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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Tax Disclosure
14) INCOME TAXES

The Company files a consolidated federal income tax return with all subsidiaries.

The following table summarizes the provision for income taxes:
Year Ended December 31,
202220212020
Federal:
Current$(171)$(2,207)$(27,310)
Deferred18,823 (18,830)(6,611)
Provision (benefit) for Federal income tax expense18,652 (21,037)(33,921)
State:
Current1,518 1,033 598 
Deferred5,315 (3,985)(3,282)
Provision (benefit) for State income tax expense6,833 (2,952)(2,684)
Provision (benefit) for income taxes$25,485 $(23,989)$(36,605)

The actual income tax expense differs from the expected income tax expense computed by applying the combined applicable effective federal and state tax rates to income before the provision for income taxes as follows:
Year Ended December 31,
202220212020
Expected income tax expense at federal rate$(93,341)$(17,610)$(27,741)
State tax expense, net of federal deduction benefit(13,899)(1,176)(3,603)
Dividend received deduction(73)(59)(141)
Non-Deductible Goodwill2,848 (2)— 
Other permanent items241 127 600 
Prior period accrual adjustment469 (1,053)2,230 
Outside basis in subsidiary189 (964)470 
Net operating loss carryback rate benefit (1)
— — (12,566)
Municipal tax-exempt interest(50)(134)(280)
Change in valuation allowance128,993 (1,352)5,505 
Change in enacted tax rate110 (1,386)(358)
Change in tax credit carryforward— (380)(721)
     Other, net(2)— — 
Reported income tax benefit$25,485 $(23,989)$(36,605)
 (1) Pursuant to the recently enacted CARES Act.

Deferred income taxes, which are included in other assets or other liabilities as appropriate, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

As of December 31, 2022, we had net operating loss (NOL) carryforwards. The amount and timing of realizing the benefits of NOL carryforwards depend on future taxable income and limitation imposed by tax laws. There is no expiration for $1,101,000 of our Federal NOL carryforward. The remaining $452,413,000 of our Federal NOL carryforward expires beginning in 2040 and fully expiring by the end of 2042. Our $404,279,000 of state NOL carryforward expires beginning in 2039 and fully expiring by the end of 2042. The unused business tax credits of $1,610,000 will expire beginning in 2037 and fully expiring by the end of 2040.

The table below summarizes the significant components of our net deferred tax asset (liability):
 
December 31,
20222021
Deferred tax assets:
Unearned premiums$16,115 $10,326 
Unrealized loss8,768 1,230 
Tax-related discount on loss reserve5,505 3,121 
R&D tax credit carryforward1,610 1,990 
Other-than-temporary impairment5,500 — 
Investments2,620 344 
Bad debt expense1,077 144 
Equity compensation474 405 
Dual consolidated loss carryforward 5,958 5,103 
Net operating loss carryforward 112,804 25,472 
Other1,541 789 
Total pre-allowance deferred tax assets161,972 48,924 
          Valuation allowance(140,034)(5,142)
          Total deferred tax assets21,938 43,782 
Deferred tax liabilities:
Deferred acquisitions costs(14,743)(10,356)
Intangible assets(2,823)(3,607)
Prepaid expenses(744)(837)
Investments(62)(77)
Fixed assets(3,743)(4,990)
Total deferred tax liabilities(22,115)(19,867)
Net deferred tax asset (liability)$(177)$23,915 

We had a valuation allowance of $140,034,000 and $5,142,000 at December 31, 2022 and 2021, respectively. In assessing the net realizable value of deferred tax assets, we consider whether it is more likely than not that we will not realize some portion or all of the deferred tax assets. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered taxable income (loss), reversals of temporary items, projected future taxable income and tax planning strategies in making this assessment. The current year increase in valuation allowance predominately relates to the impact of current year results on management’s estimate that the majority of its net deferred tax assets will not be realizable.

The statute of limitations related to our consolidated Federal income tax returns and our Florida income tax returns expired for all tax years up to and including 2018; therefore, only the 2019 through 2022 tax years remain subject to examination by taxing authorities. During the year ended December 31, 2022, we were examined by the IRS regarding tax years 2018, 2019 and 2020. During the year ended December 31, 2020, we were examined by the Internal Revenue Service (IRS) regarding our 2016 income tax return. Tax years 2018, 2019 and 2020 are with Joint Committee review, however, no material adjustments have been proposed.

UPC Insurance’s reinsurance subsidiaries, which are based in the Cayman Islands and Bermuda, made an irrevocable election under section 953(d) of the U.S. Internal Revenue Code of 1986, as amended, to be treated as a domestic insurance company for U.S. Federal income tax purposes. As a result of this election, our reinsurance subsidiaries are subject to United States income tax on its worldwide income as if it were a U.S. corporation.
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended December 31, 2022:

December 31, 2022
Balance at January 1$834 
Decrease based on tax positions related to prior years(168)
Balance at December 31$666 
Included in the balance at December 31, 2022 was $666,000 of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. We do not anticipate a material change in the unrecognized tax benefits over the next 12 months.