13.

Income Taxes

The (provision) benefit for income taxes includes the following components:

	Year Ended December 31,
	2016			2015			2014
	(Dollars in thousands)
Current (provision) benefit for income taxes:
Federal	$	(223,605	)	$	(83,541	)	$	(28,942	)
State		(16,470	)		(6,803	)		(6,159	)
		(240,075	)		(90,344	)		(35,101	)
Deferred (provision) benefit for income taxes:
Federal		(6,128	)		(24,395	)		(84,704	)
State		(22,183	)		(14,241	)		(14,294	)
		(28,311	)		(38,636	)		(98,998	)
(Provision) benefit for income taxes	$	(268,386	)	$	(128,980	)	$	(134,099	)

The components of our net deferred income tax asset are as follows:

	December 31,
	2016			2015
	(Dollars in thousands)
Inventory valuation adjustments	$	73,353		$	98,141
Financial accruals		106,862			129,120
Federal net operating loss carryforwards		92,043			97,507
State net operating loss carryforwards		45,607			60,739
Tax credit carryforwards		2,347			1,246
Goodwill impairment charges		3,396			4,287
Other, net		9,226			6,310
Total deferred tax asset		332,834			397,350
Less: Valuation allowance		(2,456	)		(1,156	)
Net deferred tax asset	$	330,378		$	396,194

Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC

740.

We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable. Our assessment considers, among other things, the nature, frequency and severity of our prior and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods, our utilization experience with operating loss and tax credit carryforwards, and tax planning alternatives.

As of

December

31,

2016,

we had a

$332.8

million deferred tax asset which was partially offset by a deferred tax asset valuation allowance of

$2.5

million related to state net operating loss carryforwards that are not more likely than not to be realized. In addition, as of such date,

$103.9

million (or approximately

$263.0

million and

$285.7

million, respectively, of federal and state net operating loss carryforwards on a gross basis) of our deferred tax asset related to net operating loss carryforwards is subject to the Internal Revenue Code Section

382

("Section

382")

gross annual deduction limitation of

$15.6

million for both federal and state purposes. Additionally,

$21.7

million, (or approximately

$798.1

million of our state deferred tax assets on a gross basis) of our state deferred tax assets related to net operating losses is subject to Section

382

limitations resulting from our

October

2015

merger with Ryland. The remaining

$12.0

million (or approximately

$168.5

million of state net operating loss carryforwards on a gross basis) represents state net operating loss carryforwards that are not limited by Section

382.

Our gross federal and state net operating loss carryforwards of approximately

$263.0

million and

$1.3

billion, respectively, if unused, will begin to expire in

2028

and

2020,

respectively. The remaining deferred tax asset balance of

$195.1

million represented deductible timing differences, primarily related to inventory impairments and financial accruals, which have no expiration date.

As of

December

31,

2015,

we had a

$397.4

million deferred tax asset which was partially offset by a deferred tax asset valuation allowance of

$1.2

million related to state net operating loss carryforwards that are limited by shorter carryforward periods. In addition, as of such date,

$112.6

million (or approximately

$278.6

million and

$263.1

382

("Section

382")

gross annual deduction limitation of

$15.6

million for both federal and state purposes. The remaining

$45.6

million represents state net operating loss carryforwards that are not limited by Section

382.

Our gross federal and state net operating loss carryforwards of approximately

$278.6

million and

$1.2

billion, respectively, if unused, will begin to expire in

2028

and

2016,

respectively. The remaining deferred tax asset represented deductible timing differences, primarily related to inventory impairments and financial accruals, which have no expiration date.

Our

2016

provision for income taxes was

$268.4

million related primarily to our

$753.1

million of pretax income.

The effective tax rate differs from the federal statutory rate of

35%

due to the following items:

	Year Ended December 31,
	2016			2015			2014
	(Dollars in thousands)
Income before taxes	$	753,116		$	342,489		$	349,964
(Provision) benefit for income taxes at federal statutory rate	$	(263,591	)	$	(119,871	)	$	(122,488	)
(Increases) decreases in tax resulting from:
State income taxes, net of federal benefit		(24,649	)		(11,680	)		(12,961	)
Net deferred tax asset valuation (allowance) benefit		(371	)		1,405			2,030
(Increases) decreases in liability for unrecognized tax benefits		(466	)		(1,611	)		(1,605	)
Nondeductible expenses and credits		364			(2,164	)		―
Domestic production activities deduction		18,324			6,150			1,562
Other, net		2,003			(1,209	)		(637	)
(Provision) benefit for income taxes	$	(268,386	)	$	(128,980	)	$	(134,099	)
Effective tax rate		35.6	%		37.7	%		38.3	%

As of

December

31,

2016,

our liability for unrecognized tax benefits was

$12.1

million, of which

$7.9

million, if recognized, would affect our effective tax rate. Our liabilities for unrecognized tax benefits are included in accrued liabilities on the accompanying consolidated balance sheets. We classify estimated interest expense and penalties related to unrecognized tax benefits in our provision for income taxes. As of

December

31,

2016

and

2015,

accrued interest and penalties related to unrecognized benefits was

$1.4

million and

$1.3

million, respectively. During

2016,

2015,

and

2014

we accrued interest and penalties of

$0.1

million,

$1.0

million and

$0.3

million, respectively.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding accrued interest, is as follows:

	Year Ended December 31,
	2016			2015			2014
	(Dollars in thousands)
Balance, beginning of the year	$	10,631		$	2,536		$	472
Assumed with Ryland merger		―			6,182			―
Changes based on tax positions related to the current year		2,256			2,060			1,567
Changes for tax position in prior years		―			―			497
Reductions due to lapse of statute of limitations		(761	)		(147	)		―
Settlements		―			―			―
Balance, end of the year	$	12,126		$	10,631		$	2,536

We do not expect a significant change in the liability for unrecognized tax benefits during the next

twelve

months. In addition, as of

December

31,

2016,

we remained subject to examination by various tax jurisdictions for the tax years ended

December

31,

2011

through

2016.