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Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Tax Disclosure INCOME TAXES
The provision for income taxes consisted of the following (in thousands): 
 Years Ended December 31,
 201820192020
Current:
U. S. federal provision (benefit)$1,489 $(2,039)$1,778 
State provision (benefit)1,309 (195)2,177 
Total current provision (benefit)$2,798 $(2,234)$3,955 
Deferred:
U. S. federal provision$2,831 $8,056 $3,994 
State provision 992 2,061 603 
Total deferred provision $3,823 $10,117 $4,597 
Total income tax provision $6,621 $7,883 $8,552 
A reconciliation of income taxes calculated at the U.S. federal statutory rate to those reflected in the Consolidated Statements of Operations is as follows (dollars in thousands): 
 Years Ended December 31,
 201820192020
 AmountPercentAmountPercentAmountPercent
Federal statutory rate$3,834 21.0 %$4,707 21.0 %$5,175 21.0 %
Effect of state income taxes, net of federal benefit1,776 9.7 1,352 6.0 2,080 8.4 
Effect of non-deductible expenses and other, net1,451 7.9 947 4.2 460 1.9 
Effect of divestitures and impairment of businesses— — 911 4.10 846 3.4 
Change in valuation allowance26 0.1 (34)(0.2)(9)— 
Re-measurement of deferred taxes due to tax reform(466)(2.5)— — — — 
Total$6,621 36.2 %$7,883 35.1 %$8,552 34.7 %
Discrete tax expense for the year ended December 31, 2020 includes $0.1 million expense related to stock based compensation and $0.5 million primarily related to return to provision adjustments, state legislative changes and other discrete items.
We are subject to taxation in the United States and various states. As of December 31, 2020, tax years 2013 to 2019 are subject to examination by taxing authorities. On May 10, 2017, we filed amended federal returns for the tax years ended December 31, 2013, 2014 and 2015, which generated refunds of approximately $1.9 million. The amended returns are under audit and as a result, the administrative processing of the carryback claims requires that the statute for tax years 2013 to 2015 remains open.
In connection with the 2019 stock acquisition of Calvary Memorial Park cemetery in Fairfax, Virginia, a 338(h)(10) election was filed April 24, 2020, which allowed the basis in the acquired assets to be stepped up to fair market value.
On June 30, 2020, Carriage filed a carryback claim for a refund for the tax year ended December 31, 2018, for $7.0 million. The requested refund was received on August 7, 2020. On November 3, 2020, Carriage filed a carryback claim for refund for the tax year ended December 31, 2019, for $1.2 million. The requested refund for tax year 2019 has not yet been received. On December 4, 2020, Carriage filed an amended federal return for the tax year ended December 31, 2018, in order to take full advantage of the CARES Act legislative changes. The changes reported in the amended return resulted in additional $2.3 million of loss. The additional losses generated from the amended filing will be administratively carried back and processed as part of the Joint Committee review of the 2018 carryback claim.
The tax effects of temporary differences from total operations that give rise to significant deferred tax assets and liabilities are as follows (in thousands):
 Years Ended December 31,
 20192020
Deferred income tax assets:
Net operating loss carryforwards$3,602 $1,570 
Interest expense limitation4,190 18 
Tax credit carryforwards100 100 
State depreciation1,124 1,264 
Accrued and other liabilities5,124 6,313 
Amortization of non-compete agreements1,104 1,117 
Prepaid and other assets— 741 
Total deferred income tax assets15,244 11,123 
Less valuation allowance(234)(222)
Total deferred income tax assets$15,010 $10,901 
Deferred income tax liabilities:
Depreciation and amortization$(49,568)$(50,946)
Preneed liabilities
(6,446)(6,427)
Convertible subordinated notes due 2021(75)(5)
Prepaid and other assets(289)— 
Total deferred income tax liabilities(56,378)(57,378)
Total net deferred tax liabilities$(41,368)$(46,477)
Our deferred tax assets and liabilities, along with related valuation allowances, are classified as non-current on our Consolidated Balance Sheet at December 31, 2019 and 2020.
We record a valuation allowance to reflect the estimated amount of deferred tax assets for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more likely than not that the tax benefits will be realized. We recognized an immaterial net decrease in our valuation allowance during 2020.
For state reporting purposes, we have $32.7 million of net operating loss carryforwards that will expire between 2021 and 2039, if not utilized. Based on management’s assessment of the various state net operating losses, it was determined that it is more likely than not that we will be able to realize tax benefits on some portion of the amount of the state losses. The valuation allowance at December 31, 2020 was attributable to the deferred tax asset related to a portion of the state operating losses.
We analyze tax benefits for uncertain tax positions and how they are to be recognized, measured, and derecognized in financial statements; provide certain disclosures of uncertain tax matters; and specify how reserves for uncertain tax positions should be classified on our Consolidated Balance Sheet. The deferred tax assets recognized for those NOLs are presented net of these unrecognized tax benefits.
At December 31, 2020, the Company’s unrecognized tax benefits reserve for uncertain tax positions primarily relates to losses generated from pending accounting method changes filed for the tax year ended December 31, 2018, being carried back 5 years, under the CARES Act. In 2018, we filed two Form 3115s, Application for Change in Accounting Method, to request consent to change the method of accounting for deferred revenue for our cemetery property and cemetery merchandise and service operations beginning January 1, 2018. These method changes are still under review. Therefore, the unrecognized tax benefit reserve for the years ended December 31, 2019 and 2020 was $0.7 million and $3.7 million, respectively. There was no reserve recorded at December 31, 2018.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
 Years Ended December 31,
201820192020
Unrecognized tax benefit at beginning of year$— $— $691 
Gross increases - tax positions in prior period— 691 — 
Gross decreases - tax positions in prior period— — (691)
Gross increases - tax positions in current period— — 3,656 
Unrecognized tax benefit at end of year$— $691 $3,656 
Included in balance of unrecognized tax benefit for the years ended December 31, 2019 and 2020 were $0.7 million and $3.7 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. At December 31, 2020, we expect that the $3.7 million of unrecognized tax benefit will be recognized in the next twelve months.