Income taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income taxes

Income taxes. Income tax expense consists of the following:

	2020	2019	2018
	(in $ thousands)
Current income tax expense:
Federal	47,778	12,329	5,540
State	3,235	846	1,089
Foreign	7,567	4,851	6,622
	58,580	18,026	13,251
Deferred income tax expense (benefit):
Federal	(10,429)	6,631	43
State	388	150	(864)
Foreign	294	1,888	1,077
	(9,747)	8,669	256
Total income tax expense	48,833	26,695	13,507

The following reconciles income tax expense computed at the federal statutory rate with income tax expense as reported (in $ thousands, except for income tax rates):

	2020		2019		2018
Expected income tax expense at 21% (1)	42,785		22,116		12,816
State income tax expense (benefit) - net of Federal impact	2,944		818		(5)
Valuation allowance	2,427		1,326		1,741
Nondeductible expenses	2,399		3,249		1,872
Foreign income tax rate differential	1,465		138		297
Net expense (benefit) for the Canadian branch (2)	(1,478)		613		128
Research and development credits	(1,055)		(278)		(732)
Return-to-provision and true-up adjustments	(438)		(776)		(370)
2017 Act impact from the U.S. corporate tax rate change	—		—		(745)
2017 Act impact from deemed repatriation of deferred foreign income	—		—		(624)
Other – net	(216)		(511)		(871)
Income tax expense	48,833		26,695		13,507
Effective income tax rate (1)	24.0	%	25.3	%	22.1	%

(1) Calculated using income before taxes and after noncontrolling interests.

(2) For U.S. income tax purposes, the Company’s Canadian operation is a branch of Guaranty. As a result, the Canadian net deferred tax liability is offset in the U.S. as a deferred tax asset but not in an equal amount given differing tax rates in Canada and the U.S.

Deferred tax assets and liabilities resulting from the same tax jurisdiction are netted and presented as either an asset or liability on the consolidated balance sheets. Deferred tax assets and liabilities resulting from different tax jurisdictions are not netted. Deferred tax assets and liabilities as of December 31 are detailed below.

	2020	2019
	(in $ thousands)
Deferred tax assets:
Accrued expenses	18,747	18,290
Federal offset to Canadian deferred tax liability	8,299	7,961
Net operating loss (NOL) carryforwards	5,036	7,017
Tax credit carryforwards	4,596	2,230
Deferred payroll taxes	3,297	—
Net unrealized losses on investments in securities	2,719	621
Investments	1,529	424
Other intangibles	1,321	—
Title loss provisions	1,138	837
Allowance for uncollectible amounts	1,056	983
Foreign currency translation adjustments	959	1,765
Other	1,174	533
Deferred tax assets – gross	49,871	40,661
Valuation allowance	(6,471)	(4,056)
Deferred tax assets – net	43,400	36,605
Deferred tax liabilities:
Amortization – goodwill and other intangibles	(26,669)	(22,379)
Title loss provisions	(18,724)	(29,704)
Net unrealized gains on investments in securities	(7,684)	(4,218)
Fixed assets	(6,046)	(1,997)
Deferred compensation on life insurance policies	(2,296)	(2,202)
Investments	(1,193)	—
Other	(310)	(417)
Deferred tax liabilities – gross	(62,922)	(60,917)
Net deferred income tax liability	(19,522)	(24,312)

At December 31, 2020, the Company had $4.6 million of foreign tax credit carryforwards that will begin to expire in 2028. The future utilization of these credit carryforwards is subject to various limitations. The Company's $5.0 million of deferred tax assets relating to NOL carryforwards include losses from various states and will expire in varying amounts from 2021 through 2040, and foreign losses which will expire in varying amounts from 2021 through 2024 or have unlimited carryforward periods. The future utilization of all NOL carryforwards is subject to various limitations.

The Company's valuation allowance at December 31, 2020 relates primarily to all foreign tax credit carryforwards and certain state and foreign NOL carryforwards which the Company believes are not more-likely-than-not to be utilized prior to expiration.

The Company’s income tax returns are routinely subject to examinations by U.S. federal, foreign, and state and local tax authorities. During 2018, the Company was notified by the IRS that its 2015 U.S. federal tax return was selected for examination. In 2019, the IRS closed the 2015 U.S. federal tax return examination with no changes. At December 31, 2020, the Company’s 2017 through 2019 U.S. federal income tax returns and 2016 through 2019 Canadian income tax returns remain subject to examination. The Company is subject to routine examinations by state tax jurisdictions for calendar years 2010 through 2013 and remains subject to examination for 2016 through 2019 tax returns. The Company expects no material adjustments from any ongoing tax return examinations.