NOTE 15. INCOME TAXES

Current and Deferred Income Tax Assets at December 31, 2015 and December 31, 2014 were:



DOLLARS IN MILLIONS	2015		2014
Current Income Tax Assets	$	9.5	$	—
Deferred Income Tax Assets	31.9		—
Current and Deferred Income Tax Assets	$	41.4	$	—

The components of Liabilities for Income Taxes at December 31, 2015 and 2014 were:



DOLLARS IN MILLIONS	2015		2014
Current Income Tax Liabilities	$	—	$	7.8
Deferred Income Tax Liabilities	—		21.5
Unrecognized Tax Benefits	3.8		7.2
Liabilities for Income Taxes	$	3.8	$	36.5

NOTE 15. INCOME TAXES (Continued)

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, 2015 and 2014 were:



DOLLARS IN MILLIONS	2015		2014
Deferred Income Tax Assets:
Insurance Reserves	$	83.0	$	78.7
Unearned Premium Reserves	41.7		35.5
Tax Capitalization of Policy Acquisition Costs	71.5		73.0
Payroll and Employee Benefit Accruals	72.0		74.0
Net Operating Loss Carryforwards	30.5		31.7
Other	15.7		9.8
Total Deferred Income Tax Assets	314.4		302.7
Deferred Income Tax Liabilities:
Investments	109.8		160.1
Deferred Policy Acquisition Costs	110.7		106.1
Life VIF and P&C Customer Relationships	15.5		17.7
Goodwill and Other Intangible Assets Acquired	37.0		28.4
Depreciable Assets	7.3		7.4
Other	2.2		4.5
Total Deferred Income Tax Liabilities	282.5		324.2
Net Deferred Income Tax Assets (Liabilities)	$	31.9	$	(21.5	)

The expiration of federal net operating loss (“NOL”) carryforwards and their related deferred income tax assets at December 31, 2015 is presented below by year of expiration.



DOLLARS IN MILLIONS	NOL Carry-forwards		Deferred Tax Asset
Expiring in:
2020	$	7.8	$	2.7
2021 through 2025	30.5		10.7
2026 through 2030	29.9		10.5
2032	18.9		6.6
Total All Years	$	87.1	$	30.5

Except for the NOL carryforward scheduled to expire in 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, 2015, 2014 and 2013 is presented below.



DOLLARS IN MILLIONS	2015			2014		2013
Balance at Beginning of Year	$	7.2		$	6.8	$	6.4
Additions for Tax Positions of Current Period	0.2			0.1		0.1
Additions for Tax Positions of Prior Years	—			0.3		0.3
Reduction for Expiration of Federal Statute of Limitations	(3.6		)	—		—
Balance at End of Year	$	3.8		$	7.2	$	6.8

NOTE 15. INCOME TAXES (Continued)

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 2011. 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 the first quarter of 2015, the Company extended the federal statute of limitations for the 2007 through 2011 tax years until December 31, 2015. The extension was requested by the Internal Revenue Service (“IRS”) to provide the Joint Committee on Taxation (“JCT”) additional time to complete a review required by statute. In the second quarter of 2015, the Company received a letter indicating that the JCT had completed its review and had taken no exception to the IRS’s conclusion to accept the tax returns as filed, effectively settling the extended years. Accordingly, the Company reduced its Liability for Unrecognized Tax Benefits by $3.6 million for accrued interest and recognized an income tax benefit of $2.3 million in the second quarter of 2015.

In the fourth quarter of 2015, the Illinois Department of Revenue informed the Company that it intends to commence an examination of the Illinois Income Tax Returns for the years ended December 31, 2012 and 2013. The Company does not expect any material changes to the returns as originally filed.

Unrecognized Tax Benefits at December 31, 2015, 2014 and 2013 include $3.3 million, $3.4 million and $3.4 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 $0.5 million, $3.8 million and $3.4 million at December 31, 2015, 2014 and 2013, respectively. Tax expense includes a net interest benefit of $3.3 million, interest expense of $0.4 million and interest expense of $0.4 million and related to unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013, respectively.

The components of Income Tax Expense from Continuing Operations for the years ended December 31, 2015, 2014 and 2013 were:



DOLLARS IN MILLIONS	2015			2014			2013
Current Income Tax Expense	$	(25.7	)	$	(41.7	)	$	(49.4	)
Deferred Income Tax Benefit (Expense)	2.2			(5.5		)	(50.1		)
(Increase) Decrease Unrecognized Tax Benefits	3.4			(0.4		)	(0.4		)
Income Tax Expense	$	(20.1	)	$	(47.6	)	$	(99.9	)

Net income taxes paid were $44.4 million, $37.2 million and $42.4 million in 2015, 2014 and 2013, 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, 2015, 2014 and 2013 is presented below.



DOLLARS IN MILLIONS	2015					2014					2013
DOLLARS IN MILLIONS	Amount			Rate		Amount			Rate		Amount			Rate
Statutory Federal Income Tax Expense	$	(35.1	)	35.0	%	$	(56.1	)	35.0	%	$	(110.0	)	35.0	%
Tax-exempt Income and Dividends Received Deduction	9.8			(9.7	)	9.0			(5.6	)	10.6			(3.4	)
Unrecognized Tax Benefit (Expense)	2.1			(2.1	)	(0.3		)	—		(0.3		)	—
Indemnification Recoveries	3.7			(3.6	)	—			—		—			—
State Income Taxes	(0.6		)	0.5		(0.6		)	0.4		(0.2		)	0.1
Other, Net	—			—		0.4			(0.1	)	—			0.1
Effective Income Tax Expense from Continuing Operations	$	(20.1	)	20.1	%	$	(47.6	)	29.7	%	$	(99.9	)	31.8	%

NOTE 15. INCOME TAXES (Continued)

Comprehensive Income Tax Expense included in the Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013 was:



DOLLARS IN MILLIONS	2015			2014			2013
Income Tax Expense:
Continuing Operations	$	(20.1	)	$	(47.6	)	$	(99.9	)
Discontinued Operations	(3.1		)	(1.1		)	(1.7		)
Unrealized Depreciation (Appreciation) on Securities	62.8			(82.8		)	129.1
Foreign Currency Translation Adjustments on Investments	0.5			0.4			(0.1		)
Tax Effects from Postretirement Benefit Plans	(9.1		)	34.7			(30.4		)
Tax Effects from Long-term Equity-based Compensation included in Paid-in Capital	(1.0		)	(1.0		)	0.2
Comprehensive Income Tax Benefit (Expense)	$	30.0		$	(97.4	)	$	(2.8	)