11.	Income Taxes

The provision for income taxes consists of the following:

	Year Ended December 31,
		2016			2015		2014
Current:
Federal	$	209,454		$	180,895	$	148,221
State		38,095			36,142		28,881
Deferred:
Federal		(9,230	)		2,681		(4,451	)
State		(1,884	)		567		(735	)
	$	236,435		$	220,285	$	171,916

In addition to amounts applicable to income before taxes, the following income tax benefits were recorded in shareholders’ equity:

Year Ended December 31,

2016

2015

2014

Income tax benefits arising from compensation expense for

tax purposes in excess of amounts recognized for financial

statement purposes

13,661

23,311

9,437

Deferred income taxes on NVR’s consolidated balance sheets were comprised of the following:

	December 31,
	2016		2015
Deferred tax assets:
Other accrued expenses and contract land deposit reserve	$	76,498	$	77,781
Deferred compensation		7,075		7,280
Equity-based compensation expense		55,077		45,361
Inventory		13,514		12,722
Unrecognized tax benefit		23,954		24,740
Other		10,106		9,391
Total deferred tax assets		186,224		177,275
Less: deferred tax liabilities		5,414		6,489
Net deferred tax position	$	180,810	$	170,786

Deferred tax assets arise principally as a result of various accruals required for financial reporting purposes and equity-based compensation expense, which are not currently deductible for tax return purposes.

Management believes that the Company will have sufficient available carry-backs and future taxable income to make it more likely than not that the net deferred tax assets will be realized. Federal taxable income is estimated to be approximately $575,684 for the year ended December 31, 2016, and was $471,512 for the year ended December 31, 2015.

A reconciliation of income tax expense in the accompanying consolidated statements of income to the amount computed by applying the statutory federal income tax rate of 35% to income before taxes is as follows:

	Year Ended December 31,
	2016			2015			2014
Income taxes computed at the federal statutory rate	$	231,595		$	211,124		$	158,741
State income taxes, net of federal income tax benefit		23,738			23,919			18,800
Other, net (1)		(18,898	)		(14,758	)		(5,625	)
	$	236,435		$	220,285		$	171,916

(1)

Primarily attributable to tax benefits from the domestic production activities deduction.

The Company’s effective tax rate in 2016, 2015 and 2014 was 35.73%, 36.52% and 37.90%, respectively. During 2014, the Company recognized income tax expense of approximately $7,000 due to the reversal of certain previously recognized tax deductions.

The Company files a consolidated U.S. federal income tax return, as well as state and local tax returns in all jurisdictions where the Company maintains operations. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years prior to 2013.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Year Ended December 31,
	2016			2015
Balance at beginning of year	$	46,591		$	46,004
Additions based on tax positions related to the current year		4,440			3,897
Reductions for tax positions of prior years		(4,921	)		(3,310	)
Settlements		—			—
Balance at end of year	$	46,110		$	46,591

If recognized, the total amount of unrecognized tax benefits that would affect the effective tax rate (net of the federal tax benefit) is $29,971 as of December 31, 2016.

The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. For the year ended December 31, 2016, the Company recognized a net reversal of accrued interest on unrecognized tax benefits in the amount of $1,582. For the year ended December 31, 2015, the Company recognized a net addition of accrued interest on unrecognized tax benefits in the amount of $125. For the year ended December 31, 2014, the Company had a net reversal to accrued interest on unrecognized tax benefits in the amount of $184. As of December 31, 2016 and 2015, the Company had a total of $19,639 and $21,221, respectively, of accrued interest on unrecognized tax benefits which are included in “Accrued expenses and other liabilities” on the accompanying consolidated balance sheets. Based on its historical experience in dealing with various taxing authorities, the Company has found that it is the administrative practice of these authorities to not seek penalties from the Company for the tax positions it has taken on its returns, related to its unrecognized tax benefits. Therefore, the Company does not accrue penalties for the positions in which it has an unrecognized tax benefit. However, if such penalties were to be accrued, they would be recorded as a component of income tax expense.

The Company believes that within the next 12 months, it is reasonably possible that the unrecognized tax benefits as of December 31, 2016 will be reduced by approximately $10,614 due to statute expiration and effectively settled positions in various state jurisdictions. The Company is currently under audit by the states of New Jersey and North Carolina.