13. Income Taxes

The University has deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are subject to periodic recoverability assessments. Realization of the deferred tax assets, net of deferred tax liabilities is principally dependent upon achievement of projected future taxable income. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that the University will realize the benefits of these deductible differences. The University has no valuation allowance at December 31, 2013 and 2012.

The components of income tax expense (benefit) are as follows:


	Year Ended December 31,
	2013		2012			2011
Current:
Federal	$	40,949	$	36,367		$	7,323
State		5,540		7,462			2,715

		46,489		43,829			10,038

Deferred:
Federal		4,209		(448	)		18,125
State		898		32			2,679

		5,107		(416	)		20,804

Tax expense recorded as an increase of paid-in capital		4,588		564			140

	$	56,184	$	43,977		$	30,982

A reconciliation of income tax computed at the U.S. statutory rate to the effective income tax rate is as follows:


	Year Ended December 31,
	2013			2012			2011
Statutory U.S. federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		5.5			5.9			5.5
State tax credits, net of federal effect		(1.8	)		(1.6	)		(1.2	)
Nondeductible expenses		0.3			0.2			0.2
Other		(0.2	)		(0.7	)		(1.5	)

Effective income tax rate		38.8	%		38.8	%		38.0	%

Significant components of the Company’s deferred income tax assets and liabilities are as follows:


	As of December 31,
	2013			2012
Current deferred tax asset (liability):
Accounts receivable allowance for doubtful accounts	$	3,870		$	3,321
State taxes		(234	)		(741	)
Estimated litigation loss and regulatory reserves		16			1,588
Other		1,507			1,313

Current deferred tax asset		5,159			5,481

Non-current deferred tax asset (liability):
Depreciation and leases		(24,711	)		(21,774	)
Share-based compensation		7,987			8,294
Deferred rent		2,290			2,642
Intangibles		2,504			3,384
Other		98			409

Non-current deferred tax liability		(11,832	)		(7,045	)

Net deferred tax liability	$	(6,673	)	$	(1,564	)

The University recognizes the impact of a tax position in its financial statements if that position is more-likely-than-not to be sustained on audit, based on the technical merits of the position. The University discloses all unrecognized tax benefits, which includes the reserves recorded for uncertain tax positions on filed tax returns and the unrecognized portion of affirmative claims. The University recognizes interest and penalties related to uncertain tax positions in income tax expense.

The reconciliation of the beginning and ending balance of unrecognized tax benefits at December 31 is as follows:


	2013		2012
Unrecognized tax benefits, beginning of year	$	—	$	845
Tax positions taken during the current year
Increases		—		—
Decreases		—		—
Tax positions taken during a prior year
Increases		—		214
Decreases		—		(5	)
Decreases for settlements during the period		—		(1,054	)
Reductions for lapses of applicable statute of limitations		—		—

Unrecognized tax benefits, end of year	$	—	$	—

During the years ended December 31, 2012, and 2011, the University recognized approximately $87 and $123, respectively, in interest and penalties. At December 31, 2013 and 2012, the University had no accrued interest or penalties. It is reasonably possible that the amount of the unrecognized tax benefits will change during the next 12 months, however management does not expect the potential change to have a material effect on the results of operations or financial position.

The University is subject to taxation in the United States, in states with an income tax and in several local jurisdictions. As of December 31, 2013, the earliest tax year still subject to examination for federal and state purposes is 2010 and 2005, respectively.