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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Reconciliations of the statutory U.S. federal income tax rates to our effective tax rate for continuing operations follow:
Years ended December 31, |  | 2023 |  | 2022 |  | 2021
Statutory rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State tax, net of federal benefit |  | 3.8 |  |  | 4.1 |  |  | 3.1 |
Business credits |  | (1.3) |  |  | (1.5) |  |  | (0.8) |
Other, net |  | 1.8 |  |  | 2.0 |  |  | 1.4 |
Effective tax rate |  | 25.3 | % |  | 25.6 | % |  | 24.7 | %
The effective tax rate varies from the statutory U.S. federal rate of 21 percent primarily due to business tax credits and the impact of state taxes, net of federal benefit, for the year ended December 31, 2023; due to business tax credits and the impact of state taxes, net of federal benefit, for the year ended December 31, 2022; and due to the impact of state taxes, net of federal benefit, for the year ended December 31, 2021. Income tax expense consists of:
As of December 31, (dollars in thousands) |  | 2023 |  | 2022 |  | 2021
Current provision (benefit): |  |  |  |  |  |
Federal |  | $ | 175,977 |  |  | $ | 205,954 |  |  | $ | 259,536 |
State |  | 44,152 |  |  | 49,427 |  |  | 64,843 |
Total current provision (benefit) |  | 220,129 |  |  | 255,381 |  |  | 324,379 |
Deferred provision (benefit): |  |  |  |  |  |
Federal |  | (20,687) |  |  | (75,978) |  |  | 47,240 |
State |  | (2,537) |  |  | (17,692) |  |  | 8,132 |
Total deferred provision (benefit) |  | (23,224) |  |  | (93,670) |  |  | 55,372 |
Provision for income tax expense |  | $ | 196,905 |  |  | $ | 161,711 |  |  | $ | 379,751 |
The tax effect of temporary differences that give rise to deferred tax assets and liabilities is summarized below.
As of December 31, (dollars in thousands) |  | 2023 |  | 2022
Deferred tax assets: |  |  |  |
Loan reserves |  | $ | 354,412 |  |  | $ | 362,368 |
Net unrealized losses |  | 24,176 |  |  | 30,160 |
Accrued expenses not currently deductible |  | 16,297 |  |  | 12,949 |
Unrecorded tax benefits |  | 11,568 |  |  | 12,916 |
Research and development costs |  | 26,519 |  |  | 10,929 |
Stock-based compensation plans |  | 10,847 |  |  | 9,624 |
Acquired intangible assets |  | 14,536 |  |  | 781 |
Operating loss carryovers |  | 26 |  |  | 300 |
Other |  | 1,426 |  |  | 3,837 |
Total deferred tax assets |  | 459,807 |  |  | 443,864 |
Deferred tax liabilities: |  |  |  |
Student loan premiums and discounts, net |  | 15,908 |  |  | 14,065 |
Fixed assets |  | 8,533 |  |  | 9,347 |
Federal deferred for state receivable |  | 1,171 |  |  | 2,111 |
Other |  | 614 |  |  | 397 |
Total deferred tax liabilities |  | 26,226 |  |  | 25,920 |
Net deferred tax assets |  | $ | 433,581 |  |  | $ | 417,944 |
Included in operating loss carryovers are state net operating losses of $223 million and $7 million as of December 31, 2023 and 2022, respectively. The Company has recorded a valuation allowance against these net operating losses of $223 million and $7 million, respectively. Also included in operating loss carryovers is a capital loss of $18 million and $16 million as of December 31, 2023 and 2022, respectively. The Company has recorded a full valuation allowance against this capital loss. The valuation allowance is primarily attributable to deferred tax assets for state net operating losses and capital losses that management believes are more likely than not to expire prior to being realized. Included in net unrealized losses is a valuation allowance of $4 million and $4 million, respectively. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income of the appropriate character (i.e., capital or ordinary) during the period in which the temporary differences become deductible. Management considers, among other things, the scheduled reversals of deferred tax liabilities and the history of positive taxable income in evaluating the realizability of the deferred tax assets. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize our deferred tax assets (other than state net operating loss, net unrealized losses and capital loss carryovers as outlined above). As of December 31, 2023, the state net operating loss carryforwards will begin to expire in 2029 and the capital losses in 2025. Accounting for Uncertainty in Income Taxes The following table summarizes changes in unrecognized tax benefits:
As of December 31, (dollars in thousands) |  | 2023 |  | 2022 |  | 2021
Unrecognized tax benefits at beginning of year |  | $ | 79,366 |  |  | $ | 75,328 |  |  | $ | 63,134 |
Increases resulting from tax positions taken during a prior period |  | 1,204 |  |  | 6,049 |  |  | 1,496 |
Decreases resulting from tax positions taken during a prior period |  | (250) |  |  | (1,327) |  |  | (1,481) |
Increases resulting from tax positions taken during the current period |  | 2,711 |  |  | 11,032 |  |  | 20,743 |
Decreases related to settlements with taxing authorities |  | (10,089) |  |  | (4,666) |  |  | (3,682) |
Increases related to settlements with taxing authorities |  | — |  |  | — |  |  | 96 |
Reductions related to the lapse of statute of limitations |  | (4,819) |  |  | (7,050) |  |  | (4,978) |
Unrecognized tax benefits at end of year |  | $ | 68,123 |  |  | $ | 79,366 |  |  | $ | 75,328 |
As of December 31, 2023, the gross unrecognized tax benefits are $68 million. Included in the $68 million are $59 million of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate. As a part of the Spin-Off, the Company recorded a liability related to uncertain tax positions for which it was indemnified by Navient. See Note 2, “Significant Accounting Policies — Income Taxes” in this Form 10-K for additional details. Tax-related interest and penalty expense is reported as a component of income tax expense. As of December 31, 2023, 2022, and 2021, the total amount of income tax-related accrued interest and penalties, net of related benefit, recognized in the consolidated balance sheets was $8 million, $8 million, and $10 million, respectively. For the years ended December 31, 2023, 2022, and 2021, the total amount of income tax-related accrued interest, net of related tax benefit, recognized in the consolidated statements of income was $2 million, $(2) million, and $(1) million, respectively. The Company or one of its subsidiaries files income tax returns at the U.S. federal level and in most U.S. states. U.S. federal income tax returns filed for years 2014 and prior are no longer subject to examination. Various combinations of subsidiaries, tax years, and jurisdictions remain open for review, subject to statute of limitations periods (typically three to four prior years). The Company’s federal income tax returns for the years ended December 31, 2015, December 31, 2016, and December 31, 2017 are currently under audit by the Internal Revenue Service. We do not expect the resolution of open audits to have a material impact on our unrecognized tax benefits. It is reasonably possible that the uncertain tax position reserve may decrease by as much as $21 million during the next 12 months due to the expiration of statutes of limitations and audit settlements. The reduction in the uncertain tax position reserve would be reflected as a tax benefit.

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