| Provision for Taxes |
Note 14.
Provision for Taxes
Earnings before taxes and the provision for taxes consisted of the following:
Years Ended March 31,
2023
2022
2021
(In thousands)
Pretax earnings:
U.S.
$
1,178,264
$
1,431,155
$
773,030
Non-U.S.
39,659
44,342
23,628
Total pretax earnings
$
1,217,923
$
1,475,497
$
796,658
Current provision
Federal
$
115,171
$
189,488
$
100,521
State
42,121
55,518
16,572
Non-U.S.
5,150
6,893
3,404
162,442
251,899
120,497
Deferred provision
Federal
114,355
90,852
53,957
State
14,077
6,355
9,795
Non-U.S.
4,051
3,105
1,553
132,483
100,312
65,305
Provision for income tax expense
$
294,925
$
352,211
$
185,802
Income taxes paid (received)
$
145,680
$
(
4,548
)
$
29,044
The difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to income before taxes was as follows:
Years Ended March 31,
2023
2022
2021
(In percentages)
Statutory federal income tax rate
21.00
%
21.00
%
21.00
%
Increase (reduction) in rate resulting from:
State taxes, net of federal benefit
3.56
%
3.24
%
2.53
%
Foreign rate differential
0.08
%
0.05
%
–
%
Federal tax credits
(0.48)
%
(0.19)
%
(0.99)
%
Tax-exempt income
(0.08)
%
(0.03)
%
(0.08)
%
Dividend received deduction
(0.01)
%
–
%
(0.01)
%
Other
0.15
%
(0.20)
%
0.87
%
Actual tax expense of operations
24.22
%
23.87
%
23.32
%
Significant components of our deferred tax assets and liabilities were as follows:
March 31,
2023
2022
Deferred tax assets:
(In thousands)
Net operating loss and credit carry forwards
$
33,778
$
36,394
Accrued expenses
112,971
103,723
Policy benefit and losses, claims and loss expenses payable, net
31,436
30,572
Unrealized losses on investments
48,179
–
Operating leases
12,058
15,540
Total deferred tax assets
$
238,422
$
186,229
Deferred tax liabilities:
Property, plant and equipment
$
1,545,628
$
1,405,604
Operating leases
12,175
15,540
Deferred policy acquisition costs
12,038
12,962
Unrealized gains on investments
–
36,299
Other
3,008
1,973
Total deferred tax liabilities
1,572,849
1,472,378
Net deferred tax liability
$
1,334,427
$
1,286,149
On March 27, 2020, former President Trump signed into U.S. federal law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was aimed at providing emergency assistance and health care for individuals, families, and businesses affected by COVID-19 global pandemic and generally supporting the U.S. economy.
The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. In particular, the CARES Act allows for net operating losses (“NOL“) generated in 2018, 2019, or 2020 to be carried back 5 years.
As a result, we filed applicable forms with the IRS to carryback NOLs. The statutory tax rate for the carryback years was 35% as compared to 21% at present.
Consequently, we recognized a benefit amount of $
146
million for fiscal year 2020. These refund claims total approximately $
366
million, of which we have received approximately $
243
million in fiscal 2022 and are reflected in prepaid expense. As refunds are received, they will reduce this amount. We have estimated and recorded
the overall effects of the CARES Act and do not anticipate a material change.
As a result, the NOL and credit carry-forwards in the above table are primarily attributable to state NOLs. As of March 31, 2023 and 2022, we had state NOLs of $
480.0
million and $
458.5
million, respectively, that will begin to expire March 31, 2024, if not utilized.
On March 3, 2021, the IRS notifiied us that our federal inome tax returns for the tax years March 31, 2014, 2015, 2016, 2018 and 2019 were selected for examination. The IRS agent in charged confirmed that this is a limited scope examination arising out of NOL carryback claims and is a standard procedure for the IRS to process the refund. As such, the scope of the exam is expected to be limited to the items reported on Forms 1139 and related schedules only. As of now, we are still working with the IRS agent and there is no audit adjustment for any of the above tax periods.
No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time transition tax) is not practicable.
We account for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
A reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period are as follows:
Unrecognized Tax Benefits
March 31,
2023
2022
(In thousands)
Unrecognized tax benefits beginning balance
$
48,851
$
31,069
Additions based on tax positions related to the current year
7,226
8,257
Reductions for tax positions of prior years
(443)
–
Additions for tax provisions of prior years
2,473
9,525
Unrecognized tax benefits ending balance
$
58,107
$
48,851
We recognize interest related to unrecognized tax benefits as interest expense, and penalties as income tax expenses. As of March 31, 2023 and 2022, the amount of interest accrued on unrecognized tax benefits was $
17.7
million and $
15.7
million, respectively, net of tax. During the current year, we recorded expense from interest in the amount of $
2.0
million, net of tax.
We file income tax returns in the U.S. federal jurisdiction, and various states and Canadian jurisdictions. While the Company has ongoing audits in Canada and various state jurisdictions, there have been no proposed or anticipated adjustments that would materially impact the financial statements. With some exceptions, we are no longer subject to audit for years prior to the fiscal year ended March 31, 2020.
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