Pretax income for the years ended December 31, 2023, 2022 and 2021 was $192.1 million, $134.3 million and $149.1 million, respectively.

The provision for income taxes for the years ended December 31, 2023, 2022 and 2021 consists of the following (dollars in thousands):


	For the Year Ended December 31,
	2023		2022			2021
Current provision
Federal	$	32,792	$	33,166		$	19,143
State and local		7,903		5,913			4,956
Foreign		13		-			-
Total current provision		40,708		39,079			24,099
Deferred provision (benefit)
Federal		2,640		(3,767	)		13,389
State and local		1,121		3,090			1,942
Total deferred provision (benefit)		3,761		(677	)		15,331
Total provision for income taxes	$	44,469	$	38,402		$	39,430

A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate for the years ended December 31, 2023, 2022 and 2021 is as follows:


	For the Year Ended December 31,
	2023				2022				2021
Statutory U.S. federal income tax rate		21.0		%		21.0		%		21.0		%
State and local income taxes		2.9				2.7				2.6
Stock-based compensation		(0.1	)			0.6				1.0
Capital loss		-				2.3				(2.1	)
Valuation allowance		(0.1	)			(0.6	)			2.1
Worthless stock deduction		(2.4	)			-				-
Tax credits		(0.4	)			(0.3	)			(0.3	)
Other		2.2				2.9				2.1
Effective income tax rate		23.1		%		28.6		%		26.4		%

The effective tax rate for the year ended December 31, 2023 includes a $0.3 million favorable adjustment associated with the tax effect of stock-based compensation, which decreased the effective tax rate by 0.1%. The 2023 effective tax rate was also impacted by a $4.5 million favorable adjustment related to the recognition of the tax benefits associated with a previously disclosed prior year ordinary loss attributable to the stock of a worthless subsidiary, which decreased the effective tax rate by 2.4% and a $0.7 million favorable adjustment related to federal and state credits claimed for the 2022 return and anticipated for the 2023 tax year, which decreased the effective tax rate by 0.4%.

The effective tax rate for the year ended December 31, 2022 includes a $0.8 million unfavorable adjustment associated with the tax effect of stock-based compensation, which increased the effective rate by 0.6%. The 2022 effective tax rate also reflects the establishment of a full valuation allowance of $1.4 million with respect to select combined state net operating losses that are anticipated to go unused and $0.9 million related to the expected non-deductibility of reductions in the carrying value of our equity investment, which collectively increased the effective rate by 1.7%. During 2022, the Company re-evaluated the character of the loss incurred on the elimination of a wholly-owned subsidiary during the prior year and re-categorized this transaction in its 2021 tax returns as an ordinary loss attributable to the stock of a worthless subsidiary. As a result of our assessment, the $3.1 million deferred tax asset and offsetting valuation allowance with respect to the capital loss carryforward was eliminated, which had an offsetting impact on the effective tax rate of 2.3%.

The effective tax rate for the year ended December 31, 2021 includes a $1.6 million unfavorable adjustment associated with the tax effect of stock-based compensation, which increased the effective tax rate by 1.0%. The 2021 effective tax rate also reflects a $0.5 million favorable adjustment related to federal and state credits claimed for the 2020 tax return and anticipated for the 2021 tax year, which decreased the effective tax rate by 0.3% and a $3.1 million favorable adjustment associated with a capital loss incurred for tax purposes on the elimination of a wholly-owned subsidiary, which decreased the effective tax rate by 2.1%. Since utilization of the capital loss is not anticipated, a valuation allowance of $3.1 million was established against the full amount of the deferred tax balance for the capital loss carryforward, which increased the effective tax rate by 2.1%.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits as of December 31, 2023, 2022 and 2021 is as follows (dollars in thousands):


	2023			2022			2021
Gross unrecognized tax benefits, beginning of the year	$	24,658		$	15,951		$	11,794
Additions for tax positions of prior years		16			4,290			941
Additions for tax positions related to the current year		7,325			5,584			4,250
Reductions for tax positions of prior years		(5,083	)		-			-
Reductions due to lapse of applicable statute of limitations		(1,230	)		(1,167	)		(1,034	)
Subtotal		25,686			24,658			15,951
Interest and penalties		3,257			2,451			2,020
Total gross unrecognized tax benefits, end of the year	$	28,943		$	27,109		$	17,971

The total amount of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods was $22.9 million and $22.2 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, our short and long-term reserves, recorded within current accrued income taxes and other non-current liabilities, respectively, related to FASB’s interpretation No. 48 of ASC Topic 740-10, Accounting for Uncertainty in Income Taxes or(“FIN 48”), were $2.0 million and $23.7 million, respectively. We record interest and penalties related to unrecognized tax benefits within provision for income taxes on our consolidated statements of income. The total amount of accrued interest and penalties resulting from such unrecognized tax benefits was $3.3 million and $2.5 million as of December 31, 2023 and 2022, respectively. For the years ended

December 31, 2023, 2022 and 2021, we recognized less than $0.7 million of expense, less than $0.4 million of expense and less than $0.1 million of expense, respectively, related to interest and penalties from unrecognized tax benefits in our consolidated results of operations.

Perdoceo and its subsidiaries file income tax returns in the U.S. and in various state and local jurisdictions and are routinely examined by tax authorities in these jurisdictions. As of December 31, 2023, Perdoceo had been examined by the Internal Revenue Service through our tax year ending December 31, 2014. Due to the expiration of various statutes of limitations, it is reasonably possible that Perdoceo’s gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $2.8 million.

Deferred income tax assets and liabilities result primarily from temporary differences in the recognition of various expenses for tax and financial statement purposes, and from the recognition of the tax benefits of net operating loss and tax credit carryforwards. Components of deferred income tax assets and liabilities as of December 31, 2023 and 2022 are as follows (dollars in thousands):


	December 31,
	2023			2022
Deferred income tax assets:
Accrued occupancy	$	6,635		$	8,232
Foreign tax credits		-			7,229
Valuation allowance foreign tax credits		-			(7,229	)
Compensation and employee benefits		6,921			9,399
Tax net operating loss carry forwards		16,446			17,530
Valuation allowance		(13,003	)		(13,159	)
Allowance for doubtful accounts		6,227			6,444
Accrued settlements and legal		462			159
Accrued severance		1,095			539
Equity method for investments		873			881
Equity method for investments valuation allowance		(873	)		(881	)
Available for sale short-term investments		146			1,267
Available for sale short-term investments valuation allowance		(146	)		(1,267	)
Capitalized research and development		5,189			2,896
Depreciation		1,262			1,060
Other		1,846			1,492
Total deferred income tax assets		33,080			34,592
Deferred income tax liabilities:
Amortization		1,710			1,420
Right of use asset, net		4,564			6,199
Other		3,002			2,360
Total deferred income tax liabilities		9,276			9,979
Net deferred income tax assets	$	23,804		$	24,613

As of December 31, 2023, the Company has a gross deferred tax asset before valuation allowance of $151.7 million and a gross deferred tax liability of $38.8 million. As of December 31, 2022, the Company had a gross deferred tax asset before valuation allowance of $170.2 million and a gross deferred tax liability of $42.1 million.

As of December 31, 2022, we have federal net operating loss (“NOL”) carryforwards of approximately $10.4 million and state NOL carryforwards of approximately $7.1 million, remaining from the acquisition of Coding Dojo. These federal and state NOL’s relate to post-2017 tax years and can be carried forward indefinitely. For the tax year ended December 31, 2023, we expect to utilize federal and state NOL carryforwards of approximately $6.7 million and $2.0 million, respectively, due to the limitation on the utilization of acquired NOL carryforwards. Excluding the Coding Dojo state NOL’s referred to above, we have state NOL carryforwards of approximately $266.4 million, which expire between 2024 and 2037. Of this amount, approximately $81.0 million relates to separate state NOL carryforwards and $132.4 million relates to combined state NOL carryforwards, which we anticipate will not be used due to the teach-out of the schools in the applicable combined filing jurisdictions. Valuation allowances have been established against the full amounts of the deferred tax balances for the separate state NOL and the combined state NOL.

In assessing the continued need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. Topic 740 provides that important factors in determining whether a deferred tax asset will be realized include whether sufficient taxable income is expected in future years in order to use the deferred tax asset. In evaluating the realizability of deferred income tax assets, we consider, among other things, historical levels of taxable income along with possible sources of future taxable income, which include: the expected timing of the reversals of existing temporary reporting

differences, the existence of taxable income in prior carryback years, the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits and expected future taxable income. Changes in, among other things, income tax legislation, statutory income tax rates, or future taxable income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods. If, based on the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, we record a valuation allowance, or release all or a portion of the valuation allowance if it is more likely than not the deferred tax assets are expected to be realized. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. A high degree of judgment is required to determine if, and the extent to which, valuation allowances should be recorded against deferred tax assets.

As of December 31, 2022 a valuation allowance of $22.5 million was maintained with respect to our foreign tax credits not supported by an Overall Domestic Loss (“ODL”) account balance, equity investment, available for sale short-term investments and state net operating losses. Due to a $4.7 million year-over-year decrease in the cumulative unrealized holding loss on available for sale short-term investments that is reflected in total other comprehensive income (loss), the deferred tax asset and corresponding valuation allowance was decreased by $1.1 million. Additionally, the valuation allowance was reduced by $7.2 million for the last remaining portion of the non-ODL supported foreign tax credit carryforward which expired unused at the end of 2023 and $0.2 million for the utilization of a combined state net operating loss. As of December 31, 2023, the total valuation allowance attributable to our equity investment, available for sale short-term investments and state net operating losses is $14.0 million. The Company concluded the cumulative losses related to the reduction in carrying value of the equity investment are significant relative to the amount invested and indicative of a potential capital loss, which would not be realizable given the absence of offsetting capital gains. The unrealized holding loss on available for sale short-term investments also represents a potential capital loss that would not be realizable in the absence of offsetting capital gains. The separate state NOLs can generally only be used by the originating entity and relate to entities that no longer maintain active schools. Since these entities are not expected to generate future operating income, the more likely than not threshold was not reached with respect to this portion of the deferred tax assets. Similarly, the Company determined a valuation allowance was needed with respect to the portion of the combined state net operating losses which will likely go unused due to the teach-out of the schools located in the applicable combined filing jurisdictions. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased or decreased, and additional weight may be given to subjective evidence such as our projections for growth. We will continue to evaluate our valuation allowance in future years for any change in circumstances that causes a change in judgment about the realizability of the deferred tax asset.