Income Taxes

The Company files a consolidated federal income tax return. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company applies recognition thresholds and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return as it relates to accounting for uncertainty in income taxes. In addition, it is the Company’s policy to recognize interest accrued and penalties, if any, related to unrecognized benefits as income tax expense in its statement of earnings. The Company does not expect significant changes to its tax positions or liability for tax uncertainties during the next 12 months.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal or state income tax examinations for years prior to 2011.

Total income taxes expense (benefit) for the years ended December 31, 2014, 2013 and 2012 was included within the following sections of the consolidated financial statements as follows (in thousands):



	2014			2013			2012
Income from continuing operations	$	48,103		$	48,654		$	40,893
Discontinued operations	(643		)	9			3,045
Shareholders’ equity	(3,177		)	(7,381		)	(1,581		)
Total	$	44,283		$	41,282		$	42,357

Income tax expense from continuing operations for the years ended December 31, 2014, 2013 and 2012 was comprised of the following (in thousands):



	2014		2013		2012
Current:
Federal	$	8,640	$	7,895	$	14,602
State	4,396		3,598		4,806
Deferred:
Federal	27,505		31,509		18,018
State	7,562		5,652		3,467
Income tax expense	$	48,103	$	48,654	$	40,893

Income tax expense from continuing operations for the years ended December 31, 2014, 2013 and 2012 differed from the amount computed by applying the U.S. federal income tax rate of 35% to earnings before income taxes as a result of the following (in thousands):



	2014			2013			2012
Statutory federal income tax	$	102,967		$	106,101		$	89,806
Less federal income tax assumed directly by noncontrolling interests	(66,783		)	(64,219		)	(56,378		)
State income taxes, net of federal income tax benefit	6,616			5,539			7,020
Increase in valuation allowances	4,662			924			419
Interest related to unrecognized tax benefits	(161		)	(155		)	(109		)
Other	802			464			135
Income tax expense	$	48,103		$	48,654		$	40,893

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. Decreases in interest and penalty obligations of $0.1 million, $0.2 million and $0.1 million were recognized in the consolidated statement of earnings for the years ended December 31, 2014, 2013 and 2012, respectively, resulting in a total recognition of interest and penalty obligations of approximately $1.2 million and $0.9 million in the consolidated balance sheet at December 31, 2014 and 2013, respectively.

The Company primarily has unrecognized tax benefits that represent an amortization deduction which is temporary in nature. A reconciliation of the beginning and ending amount of the liability associated with unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 is as follows (in thousands):



	2014			2013			2012
Balance at beginning of year	$	6,330		$	9,235		$	7,252
Additions for tax positions of current year	204			46			119
Increases for tax positions taken during a prior period	1,069			—			1,985
Lapse of statute of limitations	(267		)	(2,951		)	(121		)
Balance at end of year	$	7,336		$	6,330		$	9,235

The Company believes that the total amount of increases in unrecognized tax benefits within the next 12 months will not be significant. The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized is approximately $0.4 million.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2014 and 2013 were as follows (in thousands):



	2014			2013
Deferred tax assets:
Allowance for uncollectible accounts	$	1,096		$	897
Accrued assets and other	27,537			5,292
Valuation allowances	(3,736		)	(2,021		)
Total current deferred tax assets	24,897			4,168
Share-based compensation	7,719			7,635
Interest on unrecognized tax benefits	245			230
Accrued liabilities and other	3,931			3,629
Medical malpractice	16,240			—
Operating and capital loss carryforwards	22,709			9,185
Valuation allowances	(13,721		)	(7,665		)
Total non-current deferred tax assets	37,123			13,014
Total deferred tax assets	62,020			17,182
Deferred tax liabilities:
Prepaid expenses	2,435			1,071
Property and equipment, principally due to differences in depreciation	15,235			4,137
Goodwill, intangible assets and other, principally due to differences in amortization	655,368			184,897
Total deferred tax liabilities	673,038			190,105
Net deferred tax liabilities	$	611,018		$	172,923

The net deferred tax liabilities at December 31, 2014 and 2013 were recorded as follows (in thousands):



	2014		2013
Current deferred income tax assets	$	22,462	$	3,097
Non-current deferred income tax liabilities	633,480		176,020
Net deferred tax liabilities	$	611,018	$	172,923

The Company has provided valuation allowances on its gross deferred tax assets to the extent that management does not believe that it is more likely than not that such asset will be realized. Capital loss carryforwards began to expire in 2014, and state net operating losses will begin to expire in 2015.