Income Taxes

Reconciliations of the statutory U.S. federal income tax rates to our effective tax rate for continuing operations follow:



	Years Ended December 31,
	2014		2013		2012
Statutory rate	35.0	%	35.0	%	35.0	%
State tax, net of federal benefit	2.9		2.6		—
Effect of state rate change on net deferred tax liabilities, net of federal benefit	4.4		—		(0.1	)
State, release valuation allowance on net operating losses	(4.0	)	—		—
Unrecognized tax benefits, U.S. federal and state, net of federal benefit	4.8		—		—
Other, net	(1.2	)	0.6		2.0
Effective tax rate	41.9	%	38.2	%	36.9	%

The effective tax rate varies from the statutory U.S. federal rate of 35 percent primarily due to the impact of unrecognized tax benefits, net of federal benefit, for the year ended December 31, 2014. The effective tax rate varies from the statutory U.S. federal rate of 35 percent primarily due to the impact of state taxes, net of federal benefit, for the years ended December 31 2013, and 2012. The increase in the impact of state rate change is due to an increase in the net state deferred liabilities as a result of an increase in the overall blended state tax rate and by the impact of state law changes recorded in 2014. In addition, in 2014 the Company recorded a partial valuation allowance release related to state net operating losses.

Income tax expense consists of:



	December 31,
	2014			2013		2012
Current provision:
Federal	$	137,573		$	130,854	$	126,484
State	43,282			13,513		10,674
Total current provision	180,855			144,367		137,158
Deferred (benefit)/provision:
Federal	(40,370		)	13,240		(9,747		)
State	(518		)	1,327		(1,268		)
Total deferred (benefit)/provision	(40,888		)	14,567		(11,015		)
Provision for income tax expense	$	139,967		$	158,934	$	126,143

The tax effect of temporary differences that give rise to deferred tax assets and liabilities include the following:



	December 31,
	2014			2013
Deferred tax assets:
Loan reserves	$	33,570		$	26,853
Stock-based compensation plans	16,342			28,211
Deferred revenue	418			607
Operating loss and credit carryovers	14,324			1,273
Unrealized losses	7,185			1,849
Accrued expenses not currently deductible	10,606			2,853
Unrecorded tax benefits	19,798			2,331
Other	8,918			334
Total deferred tax assets	111,161			64,311
Deferred tax liabilities:
Gains on repurchased debt	251,671			—
Fixed assets	5,849			3,181
Acquired intangible assets	6,151			616
Student loan premiums and discounts, net	3,050			(87		)
Other	2,656			3
Total deferred tax liabilities	269,377			3,713
Net deferred tax (liabilities) assets	$	(158,216	)	$	60,598

Included in operating loss carryovers is a valuation allowance of $69.9 million as of December 31, 2014, against a portion of our state net operating loss carryovers that management believes is more likely than not will expire prior to being realized. As of December 31, 2014, we have apportioned state net operating loss carryforwards of $22 million which begin to expire in 2029.

Accounting for Uncertainty in Income Taxes

The following table summarizes changes in unrecognized tax benefits:



	December 31,
	2014			2013		2012
Unrecognized tax benefits at beginning of year	$	7,343.5		$	3,951.1	$	2,467.3
Increases resulting from tax positions taken during a prior period	45,184.2			573.9		503.1
Increases resulting from tax positions taken during the current period	7,712.5			2,818.5		980.7
Decreases related to settlements with taxing authorities	(235.7		)	—		—
Reductions related to the lapse of statute of limitations	(599.6		)	—		—
Unrecognized tax benefits at end of year	$	59,404.9		$	7,343.5	$	3,951.1

As of December 31, 2014, the gross unrecognized tax benefits are $59.4 million. Included in the $59.4 million are $33.1 million of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate. As a part of the Spin-Off, the Company recorded a liability related to uncertain tax positions for which it is indemnified by Navient. See Note 2, “Significant Accounting Policies - Income Taxes,” for additional details.

Tax related interest expense is reported as a component of income tax expense. As of December 31, 2014 and 2013, the total amount of income tax-related accrued interest, net of related benefit, recognized in the consolidated balance sheets was $5.9 million and $0.4 million, respectively.

For the years ended December 31, 2014, 2013 and 2012, the total amount of income tax-related accrued interest, net of related tax benefit, recognized in the consolidated statements of income was $2.3 million, $0.1 million and $0, respectively.

The Company believes that it is reasonably possible that a decrease of up to $4.5 million in unrecognized tax benefits related to state taxes may be necessary within the coming year.

The Company or one of its subsidiaries files income tax returns at the U.S. federal level and in most U.S. states. U.S. federal income tax returns filed for years 2010 and prior have either been audited or surveyed and are now resolved. Various combinations of subsidiaries, tax years, and jurisdictions remain open for review, subject to statute of limitations periods (typically 3 to 4 prior years). We do not expect the resolution of open audits to have a material impact on our unrecognized tax benefits.