11.	Income Taxes

The provision for income taxes consists of the following:

	Year Ended December 31,
	2014			2013			2012
Current:
Federal	$	148,221		$	137,675		$	76,599
State		28,881			30,352			3,066
Deferred:
Federal		(4,451	)		(13,402	)		13,086
State		(735	)		(2,406	)		1,738
	$	171,916		$	152,219		$	94,489

In addition to amounts applicable to income before taxes, the following income tax benefits were recorded in shareholders’ equity:

Year Ended December 31,

2014

2013

2012

Income tax benefits arising from compensation expense for

tax purposes in excess of amounts recognized for financial

statement purposes

9,437

20,636

14,319

Deferred income taxes on NVR’s consolidated balance sheets were comprised of the following:

	December 31,
	2014		2013
Deferred tax assets:
Other accrued expenses and contract land deposit reserve	$	84,817	$	90,372
Deferred compensation		7,500		8,049
Equity-based compensation expense		46,257		35,298
Inventory		11,153		11,099
Unrecognized tax benefit		24,485		23,784
Other		5,847		4,200
Total deferred tax assets		180,059		172,802
Less: deferred tax liabilities		7,371		4,290
Net deferred tax position	$	172,688	$	168,512

Deferred tax assets arise principally as a result of various accruals required for financial reporting purposes and equity-based compensation expense, which are not currently deductible for tax return purposes.

Management believes that the Company will have sufficient available carry-backs and future taxable income to make it more likely than not that the net deferred tax assets will be realized. Federal taxable income is estimated to be approximately $388,000 for the year ended December 31, 2014, and was $362,978 for the year ended December 31, 2013.

A reconciliation of income tax expense in the accompanying consolidated statements of income to the amount computed by applying the statutory federal income tax rate of 35% to income before taxes is as follows:

	Year Ended December 31,
	2014			2013			2012
Income taxes computed at the federal statutory rate	$	158,741		$	146,544		$	96,277
State income taxes, net of federal income tax benefit		18,800			18,210			3,226
Other, net		(5,625	)		(12,535	)		(5,014	)
	$	171,916		$	152,219		$	94,489

The Company’s effective tax rate in 2014, 2013 and 2012 was 37.90%, 36.36% and 34.35%, respectively. During 2014, the Company recognized income tax expense of approximately $7,000 due to the reversal of certain previously recognized tax deductions. During 2012, the Company reduced its provision for unrecognized tax benefits by $9,154, which reduced the 2012 effective tax rate. The reduction resulted from settlements with, and an audit by, certain taxing authorities during 2012 which led the Company to update its evaluation of the administrative practice in other states for similar uncertain tax positions to determine whether the positions taken in those states were effectively settled.

The Company files a consolidated U.S. federal income tax return, as well as state and local tax returns in all jurisdictions where the Company maintains operations. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years prior to 2011.

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

	Year Ended December 31,
	2014			2013
Balance at beginning of year	$	43,796		$	40,244
Additions based on tax positions related to the current year		6,008			5,618
Reductions for tax positions of prior years		(3,800	)		(2,066	)
Settlements		—			—
Balance at end of year	$	46,004		$	43,796

If recognized, the total amount of unrecognized tax benefits that would affect the effective tax rate (net of the federal tax benefit) is $29,902 as of December 31, 2014.

The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. For the year ended December 31, 2014, the Company recognized a net reversal of accrued interest on unrecognized tax benefits in the amount of $184. For the year ended December 31, 2013, the Company had a net addition to accrued interest on unrecognized tax benefits in the amount of $625. For the year ended December 31, 2012, the Company recognized a net reversal of accrued interest on unrecognized tax benefits in the amount of $4,116. As of December 31, 2014 and 2013, the Company had a total of $21,096 and $21,281, respectively, of accrued interest on unrecognized tax benefits which are included in “Accrued expenses and other liabilities” on the accompanying consolidated balance sheets. Based on its historical experience in dealing with various taxing authorities, the Company has found that it is the administrative practice of these authorities to not seek penalties from the Company for the tax positions it has taken on its returns, related to its unrecognized tax benefits. Therefore, the Company does not accrue penalties for the positions in which it has an unrecognized tax benefit. However, if such penalties were to be accrued, they would be recorded as a component of income tax expense.

The Company believes that within the next 12 months, it is reasonably possible that the unrecognized tax benefits as of December 31, 2014 will be reduced by approximately $6,339 due to statute expiration and effectively settled positions in various state jurisdictions. The Company is currently under audit by the state of Pennsylvania.