Provision

The provision for income taxes from continuing operations is comprised of the following (in thousands):



	For the years ended December 31,
	2014		2013		2012
Current provision	$	20,454	$	27,160	$	7,962
Deferred provision	92,700		61,932		95,327
Total income tax provision from continuing operations	$	113,154	$	89,092	$	103,289

For the years ended December 31, 2014, 2013 and 2012, tax benefits related to the exercise of stock options and stock awards were credited (debited) to paid-in capital in the amounts of $9 million, $0.2 million and $3 million, respectively.

Effective Income Tax Rate

The difference between the Company’s reported income tax expense from continuing operations and the federal income tax expense from continuing operations computed at the applicable statutory rate of 35.0% is reconciled in the following table (in thousands):



	For the years ended December 31,
	2014					2013					2012
Federal income tax at the applicable statutory rate	$	104,086		35.0	%	$	60,897		35.0	%	$	96,331		35.0	%
Change in valuation allowance	(4,524		)	(1.5	)	3,122			1.8		535			0.2
State, local and foreign income taxes, net of federal income tax benefit	11,233			3.8		8,142			4.7		9,491			3.4
Expiration of state net operating losses	5,812			2.0		—			—		—			—
Non-deductible legal settlements	(2,619		)	(0.9	)	17,136			9.8		—			—
Other, net	(834		)	(0.3	)	(205		)	(0.1	)	(3,068		)	(1.1	)
Total income tax provision from continuing operations	$	113,154		38.1	%	$	89,092		51.2	%	$	103,289		37.5	%

The decrease in the valuation allowance of $4.5 million reported in the reconciliation of the effective tax rate for continuing operations primarily represents the removal of the valuation allowance related to $5.8 million of state net operating losses (“NOLs”) that expired. Income tax payments, net, were $56 million, $12 million and $44 million for the years ended December 31, 2014, 2013 and 2012, respectively. State taxes for fiscal year 2013 include the nondeductible portion of the Gale settlement. See “Note 18 - Commitments and Contingencies”.

Deferred Tax Assets and Liabilities

Deferred income taxes 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.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):



	December 31,
	2014			2013
Accounts receivable reserves	$	66,102		$	77,610
Net operating loss and capital loss carryforwards	144,953			76,809
Accrued liabilities	67,549			116,162
Other	19,996			18,030
Gross deferred tax assets, before valuation allowances	298,600			288,611
Valuation allowances	(95,712		)	(24,159		)
Gross deferred tax assets, net of valuation allowances	$	202,888		$	264,452

Amortization of intangibles	$	643,862		$	623,087
Contingent convertible debentures interest	349,892			412,305
Fixed assets and depreciation methods	39,795			73,538
Subsidiary stock basis	10,810			10,776
Other	35,576			22,385
Gross deferred tax liabilities	$	1,079,935		$	1,142,091

The increase in the valuation allowance of $72 million during 2014 was primarily due to the valuation allowance of $76 million established against the capital loss generated from the sale of Hospice. As of December 31, 2014, the Company had deferred tax benefits related to its federal and state NOLs and capital losses totaling approximately $145 million ($23 million federal, $41 million state and $81 million capital). These NOLs and capital losses will expire, in varying amounts, from 2015 through 2033. The potential future tax benefits of the state NOLs and capital losses have been offset by valuation allowances of $15 million and $81 million, respectively. The state valuation allowances are based on the Company’s analysis of the likelihood of generating sufficient taxable income in the applicable states to utilize the NOLs before expiration. A full valuation allowance has been established against the capital loss because the loss can be utilized only if capital gains are generated in the future, which management believes is not more likely than not.

Uncertain Tax Positions

At January 1, 2014, the Company had gross unrecognized tax benefits of $15 million and ended the year with gross unrecognized tax benefits of $16 million. A reconciliation of the beginning and end of year unrecognized tax benefits is as follows (in thousands):



	2014			2013			2012
Unrecognized tax benefits at beginning of year	$	14,822		$	14,216		$	17,091
Additions based on tax positions related to the current year	100			1,440			1,845
Additions for tax positions of prior years	6,618			8,114			2,050
Reductions for tax positions of prior years	(581		)	(3,023		)	(3,051		)
Settlement reductions	(4,412		)	(4,602		)	(3,410		)
Reductions for tax positions settled through the expirations of the statute of limitations	(82		)	(1,323		)	(309		)
Unrecognized tax benefits at end of year	$	16,465		$	14,822		$	14,216

At December 31, 2014, unrecognized tax benefits, net of federal tax benefit, includes approximately $12 million that, if recognized, would affect the effective tax rate. The liabilities for unrecognized tax benefits are included in “Other current liabilities” and “Other noncurrent liabilities” in the Consolidated Balance Sheets based on whether the company anticipates the amounts will be paid, settled, or lapse due to expiration of the statute of limitations within one year. At December 31, 2014, $11 million was reported in current liabilities and $5 million was reported in non-current liabilities. The Company recognizes interest and penalties related to unrecognized tax benefits in tax expenses. During the years ended December 31, 2014, 2013, and 2012, the Company recognized approximately $(1) million, $(1) million, and $(0.1) million, respectively, in interest, net of federal tax benefit, and penalties. The Company had accrued approximately $1 million, $2 million, and $3 million, respectively, for the payment of interest and penalties at December 31, 2014, 2013, and 2012.

The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is no longer subject to examinations by U.S. federal tax authorities for years before 2011 and, with few exceptions, state, local or non-U.S. tax authorities for years before 2009. The Company is under examination by the Internal Revenue Service for 2011 and 2012, and the related uncertain tax positions for these years are reserved in “Other current liabilities” on the Consolidated Balance Sheet. The Company is also under examination by various state jurisdictions.