5. Income Taxes

The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax laws that will be in effect when the differences are expected to reverse.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2013 and 2012 were as follows (amounts in thousands):


	2013			2012
Deferred tax assets:
Allowance for uncollectible accounts	$	5,127		$	3,901
Accrued employee benefits		3,420			3,250
Stock compensation		1,503			1,593
Accrued self-insurance		2,257			2,097
Acquisition costs		1,155			861
Net operating loss carry forward		873			779
Intangible asset impairment		55			60
Uncertain tax position—state tax portion		215			215
Other		61			520
Valuation allowance		(44	)		(44	)

Deferred tax assets	$	14,622		$	13,232

Deferred tax liabilities:
Amortization of intangible assets		(25,202	)		(21,455	)
Tax depreciation in excess of book depreciation		(7,171	)		(7,007	)
Prepaid expenses		(786	)		(765	)
Non-accrual experience accounting method		(1,223	)		(1,302	)
Deferred state tax receivable		(49	)		(161	)

Deferred tax liabilities		(34,431	)		(30,690	)

Net deferred tax liability	$	(19,809	)	$	(17,458	)

Based on the Company’s historical pattern of taxable income, the Company believes it will produce sufficient income in the future to realize its deferred income tax assets. Management provides a valuation allowance for any net deferred tax assets when it is more likely than not that a portion of such net deferred tax assets will not be recovered.

The components of the Company’s income tax expense (benefit) from continuing operations, less noncontrolling interest, were as follows (in thousands):


	2013		2012		2011
Current:
Federal	$	11,962	$	12,930	$	(5,924	)
State		1,546		2,377		(636	)

		13,508		15,307		(6,560	)
Deferred:
Federal		1,448		1,955		4,545
State		903		249		47

		2,351		2,204		4,592

Total income tax expense (benefit)	$	15,859	$	17,511	$	(1,968	)

A reconciliation of the differences between income tax expense on net income attributable to LHC Group, Inc., computed at the federal statutory rate and provisions for income taxes for each period is as follows (in thousands):


	2013			2012			2011
Income taxes computed at federal statutory tax rate	$	13,360		$	15,733		$	(5,232	)
State income taxes, net of federal benefit		1,641			1,739			(443	)
Reduction in valuation allowance		—			—			(392	)
Nondeductible expenses		1,022			844			675
Uncertain tax position		—			—			3,200
Other items		101			40			437
Income tax credits		(265	)		(845	)		(213	)

Total income tax expense (benefit)	$	15,859		$	17,511		$	(1,968	)

The Company is subject to both federal and state income tax for jurisdictions within which it operates. Within these jurisdictions, the Company is open to examination for tax years ended after December 31, 2010.

As of December 31, 2013, $3.4 million was recorded in income tax payable as an unrecognized tax benefit which, if recognized, would decrease the Company’s effective tax rate. A reconciliation of the total amounts of unrecognized tax benefits follows:


Total unrecognized tax benefits as of December 31, 2012	$	3,415
Increases (decreases) in unrecognized tax benefits as a result of:
Tax positions taken during the current period		—

Total unrecognized tax benefits as of December 31, 2013	$	3,415

The Company recognizes interest and penalties related to uncertain tax positions in interest expense and general and administrative expenses, respectively. During the years ended December 31, 2013 and 2012, the Company recognized $176,000 and $132,000 in interest expense, respectively, and recorded an accrued liability of interest payments related to uncertain tax positions. During the year ended December 31, 2011, the Company did not recognize any interest or penalties in its consolidated financial statements and did not record an accrued liability of interest or penalty payments related to uncertain tax positions.