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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The provision for income taxes consisted of the following (in thousands):
| Years Ended December 31,
| 2020 |  | 2021 |  | 2022
Current: |  |  |  |  |
U. S. federal provision | $ | 1,778 |  |  | $ | 8,848 |  |  | $ | 9,490 |
State provision | 2,177 |  |  | 2,989 |  |  | 3,287 |
Total current provision | $ | 3,955 |  |  | $ | 11,837 |  |  | $ | 12,777 |
Deferred: |  |  |  |  |
U. S. federal provision (benefit) | $ | 3,994 |  |  | $ | (452) |  |  | $ | 1,723 |
State provision (benefit) | 603 |  |  | (240) |  |  | 1,313 |
Total deferred provision (benefit) | $ | 4,597 |  |  | $ | (692) |  |  | $ | 3,036 |
Total income tax provision | $ | 8,552 |  |  | $ | 11,145 |  |  | $ | 15,813 |
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, |
| 2020 |  | 2021 |  | 2022 |
| Amount |  | Percent |  | Amount |  | Percent |  | Amount |  | Percent |
Federal statutory rate | $ | 5,175 |  |  | 21.0 |  | % | $ | 9,304 |  |  | 21.0 |  | % | $ | 12,000 |  |  | 21.0 |  | %
Effect of state income taxes, net of federal benefit | 2,080 |  |  | 8.4 |  |  | 2,180 |  |  | 4.9 |  |  | 3,630 |  |  | 6.3 |  |
Effect of non-deductible expenses and other, net | 460 |  |  | 1.9 |  |  | (423) |  |  | (1.0) |  |  | 59 |  |  | 0.1 |  |
Effect of divestitures and impairment of businesses | 846 |  |  | 3.4 |  |  | 103 |  |  | 0.2 |  |  | 138 |  |  | 0.2 |  |
Change in valuation allowance, net of federal benefit | (9) |  |  | — |  |  | (19) |  |  | — |  |  | (14) |  |  | — |  |
Total | $ | 8,552 |  |  | 34.7 |  | % | $ | 11,145 |  |  | 25.1 |  | % | $ | 15,813 |  |  | 27.6 |  | %
We are subject to taxation in the United States and various states. As of December 31, 2022, tax years 2013 to 2020 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 $1.9 million. The amended returns are under audit and as a result, the administrative processing of the carryback claims currently under audit requires that the statute for tax years 2013 to 2015 remain open. In connection with the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted on March 27, 2020 in response to the COVID-19 pandemic, we filed a claim for a refund on June 30, 2020, to carryback the net operating losses (“NOLs”) generated in the tax year ended December 31, 2018. The CARES Act, among other things, permits NOLs incurred in taxable years beginning after December 31, 2017 and before January 1, 2021, to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes in which the enacted federal rate was 35%. The refund claim for $7.0 million from the 2018 tax year was received on August 7, 2021. As our refund claim filed for tax year 2018 exceeded $5.0 million, our 2018 federal return is under audit by the Internal Revenue Service (“IRS”), as required in order to receive Joint Committee approval. An additional carryback claim for a refund was filed on November 3, 2020 for the tax year ended December 31, 2019, for $1.2 million not yet received. On December 4, 2020, we 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, which resulted in an additional carryback refund claim of $0.8 million not yet received, which will be processed as part of the Joint Committee review of the 2018 carryback claim. On October 11, 2021, we received an adverse ruling from the IRS for the accounting method change filed in 2018 for revenue recognition of cemetery property. Upon receiving the adverse ruling on the revenue recognition of cemetery property accounting method change, we filed an automatic method change on Form 3115, to adopt the IRS’ preferred revenue recognition method for cemetery property. The accounting method change application was submitted under the “three-month window” rule, which would grant audit protection for the cumulative effect of the adverse ruling for revenue recognition of cemetery property, at the discretion of the IRS agent conducting the audit. As uncertainty exists involving audit protection of the net operating loss carrybacks under IRS audit, a reserve for the unrecognized tax benefit was recorded for the benefit derived from carrying back losses to tax years with a higher effective tax rates than the current 21% rate. On March 2, 2022, the IRS indicated the non-automatic method change filed for deferred revenue recognition for cemetery merchandise and services met the requirements to be filed as an automatic method change. As such, on March 31, 2022, we submitted Form 3115 to request the automatic method change and recorded a $0.5 million reduction to the reserve for uncertain tax positions. 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,
| 2021 |  | 2022
Deferred income tax assets: |  |  |
Net operating loss carryforwards | $ | 1,268 |  |  | $ | 839 |
Interest expense limitation | 2,777 |  |  | 3,506 |
Tax credit carryforwards | 88 |  |  | 75 |
State depreciation | 1,195 |  |  | 1,297 |
Accrued and other liabilities | 7,552 |  |  | 8,606 |
Amortization of non-compete agreements | 1,172 |  |  | 1,213 |
Prepaid assets | 616 |  |  | — |
Total deferred income tax assets | 14,668 |  |  | 15,536 |
Less valuation allowance | (198) |  |  | (181) |
Total deferred income tax assets | $ | 14,470 |  |  | $ | 15,355 |
Deferred income tax liabilities: |  |  |
Depreciation and amortization | $ | (56,030) |  |  | $ | (61,432) |
Preneed liabilities | (4,224) |  |  | (2,582) |
Prepaid assets | — |  |  | (161) |
Total deferred income tax liabilities | (60,254) |  |  | (64,175) |
Total net deferred tax liabilities | $ | (45,784) |  |  | $ | (48,820) |
Our deferred tax assets and liabilities, along with related valuation allowances, are classified as non-current on our Consolidated Balance Sheet at December 31, 2021 and 2022. 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 2021 and 2022. For state reporting purposes, we have $17.3 million of net operating loss carryforwards that will expire between 2023 and 2041, 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, 2022 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, 2022, the Company’s unrecognized tax benefit reserve for uncertain tax positions primarily relates to the uncertainty of receiving audit protection for revenue recognition of cemetery property for the benefit derived from carrying back losses to tax years with a higher effective tax rate than the current 21.0% rate. Our unrecognized tax benefit reserve for the years ended December 31, 2021 and 2022 was $3.8 million and $3.3 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
| Years Ended December 31,
| 2020 |  | 2021 |  | 2022
Unrecognized tax benefit at beginning of year | $ | 691 |  |  | $ | 3,656 |  |  | $ | 3,761 |
Gross decreases - tax positions in prior period | (691) |  |  | — |  |  | (533) |
Gross increases - tax positions in current period | 3,656 |  |  | 105 |  |  | 66 |
Unrecognized tax benefit at end of year | $ | 3,656 |  |  | $ | 3,761 |  |  | $ | 3,294 |
At December 31, 2022, we expect that the $3.3 million of unrecognized tax benefit (“UTB”) will be recognized in the next twelve months. We accrued interest of $0.1 million during 2022 and in total, as of December 31, 2022, recognized a liability related to the UTB's noted above for interest of $0.2 million. During 2021, we accrued interest of $0.1 million and in total, as of December 31, 2021, recognized a liability for interest of $0.1 million.

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