Income Taxes

As discussed in Note 1—Significant Accounting Policies under the caption "Low-Income Housing Tax Credit Interests" the Company adopted ASU 2014-01 as of January 1, 2015. As a result of the adoption, amortization of the cost component for certain investments in low-income affordable housing projects were reclassified from net investment income to income taxes. The reclassification adjustment has been applied retrospectively to all periods presented.

The components of income taxes were as follows:



	Year Ended December 31,
	2015			2014			2013
Income tax expense from continuing operations	$	249,894		$	256,603		$	248,110
Shareholders’ equity:
Other comprehensive income (loss)	(411,646		)	424,089			(386,752		)
Tax basis compensation expense (from the exercise of stock options and vesting of restricted stock awards) in excess of amounts recognized for financial reporting purposes	(17,577		)	(18,524		)	(21,314		)
	$	(179,329	)	$	662,168		$	(159,956	)

Income tax expense from continuing operations consists of:



	Year Ended December 31,
	2015		2014		2013
Current income tax expense	$	174,284	$	169,319	$	190,406
Deferred income tax expense	75,610		87,284		57,704
	$	249,894	$	256,603	$	248,110

In each of the years 2013 through 2015, deferred income tax expense was incurred because of certain differences between net income before income taxes as reported on the Consolidated Statements of Operations and taxable income as reported on Torchmark’s income tax returns. As explained in Note 1—Significant Accounting Policies, these differences caused the financial statement book values of some assets and liabilities to be different from their respective tax bases.

The effective income tax rate differed from the expected 35% rate as shown below:



	Year Ended December 31,
	2015			%		2014			%		2013			%
Expected income taxes	$	268,165		35.0		$	274,637		35.0		$	264,360		35.0
Increase (reduction) in income taxes resulting from:
Tax-exempt investment income	(3,178		)	(0.4	)	(3,233		)	(0.4	)	(3,107		)	(0.4	)
Low income housing investments	(19,031		)	(2.5	)	(17,541		)	(2.2	)	(16,227		)	(2.1	)
Other	3,938			0.5		2,740			0.4		3,084			0.4
Income tax expense from continuing operations	$	249,894		32.6		$	256,603		32.8		$	248,110		32.9

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



	December 31,
	2015		2014
Deferred tax assets:
Fixed maturity investments	$	16,098	$	12,925
Carryover of tax losses	2,266		3,036
Total gross deferred tax assets	18,364		15,961
Deferred tax liabilities:
Unrealized gains	128,683		522,219
Employee and agent compensation	83,229		74,088
Deferred acquisition costs	921,799		874,817
Future policy benefits, unearned and advance premiums, and policy claims	340,854		331,408
Other liabilities	17,176		4,732
Total gross deferred tax liabilities	1,491,741		1,807,264
Net deferred tax liability	$	1,473,377	$	1,791,303

Torchmark and its subsidiaries, excluding Family Heritage Life Insurance Company (Family Heritage), file a life-nonlife consolidated federal income tax return. Family Heritage files its federal income tax return on a separate company basis. Torchmark’s consolidated federal income tax returns are routinely audited by the Internal Revenue Service (IRS). The IRS completed its examination of Torchmark’s 2008-2011 consolidated income tax returns during 2014 resulting in no impact on the company’s effective tax rate. The statutes of limitations for the assessment of additional tax are closed for all tax years prior to 2012 with respect to Torchmark’s consolidated and Family Heritage’s federal income tax returns. Management believes that adequate provision has been made in the consolidated financial statements for any potential assessments that may result from current or future tax examinations and other tax-related matters for all open years.

Torchmark has net operating loss carryforwards of approximately $6.3 million at December 31, 2015 which will begin to expire in 2032 if not otherwise used to offset future taxable income. A valuation allowance is to be provided when it is more likely than not that deferred tax assets will not be realized by the Company. No valuation allowance has been recorded relating to Torchmark’s deferred tax assets as management believes Torchmark will more likely than not have sufficient taxable income in future periods to fully realize its existing deferred tax assets.

Torchmark’s tax liability is adjusted to include a provision for uncertain tax positions taken or expected to be taken in a tax return. However, during the years 2013 through 2015, Torchmark did not have any uncertain tax positions which resulted in unrecognized tax benefits.

Torchmark’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company recognized interest income of $11 thousand, $465 thousand, and $0 thousand, net of federal income tax benefits, in its Consolidated Statements of Operations for 2015, 2014, and 2013, respectively. The Company had no accrued interest or penalties at December 31, 2015 or 2014.