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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Reconciliations of the statutory U.S. federal income tax rates to our effective tax rate for continuing operations follow:

 
Years ended December 31,202220212020
Statutory rate21.0 %21.0 %21.0 %
State tax, net of federal benefit4.1 3.1 2.9 
Business credits(1.5)(0.8)(2.2)
Other, net2.0 1.4 2.0 
Effective tax rate25.6 %24.7 %23.7 %

The effective tax rate varies from the statutory U.S. federal rate of 21 percent primarily due to business tax credits and the impact of state taxes, net of federal benefit, for the year ended December 31, 2022; due to the impact of state taxes, net of federal benefit, for the year ended December 31, 2021; and due to business tax credits and the impact of state taxes, net of federal benefit, for the year ended December 31, 2020.
Income tax expense consists of:
 
As of December 31,
(dollars in thousands)		202220212020
Current provision (benefit):
Federal$205,954 $259,536 $172,153 
State49,427 64,843 28,387 
Total current provision (benefit)255,381 324,379 200,540 
Deferred provision (benefit):
Federal(75,978)47,240 58,003 
State(17,692)8,132 14,773 
Total deferred provision (benefit)(93,670)55,372 72,776 
Provision for income tax expense$161,711 $379,751 $273,316 

 
    
The tax effect of temporary differences that give rise to deferred tax assets and liabilities is summarized below.

As of December 31,
(dollars in thousands)		20222021
Deferred tax assets:
Loan reserves$362,368 $300,538 
Net unrealized losses30,160 — 
Accrued expenses not currently deductible12,949 14,307 
Unrecorded tax benefits12,916 11,016 
Research and development costs10,929 — 
Stock-based compensation plans9,624 10,174 
Operating loss carryovers300 394 
Other4,618 2,415 
Total deferred tax assets443,864 338,844 
Deferred tax liabilities:
Student loan premiums and discounts, net14,065 12,396 
Fixed assets9,347 10,131 
Federal deferred for state receivable2,111 1,921 
Research and development costs— 8,710 
Net unrealized gains— 6,459 
Other397 396 
Total deferred tax liabilities25,920 40,013 
Net deferred tax assets$417,944 $298,831 

Included in operating loss carryovers are state net operating losses of $7 million and $286 million as of December 31, 2022 and 2021, respectively. The Company has recorded a valuation allowance against these net operating losses of $7 million and $285 million, respectively. Also included in operating loss carryovers is a capital loss of $16 million and $16 million as of December 31, 2022 and 2021, respectively. The Company has recorded a full valuation allowance against this capital loss. The valuation allowance is primarily attributable to deferred tax assets for state net operating losses and capital losses that management believes is more likely than not to expire prior to being realized. Included in net unrealized losses is a valuation allowance of $4 million.
The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income of the appropriate character (i.e., capital or ordinary) during the period in which the temporary differences become deductible. Management considers, among other things, the scheduled reversals of deferred tax liabilities and the history of positive taxable income in evaluating the realizability of the deferred tax assets. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize our deferred tax assets (other than state net operating loss, net unrealized losses and capital loss carryovers as outlined above).
As of December 31, 2022, the state net operating loss carryforwards will begin to expire in 2029 and the capital losses in 2025.
Accounting for Uncertainty in Income Taxes
The following table summarizes changes in unrecognized tax benefits:
 
As of December 31,
(dollars in thousands)		202220212020
Unrecognized tax benefits at beginning of year$75,328 $63,134 $53,509 
Increases resulting from tax positions taken during a prior period6,049 1,496 12,723 
Decreases resulting from tax positions taken during a prior period(1,327)(1,481)(817)
Increases resulting from tax positions taken during the current period11,032 20,743 7,815 
Decreases related to settlements with taxing authorities(4,666)(3,682)(148)
Increases related to settlements with taxing authorities— 96 — 
Reductions related to the lapse of statute of limitations(7,050)(4,978)(9,948)
Unrecognized tax benefits at end of year$79,366 $75,328 $63,134 


As of December 31, 2022, the gross unrecognized tax benefits are $79 million. Included in the $79 million are $68 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 and penalty expense is reported as a component of income tax expense. As of December 31, 2022, 2021, and 2020, the total amount of income tax-related accrued interest and penalties, net of related benefit, recognized in the consolidated balance sheets was $8 million, $10 million, and $11 million, respectively.

For the years ended December 31, 2022, 2021, and 2020, the total amount of income tax-related accrued interest, net of related tax benefit, recognized in the consolidated statements of income was $(2) million, $(1) million, and $(1) million, respectively.
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 2014 and prior are no longer subject to examination. Various combinations of subsidiaries, tax years, and jurisdictions remain open for review, subject to statute of limitations periods (typically three to four prior years). The Company’s federal income tax returns for the years ended December 31, 2015, December 31, 2016, and December 31, 2017 are currently under audit by the Internal Revenue Service. We do not expect the resolution of open audits to have a material impact on our unrecognized tax benefits.
It is reasonably possible that the uncertain tax position reserve may decrease by as much as $3 million during the next 12 months due to the expiration of statutes of limitations, some of which relate to the indemnified tax liabilities. The reduction in the uncertain tax position reserve would be reflected as a tax benefit. We recorded a tax indemnification receivable from Navient for the indemnified tax liabilities which are included in the uncertain tax position reserve. A portion of the tax benefit will be offset by an expense related to the write-down of the indemnification receivable.