)*	2014			2013		2012
Current:
Federal	$	109,893		$	94,007	$	75,522
State		15,482			13,438		11,852
Foreign		109			805		669

Total current provision		125,484			108,250		88,043

Deferred:
Federal		5,987			28,469		27,348
State		1,440			3,723		5,375
Foreign		(58	)		55		—

Total deferred provision		7,369			32,247		32,723

Total tax provision	$	132,853		$	140,497	$	120,766

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:


	2014			2013			2012
Federal statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		3.3			3.5			4.3
Non-deductible employee stock purchase plan expense		0.3			0.3			0.3
Non-deductible meals and entertainment		0.4			0.3			0.3
Other, net		0.1			0.2			(0.3	)

Effective tax rate		39.1	%		39.3	%		39.6	%

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)*	2014		2013
Current deferred tax assets:
Deferred profit-sharing contingent commissions	$	10,335	$	9,713
Net operating loss carryforwards		951		8,408
Accruals and reserves		14,145		11,155

Total current deferred tax assets	$	25,431	$	29,276

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


*(in thousands)*	2014			2013
Non-current deferred tax liabilities:
Fixed assets	$	10,368		$	11,651
Net unrealized holding gain on available-for-sale securities		56			—
Intangible assets		364,938			306,009

Total non-current deferred tax liabilities		375,362			317,660

Non-current deferred tax assets:
Deferred compensation		31,580			22,598
Net operating loss carryforwards		2,796			3,843
Valuation allowance for deferred tax assets		(511	)		(485	)

Total non-current deferred tax assets		33,865			25,956

Net non-current deferred tax liability	$	341,497		$	291,704

Income taxes paid in 2014, 2013 and 2012 were $118,290,000, $110,191,000, and $80,622,000, respectively.

At December 31, 2014, Brown & Brown had net operating loss carryforwards of $212,000 and $78,870,000 for federal and state income tax reporting purposes, respectively, portions of which expire in the years 2015 through 2034. 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 2012 and 2013 stock acquisitions of Arrowhead General Insurance Agency Superholding Corp and Beecher Carlson Holdings, Inc.

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


*(in thousands)*	2014			2013			2012
Unrecognized tax benefits balance at January 1	$	391		$	294		$	806
Gross increases for tax positions of prior years		—			232			222
Gross decreases for tax positions of prior years		(21	)		—			(409	)
Settlements		(257	)		(135	)		(325	)

Unrecognized tax benefits balance at December 31	$	113		$	391		$	294

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2014 and 2013, the Company had approximately $66,000 and $121,000 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 $113,000 as of December 31, 2014 and $391,000 as of December 31, 2013. 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 2011 through 2014 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 2009 through 2014. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2013 and 2014.

Subsequent to December 31, 2014, the Internal Revenue Service has notified Beecher Carlson Holdings, Inc. of a federal corporate income tax audit for the short period January 1, 2013 through June 30, 2013. The short period filing is a pre-acquisition tax filing for which Brown & Brown, Inc. is indemnified against by the sellers of Beecher Carlson Holdings, Inc. We are currently not aware of any potential adjustments for the audit period. The Company’s 2009 through 2012 State of Oregon tax returns are currently under audit. The audit has been substantially completed as of December 31, 2014 and is awaiting final settlement payment with the State of Oregon. Amounts estimated to be due to the State of Oregon as a result of the audit have been reserved by the Company. There are no other federal or state income tax audits as of December 31, 2014.