NOTE 14. INCOME TAXES

The components of Liabilities for Income Taxes at December 31, 2014 and 2013 were:



DOLLARS IN MILLIONS	2014		2013
Current Income Tax Liabilities	$	7.8	$	1.5
Deferred Income Tax Liabilities	21.5		—
Unrecognized Tax Benefits	7.2		6.8
Liabilities for Income Taxes	$	36.5	$	8.3

The tax effects of temporary differences that give rise to significant portions of the Company’s Net Deferred Income Tax Assets and Deferred Income Tax Liabilities at December 31, 2014 and 2013 were:



DOLLARS IN MILLIONS	2014			2013
Deferred Income Tax Assets:
Insurance Reserves	$	78.7		$	76.4
Unearned Premium Reserves	35.5			40.2
Tax Capitalization of Policy Acquisition Costs	73.0			73.3
Payroll and Employee Benefit Accruals	74.0			38.8
Net Operating Loss Carryforwards	31.7			53.3
Other	9.8			12.6
Total Deferred Income Tax Assets	302.7			294.6
Deferred Income Tax Liabilities:
Investments	160.1			80.0
Deferred Policy Acquisition Costs	106.1			106.0
Life VIF and P&C Customer Relationships	17.7			20.2
Goodwill and Licenses	28.4			26.8
Depreciable Assets	7.4			26.0
Other	4.5			3.8
Total Deferred Income Tax Liabilities	324.2			262.8
Net Deferred Income Tax Assets (Liabilities)	$	(21.5	)	$	31.8

NOTE 14. INCOME TAXES (Continued)

The expiration of federal net operating loss (“NOL”) carryforwards and their related deferred income tax assets is presented below by year of expiration.



DOLLARS IN MILLIONS	NOL Carry-forwards		Deferred Tax Asset
Expiring in:
2020	$	8.1	$	2.8
2021 through 2025	30.6		10.8
2026 through 2030	29.8		10.4
2031 through 2032	22.0		7.7
Total All Years	$	90.5	$	31.7

Except for the NOL carryforwards scheduled to expire in 2031 through 2032, all of the NOL carryforwards were acquired in connection with business acquisitions made in prior years and are subject to annual usage limitations under the Internal Revenue Code. The Company expects to fully utilize these federal NOL carryforwards.

The Company has not provided for Federal income taxes on $14.7 million of Mutual Savings Life’s income earned prior to 1984 which is not subject to income taxes under certain circumstances. Federal income taxes of $5.1 million would be paid on such income if it is distributed to shareholders in the future or if it does not continue to meet certain limitations.

A reconciliation of the beginning and ending amount of Unrecognized Tax Benefits for the years ended December 31, 2014, 2013 and 2012 is as follows:



DOLLARS IN MILLIONS	2014		2013		2012
Balance at Beginning of Year	$	6.8	$	6.4	$	6.2
Additions for Tax Positions of Current Period	0.1		0.1		—
Additions for Tax Positions of Prior Years	0.3		0.3		0.2
Balance at End of Year	$	7.2	$	6.8	$	6.4

The statute of limitations related to Kemper and its eligible subsidiaries’ consolidated Federal income tax returns is closed for all tax years up to and including 2006. The expiration of the statute of limitations related to the various state income tax returns that Kemper and its subsidiaries file varies by state.

In July 2014, the Company extended the federal statute of limitations related to its 2007 through 2010 tax years to July 31, 2015. The extension was requested by the Internal Revenue Service (“IRS”) to provide them with additional time to prepare the necessary documentation for the Joint Committee of Taxation’s (“JCT”) review required by statute. The Company does not anticipate a material modification to the filed returns or the related refunds that have been received. It is reasonably possible that the amount of Unrecognized Tax Benefits could decrease by $3.5 million within the next 12 months of the reporting date because of the JCT finishing its review of the IRS’s report without change or the expiration of the statute of limitations referred to above.

During the second quarter of 2014, the Illinois Department of Revenue finalized its examinations of the Company’s 2009 and 2010 tax returns with no material change in the Company’s tax liability.

Unrecognized Tax Benefits at December 31, 2014, 2013 and 2012 include $3.4 million, $3.4 million and $3.5 million, respectively, for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred income tax accounting, other than for interest and penalties, the disallowance of the shorter deductibility period would not affect the effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The liability for Unrecognized Tax Benefits included accrued interest of $3.8 million, $3.4 million and $2.9 million at December 31, 2014, 2013 and 2012, respectively. Tax expense includes interest expense of $0.4 million related to unrecognized tax benefits for each of the years ended December 31, 2014, 2013 and 2012.

NOTE 14. INCOME TAXES (Continued)

The components of Income Tax Expense from Continuing Operations for the years ended December 31, 2014, 2013 and 2012 were:



DOLLARS IN MILLIONS	2014			2013			2012
Current Income Tax Expense	$	(41.7	)	$	(49.4	)	$	(43.3	)
Deferred Income Tax Benefit (Expense)	(5.5		)	(50.1		)	12.9
Increase Unrecognized Tax Benefits	(0.4		)	(0.4		)	(0.2		)
Income Tax Expense	$	(47.6	)	$	(99.9	)	$	(30.6	)

Net income taxes paid were $37.2 million, $42.4 million and $52.2 million in 2014, 2013 and 2012, respectively.

A reconciliation of the Statutory Federal Income Tax Expense and Rate to the Company’s Effective Income Tax Expense and Rate from Continuing Operations for the years ended December 31, 2014, 2013 and 2012 was:



DOLLARS IN MILLIONS	2014					2013					2012
DOLLARS IN MILLIONS	Amount			Rate		Amount			Rate		Amount			Rate
Statutory Federal Income Tax Expense	$	(56.1	)	35.0	%	$	(110.0	)	35.0	%	$	(42.8	)	35.0	%
Tax-exempt Income and Dividends Received Deduction	9.0			(5.6	)	10.6			(3.4	)	13.9			(11.4	)
State Income Taxes	(0.6		)	0.4		(0.2		)	0.1		(0.8		)	0.7
Other, Net	0.1			(0.1	)	(0.3		)	0.1		(0.9		)	0.7
Effective Income Tax Expense from Continuing Operations	$	(47.6	)	29.7	%	$	(99.9	)	31.8	%	$	(30.6	)	25.0	%

Comprehensive Income Tax Expense included in the Consolidated Financial Statements for the years ended December 31, 2014, 2013 and 2012 was:



DOLLARS IN MILLIONS	2014			2013			2012
Income Tax Expense:
Continuing Operations	$	(47.6	)	$	(99.9	)	$	(30.6	)
Discontinued Operations	(1.1		)	(1.7		)	(7.3		)
Unrealized Depreciation (Appreciation) on Securities	(82.8		)	129.1			(34.4		)
Foreign Currency Translation Adjustments on Investments	0.4			(0.1		)	(0.6		)
Tax Effects from Postretirement Benefit Plans	34.7			(30.4		)	4.6
Tax Effects from Long-term Equity-based Compensation included in Paid-in Capital	(1.0		)	0.2			(0.1		)
Comprehensive Income Tax Expense	$	(97.4	)	$	(2.8	)	$	(68.4	)