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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Tax Disclosure | ) INCOME TAXES The Company files a consolidated federal income tax return with all subsidiaries, including our former subsidiary, UPC. The following table summarizes the provision for income taxes:
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
Federal: |  |  |  |  |
Current | $ | 11,798 |  |  | $ | (171) |  |  | $ | (2,207) |
Deferred | (2,908) |  |  | 18,823 |  |  | (18,830) |
Provision (benefit) for Federal income tax expense | 8,890 |  |  | 18,652 |  |  | (21,037) |
State: |  |  |  |  |
Current | 3,128 |  |  | 1,518 |  |  | 1,033 |
Deferred | (2,562) |  |  | 5,315 |  |  | (3,985) |
Provision (benefit) for State income tax expense | 566 |  |  | 6,833 |  |  | (2,952) |
Provision (benefit) for income taxes | $ | 9,456 |  |  | $ | 25,485 |  |  | $ | (23,989) |
Income tax expense (provision) is included in the financial statements as follows:
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
Continuing operations | $ | 9,773 |  |  | $ | 24,522 |  |  | $ | (6,699) |
Discontinued operations | (317) |  |  | 963 |  |  | (17,290) |
Reported income tax provision (benefit) | $ | 9,456 |  |  | $ | 25,485 |  |  | $ | (23,989) |
The actual income tax expense attributable to continuing operations differs from the expected income tax expense attributable to continuing operations 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,
| 2023 |  | 2022 |  | 2021
Expected income tax expense at federal rate | $ | 19,314 |  |  | 21.0 | % |  | $ | (3,251) |  |  | 21.0 | % |  | $ | (2,187) |  |  | 21.0 | %
State tax expense, net of federal deduction benefit | 2,449 |  |  | 2.7 |  |  | (443) |  |  | 2.9 |  |  | (785) |  |  | 7.5 |
Dividend received deduction | (6) |  |  | — |  |  | (24) |  |  | 0.2 |  |  | (10) |  |  | 0.1 |
Non-Deductible Goodwill | — |  |  | — |  |  | 2,848 |  |  | (18.4) |  |  | (2) |  |  | — |
Other permanent items | 131 |  |  | 0.1 |  |  | 214 |  |  | (1.4) |  |  | 85 |  |  | (0.8) |
Prior period accrual adjustment | 126 |  |  | 0.1 |  |  | 469 |  |  | (3.0) |  |  | (1,053) |  |  | 10.1 |
Outside basis in subsidiary | — |  |  | — |  |  | 189 |  |  | (1.2) |  |  | (965) |  |  | 9.3 |
Municipal tax-exempt interest | (10) |  |  | — |  |  | (13) |  |  | 0.1 |  |  | (22) |  |  | 0.2 |
Change in valuation allowance | (12,177) |  |  | (13.2) |  |  | 24,426 |  |  | (157.8) |  |  | (1,352) |  |  | 13.0 |
Change in enacted tax rate | (54) |  |  | (0.1) |  |  | 110 |  |  | (0.7) |  |  | (576) |  |  | 5.5 |
Change in tax credit carryforward | — |  |  | — |  |  | — |  |  | — |  |  | 168 |  |  | (1.6) |
Other, net | — |  |  | — |  |  | (3) |  |  | — |  |  | — |  |  | — |
Reported income tax expense (benefit) | $ | 9,773 |  |  | 10.6 | % |  | $ | 24,522 |  |  | (158.4) | % |  | $ | (6,699) |  |  | 64.3 | %
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, 2023, 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 $2,000 of our Federal NOL carryforward. The remaining $12,191,000 of our Federal NOL carryforward expires beginning in 2041 and fully expiring by the end of 2042. Our $39,755,000 of state NOL carryforward expires beginning in 2040 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,
| 2023 |  | 2022
Deferred tax assets: |  |  |
Unearned premiums | $ | 6,571 |  |  | $ | 16,115 |
Unrealized loss | 4,875 |  |  | 8,768 |
Tax-related discount on loss reserve | 627 |  |  | 5,505 |
R&D tax credit carryforward | 1,610 |  |  | 1,610 |
Other-than-temporary impairment | — |  |  | 5,500 |
Investments | 2,072 |  |  | 2,620 |
Bad debt expense | 2,729 |  |  | 1,077 |
Equity compensation | 582 |  |  | 474 |
Dual consolidated loss carryforward | 4,745 |  |  | 5,958 |
Net operating loss carryforward | 4,297 |  |  | 112,804 |
Outside basis in subsidiary | 44,802 |  |  | — |
Other | 1,427 |  |  | 1,541 |
Total pre-allowance deferred tax assets | 74,337 |  |  | 161,972 |
Valuation allowance | (56,491) |  |  | (140,034) |
Total deferred tax assets | 17,846 |  |  | 21,938 |
Deferred tax liabilities: |  |  |
Deferred acquisitions costs | (8,033) |  |  | (14,743) |
Intangible assets | (2,279) |  |  | (2,823) |
Prepaid expenses | (435) |  |  | (744) |
Investments | (105) |  |  | (62) |
Fixed assets | (1,698) |  |  | (3,743) |
Total deferred tax liabilities | (12,550) |  |  | (22,115) |
Net deferred tax asset (liability) | $ | 5,296 |  |  | $ | (177) |
Net deferred tax asset (liability) is included in the financial statements as follows:
| Year Ended December 31,
| 2023 |  | 2022
Continuing operations | $ | 5,296 |  |  | $ | (177) |
Discontinued operations | — |  |  | — |
Net deferred tax asset (liability) | $ | 5,296 |  |  | $ | (177) |
As of December 31, 2022, the net deferred tax asset related to discontinued operations is comprised of deferred tax assets of $148,978,000, deferred tax liabilities of $26,921,000, and a valuation allowance of $122,057,000, for a net balance of $0. We had a valuation allowance of $56,491,000 and $140,034,000 at December 31, 2023 and 2022, respectively. Of this December 31, 2022 total, $122,057,000 is attributable to discontinued operations, with the remaining balance attributable to our continuing operations. The change in valuation allowance includes a $12,177,000 decrease in valuation allowance charged to continuing operations tax expense; a $3,038,000 decrease of valuation allowance on our FAS 115 assets which is charged to other comprehensive income; a $122,057,000 decrease related to the disposal of our former subsidiary, UPC, charged to discontinued operations; a $44,802,000 increase established against the outside basis in our former subsidiary, UPC, related to the disposal which was charged to discontinued operations; and a $8,927,000 increase charged to discontinued operations for other deferred tax assets and liabilities. 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 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 2014; therefore, only the 2015 through 2023 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. This exam was completed in 2023 and no adjustments were been proposed. ACIC’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, 2023:
|  | December 31, 2023
Balance at January 1 |  | $ | 666 |
Decrease based on tax positions related to prior years |  | — |
Balance at December 31 |  | $ | 666 |
Included in the balance at December 31, 2023 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.

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