NOTE 15. INCOME TAXES

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, 2016 and 2015 were:



DOLLARS IN MILLIONS	2016		2015
Deferred Income Tax Assets:
Insurance Reserves	$	83.4	$	83.0
Unearned Premium Reserves	42.1		41.7
Tax Capitalization of Policy Acquisition Costs	70.7		71.5
Payroll and Employee Benefit Accruals	60.5		72.0
Net Operating Loss Carryforwards	52.2		30.5
Other	13.2		15.7
Total Deferred Income Tax Assets	322.1		314.4
Deferred Income Tax Liabilities:
Investments	113.0		109.8
Deferred Policy Acquisition Costs	116.2		110.7
Life VIF and P&C Customer Relationships	13.5		15.5
Goodwill and Other Intangible Assets Acquired	37.1		37.0
Depreciable Assets	12.5		7.3
Other	4.0		2.2
Total Deferred Income Tax Liabilities	296.3		282.5
Net Deferred Income Tax Assets	$	25.8	$	31.9

The expiration of federal net operating loss (“NOL”) carryforwards and their related deferred income tax assets at December 31, 2016 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
2031 through 2036	81.0		28.3
Total All Years	$	149.2	$	52.2

Except for the NOL carryforward scheduled to expire in 2031 through 2036, 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, 2016, 2015 and 2014 is presented below.



DOLLARS IN MILLIONS	2016			2015			2014
Liabilities for Unrecognized Tax Benefits at Beginning of Year	$	3.8		$	7.2		$	6.8
Additions for Tax Positions of Current Period	1.5			0.2			0.1
Additions for Tax Positions of Prior Years	—			—			0.3
Reduction for Expiration of Federal Statute of Limitations	(0.2		)	(3.6		)	—
Liabilities for Unrecognized Tax Benefits at End of Year	$	5.1		$	3.8		$	7.2

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 2012. The expiration of the statute of limitations related to the various state income tax returns that Kemper and its subsidiaries file varies by state.

Unrecognized Tax Benefits at December 31, 2016, 2015 and 2014 include $4.6 million, $3.3 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, $0.5 million and $3.8 million at December 31, 2016, 2015 and 2014, respectively. Net interest related to unrecognized tax benefits for the year ended December 31, 2016 was insignificant. Tax expense includes interest benefit of $3.3 million and interest expense of $0.4 million related to unrecognized tax benefits for the years ended December 31, 2015 and 2014, respectively.

The components of Income Tax Expense from Continuing Operations for the years ended December 31, 2016, 2015 and 2014 were:



DOLLARS IN MILLIONS	2016			2015			2014
Current Income Tax Benefit (Expense)	$	8.2		$	(25.7	)	$	(41.7	)
Deferred Income Tax Benefit (Expense)	2.3			2.2			(5.5		)
(Increase) Decrease Unrecognized Tax Benefits	(1.3		)	3.4			(0.4		)
Income Tax Benefit (Expense)	$	9.2		$	(20.1	)	$	(47.6	)

Income tax refunds received, net of income taxes paid, were $0.5 million in 2016. Net income taxes paid were $44.4 million and $37.2 million in 2015 and 2014, 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, 2016, 2015 and 2014 is presented below.



DOLLARS IN MILLIONS	2016					2015					2014
DOLLARS IN MILLIONS	Amount			Rate		Amount			Rate		Amount			Rate
Statutory Federal Income Tax Expense	$	(1.2	)	35.0	%	$	(35.1	)	35.0	%	$	(56.1	)	35.0	%
Tax-exempt Income and Dividends Received Deduction	9.8			(279.5	)	9.8			(9.7	)	9.0			(5.6	)
Unrecognized Tax Benefit (Expense)	—			—		2.1			(2.1	)	(0.3		)	—
Indemnification Recoveries	0.2			(6.5	)	3.7			(3.6	)	—			—
State Income Taxes	(0.6		)	16.9		(0.6		)	0.5		(0.6		)	0.4
Other, Net	1.0			(28.9	)	—			—		0.4			(0.1	)
Effective Income Tax Benefit (Expense) from Continuing Operations	$	9.2		(263.0	)%	$	(20.1	)	20.1	%	$	(47.6	)	29.7	%

NOTE 15. INCOME TAXES (Continued)

Comprehensive Income Tax Benefit (Expense) included in the Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014 was:



DOLLARS IN MILLIONS	2016			2015			2014
Income Tax Expense:
Continuing Operations	$	9.2		$	(20.1	)	$	(47.6	)
Discontinued Operations	(2.2		)	(3.1		)	(1.1		)
Unrealized Depreciation (Appreciation) on Securities	0.9			62.8			(82.8		)
Foreign Currency Translation Adjustments on Investments	0.1			0.5			0.4
Tax Effects from Postretirement Benefit Plans	(7.3		)	(9.1		)	34.7
Tax Effects from Cash Flow Hedge	(0.6		)	—			—
Tax Effects from Long-term Equity-based Compensation included in Paid-in Capital	(1.1		)	(1.0		)	(1.0		)
Comprehensive Income Tax Benefit (Expense)	$	(1.0	)	$	30.0		$	(97.4	)