Note 10 - Income Taxes - Level 1 (Notes)

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes

Income Tax Provision

The components of our consolidated income tax provision from continuing operations are as follows.

	Year Ended December 31,
(In thousands)	2020		2019		2018
Current provision (benefit)	$	(16,264)	$	19,522	$	(42,398)
Deferred provision	102,079		157,162		120,573
Total income tax provision	$	85,815	$	176,684	$	78,175

The reconciliation of taxes computed at the statutory tax rate of 21% in 2020, 2019 and 2018 to the provision for income taxes is as follows.

	Year Ended December 31,
(In thousands)	2020		2019		2018
Provision for income taxes computed at the statutory tax rate	$	100,683	$	178,289	$	143,679
Change in tax resulting from:
Valuation allowance	11,290		1,941		(1,856)
Uncertain tax positions	(14,784)		1,202		2,589
State tax provision (benefit), net of federal impact	(9,062)		(293)		5,570
Other, net	(2,312)		(4,455)		1,778
Impact related to settlement of IRS Matter	—		—		(73,585)
Provision for income taxes	$	85,815	$	176,684	$	78,175

Deferred Tax Assets and Liabilities

The significant components of our net deferred tax assets and liabilities from continuing operations are summarized as follows.

	December 31,
(In thousands)	2020		2019
Deferred tax assets:
State income taxes, net of federal impact	$	75,499	$	65,917
Goodwill and intangibles	32,673		36,282
Unearned premiums	27,703		34,394
Lease liability	11,214		13,293
Accrued expenses	11,140		11,642
Share-based compensation	9,291		11,238
Deferred policy acquisition and ceding commission costs	7,043		11,190
Loss reserves	4,578		1,920
Other	8,732		11,188
Total deferred tax assets	$	187,873	$	197,064

	December 31,
(In thousands)	2020		2019
Deferred tax liabilities:
Contingency reserve	$	216,122	$	137,983
Net unrealized gain on investments	70,057		29,303
Depreciation	13,029		12,803
Differences in fair value of financial instruments	9,087		5,708
Other	15,747		15,914
Total deferred tax liabilities	324,042		201,711
Less: Valuation allowance	77,728		66,437
Net deferred tax asset (liability)	$	(213,897)	$	(71,084)

Current and Deferred Taxes

As of December 31, 2020, we recorded a net current income tax payable of $17.5 million, which primarily relates to applying the standards of accounting for uncertainty in income taxes.

Certain entities within our consolidated group have generated net deferred tax assets of approximately $74.9 million, relating primarily to state and local NOL carryforwards which, if unutilized, will expire during various future tax periods. We are required to establish a valuation allowance against our deferred tax assets when it is more likely than not that all or some portion of our deferred tax assets will not be realized. At each balance sheet date, we assess our need for a valuation allowance. Our assessment is based on all available evidence, both positive and negative. This requires management to exercise judgment and make assumptions regarding whether our deferred tax assets will be realized in future periods. We have determined that certain non-insurance entities within Radian may continue to generate taxable losses on a separate company basis in the near term and may not be able to fully utilize certain state and local NOLs on their state and local tax returns. Therefore, with respect to deferred tax assets relating to these state and local NOLs and other state timing adjustments, we retained a valuation allowance of $77.7 million at December 31, 2020 and $66.4 million at December 31, 2019.

As a mortgage guaranty insurer, we are eligible for a tax deduction, subject to certain limitations, under Internal Revenue Code Section 832(e) for amounts required by state law or regulation to be set aside in statutory contingency reserves. The deduction is allowed only to the extent that we purchase non-interest bearing U.S. Mortgage Guaranty Tax and Loss Bonds issued by the U.S. Department of the Treasury in an amount equal to the tax benefit derived from deducting any portion of our statutory contingency reserves. As of December 31, 2020, we held $210.9 million of these bonds, which are included as prepaid income taxes within other assets in our consolidated balance sheets. The corresponding deduction of our statutory contingency reserves resulted in the recognition of a net deferred tax liability. See Note 16 for additional information about our U.S. Mortgage Guaranty Tax and Loss Bonds.

IRS Matter

In July 2018, we finalized a settlement with the IRS related to adjustments we had been contesting that resulted from the examination by the IRS of our 2000 through 2007 consolidated federal income tax returns. This settlement with the IRS resolved the issues and concluded all disputes related to the IRS Matter. During 2018, we recorded tax benefits of $73.6 million, which includes both the impact of the settlement with the IRS as well as the reversal of certain previously accrued state and local tax liabilities.

Unrecognized Tax Benefits

As of December 31, 2020, we have $3.1 million of net unrecognized tax benefits, including $1.6 million of interest and penalties, that would affect the effective tax rate, if recognized. Our policy for the recognition of interest and penalties associated with uncertain tax positions is to record such items as a component of our income tax provision, of which $0.3 million and $1.3 million were recorded for the years ended December 31, 2020 and 2019, respectively. In 2018, we recorded an income tax benefit of $61.6 million for interest and penalties primarily related to our IRS settlement.

A reconciliation of the beginning and ending gross unrecognized tax benefits is as follows.

	Year Ended December 31,
(In thousands)	2020		2019
Balance at beginning of period	$	37,208	$	33,552
Tax positions related to the current year:
Increases	250		3,215
Decreases	(1,788)		—
Tax positions related to prior years:
Increases	16,568		441
Decreases	(171)		—
Lapses of applicable statute of limitation	(31,818)		—
Balance at end of period	$	20,249	$	37,208

Our total unrecognized tax benefits decreased by $17.0 million from December 31, 2019 to December 31, 2020, primarily due to the lapses of the statute of limitations relating to the 2015 and 2016 tax years offset by the increase of unrecognized tax benefits associated with our recognition of certain premium income in prior years. Although unrecognized tax benefits for this item decreased due to statute expirations, the related amounts continued to impact subsequent years, resulting in a corresponding increase. Over the next 12 months, we do not anticipate a material change in our unrecognized tax benefits. The statute of limitations related to our federal consolidated income tax return remains open for tax years 2017-2019. Additionally, among the entities within our consolidated group, various tax years remain open to potential examination by state and local taxing authorities.