INCOME TAXES

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Successor Company						Predecessor Company
	As of September 30, 2016			February 1, 2015 to December 31, 2015			January 1, 2015 to January 31, 2015
	(Dollars In Thousands)						(Dollars In Thousands)
Balance, beginning of period	$	13,138		$	137,593		$	193,244
Additions for tax positions of the current year	2,085			2,213			(5,010		)
Additions for tax positions of prior years	1,031			1,811			7,724
Reductions of tax positions of prior years:
Changes in judgment	(687		)	(16,416		)	(58,365		)
Settlements during the period	(5,747		)	(112,063		)	—
Lapses of applicable statute of limitations	—			—			—
Balance, end of period	$	9,820		$	13,138		$	137,593

In 2012, the IRS proposed favorable and unfavorable adjustments to the Company's 2003 through 2007 reported taxable income. The Company protested certain unfavorable adjustments and sought resolution at the IRS' Appeals Division. In October 2015, Appeals accepted the Company's earlier proposed settlement offer. In September 2015, the IRS proposed favorable and unfavorable adjustments to the Company's 2008 through 2011 reported taxable income. The Company agreed to these adjustments. The resulting net adjustment to the Company's current income taxes for the years 2003 through 2011 will not materially affect the Company or its effective tax rate.

In July 2016, the IRS proposed favorable and unfavorable adjustments to the Company's 2012 and 2013 reported taxable income. The Company agreed to these adjustments. The resulting settlement paid in September 2016 did not materially impact the Company or its effective tax rate.

These agreements with the IRS are the primary cause for the reductions of unrecognized tax benefits shown in the chart above. The Company believes that in the next 12 months, none of the unrecognized tax benefits at September 30, 2016 will be reduced.

There was an income tax benefit of $4.9 million realized in the quarter ending September 30, 2016 related to the change in the estimate of the interest owed in these IRS examination years, compared to the amount previously accrued.

In general, the Company is no longer subject to income tax examinations by taxing authorities for tax years that began before 2013. Nevertheless, certain of these pre-2013 years have pending U.S. tax refunds. Due to their size, these refunds are being reviewed by Congress' Joint Committee on Taxation. Furthermore, due to the aforementioned IRS adjustments to the Company's pre-2013 taxable income, the Company is amending certain of its 2003 through 2013 state income tax returns. Such amendments will cause such years to remain open, pending the states' acceptances of the returns. At this time, the Company believes that the Joint Committee's review of its U.S. tax refunds and the states' acceptance of its amending returns will be completed next year. The underlying statutes of limitations are expected to close in due course on or before December 31, 2017.

During the nine months ended September 30, 2016 (Successor Company), the Company entered into a reinsurance transaction, as discussed in Note 3, Reinsurance and Financing Transactions. This transaction is expected to generate an operating loss on the Company’s consolidated 2016 US income tax return. The Company has evaluated its ability to carry this loss back to receive refunds of previously-paid taxes, plus utilize the remaining loss in future years. The Company expects to receive refunds for substantially all of the US income taxes that it paid in 2014 and 2015, as well as fully utilize the remaining operating loss carryforward during the carryforward period. Based on the Company’s current assessment of future taxable income, including available tax planning opportunities, the Company anticipates that it is more likely than not that it will generate sufficient taxable income to realize all of its material deferred tax assets. The Company did not record a valuation allowance against its material deferred tax assets as of September 30, 2016.

The Company used its respective estimates of its annual 2016 and 2015 incomes in computing its effective income tax rates for the three and nine months ended September 30, 2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company), and the period of January 1, 2015 to January 31, 2015 (Predecessor Company). The effective tax rates for the three and nine months ended September 30, 2016 (Successor Company), the three months September 30, 2015 (Successor Company) the period of February 1, 2015 to September 30, 2015 (Successor Company), and the period of January 1, 2015 to January 31, 2015 (Predecessor Company) were 29.9%, 32.3%, 30.8%, 32.5%, and (27.7)%, respectively. The recorded tax benefit for the period of January 1, 2015 to January 31, 2015 (Predecessor Company) included the benefit associated with the re-measurement of the unrecognized tax benefits discussed above.