Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

Note 15—Income Taxes

The Company files U.S. federal and state corporate income tax returns for PFSI and partnership returns for PNMAC. The Company’s federal tax returns are subject to examination for 2019 and forward and its state tax returns are generally subject to examination for 2018 and forward. PNMAC’s federal partnership returns are subject to examination for 2019 and forward, and its state tax returns are generally subject to examination for 2018 and forward. The returns of both PFSI and PNMAC are under an examination by New York State for years 2019 and 2020, and the returns of PFSI are in the initial stages of an examination by the state of South Carolina for years 2019, 2020 and 2021. The Company does not expect any material changes from these examinations.

The following table details the Company’s provision for income taxes:

	Year ended December 31,
	2022		2021		2020
	(in thousands)
Current (benefit) expense:
Federal	$	(2,944)	$	101,659	$	378,984
State		(249)		39,551		128,495
Total current (benefit) expense		(3,193)		141,210		507,479
Deferred expense:
Federal		131,670		160,587		61,592
State		61,263		53,896		24,654
Total deferred expense		192,933		214,483		86,246
Total provision for income taxes	$	189,740	$	355,693	$	593,725

The following table is a reconciliation of the Company’s provision for income taxes at statutory rates to the provision for income taxes at the Company’s effective tax rate:

	Year ended December 31,
	2022	2021	2020
Federal income tax statutory rate	21.0%	21.0%	21.0%
State income taxes, net of federal benefit	5.9%	5.4%	5.5%
Tax rate revaluation	1.2%	0.0%	(0.1)%
Other	0.4%	(0.2)%	0.1%
Effective income tax rate	28.5%	26.2%	26.5%

The components of the Company’s provision for deferred income taxes are as follows:

	Year ended December 31,
	2022		2021		2020
	(in thousands)
Mortgage servicing rights	$	326,378	$	196,697	$	128,471
Net operating loss		(160,605)		—		581
Reserves and losses		13,480		15,736		(33,477)
Compensation accruals		10,473		(11,456)		(647)
Additional tax basis in partnership from exchanges of partnership units into the Company's common stock		4,517		4,420		5,200
California franchise taxes		4,447		10,753		(15,200)
Tax credits		—		50		—
Other		(5,757)		(1,717)		1,318
Total provision for deferred income taxes	$	192,933	$	214,483	$	86,246

The components of Income taxes payable are as follows:

	December 31,
	2022		2021
	(in thousands)
Current income tax receivable	$	(1,993)	$	(126,542)
Deferred income tax liability, net		1,004,737		811,804
Income taxes payable	$	1,002,744	$	685,262

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities are presented below:

	December 31,
	2022		2021
	(in thousands)
Deferred income tax assets:
Net operating loss carryforward	$	161,682	$	1,077
Compensation accruals		42,668		53,141
Additional tax basis in partnership from exchanges of partnership units into the Company's common stock		25,760		30,277
Reserves and losses		33,795		47,275
California franchise tax		—		4,447
Other		6,159		5,661
Gross deferred income tax assets		270,064		141,878
Deferred income tax liabilities:
Mortgage servicing rights		1,260,181		933,803
Other		14,620		19,879
Gross deferred income tax liabilities		1,274,801		953,682
Net deferred income tax liability	$	1,004,737	$	811,804

The Company recorded a deferred tax asset of $161.7 million, of which $160.6 million related to net operating losses incurred in 2022 and $1.1 million related to net operating losses incurred in 2018. The $126.1 million related to federal net operating loss carry forward has no expiration date but is subject to an annual utilization limitation of up to 80% of taxable income. The remaining $35.6 million in deferred tax assets, relating to state net operating losses, either have no expiration date or expire by 2042. The Company expects to fully utilize these net operating losses before their expiration dates.

At December 31, 2022 and 2021, the Company had no unrecognized tax benefits and does not anticipate any unrecognized tax benefits. Should the recognition of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company’s policy to record such expenses in the Company’s income tax accounts. No such accruals existed at December 31, 2022 and 2021.