Progressive 2013 Annual Report Download - page 28

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Deferred income taxes reflect the effect for financial statement reporting purposes of temporary differences between the
financial statement carrying amounts and the tax bases of assets and liabilities. At December 31, 2013 and 2012, the
components of the net deferred tax asset/liability were as follows:
(millions) 2013 2012
Deferred tax assets:
Unearned premiums reserve $ 361.0 $ 344.3
Investment basis differences 94.8 208.3
Non-deductible accruals 200.7 191.6
Loss and loss adjustment expense reserves 92.0 107.3
Other 14.7 3.9
Deferred tax liabilities:
Net unrealized gains on securities (509.9) (464.5)
Hedges on forecasted transactions (2.2) (3.3)
Deferred acquisition costs (156.7) (152.1)
Property and equipment (99.6) (103.6)
Prepaid expenses (14.4) (12.2)
Deferred gain on extinguishment of debt (4.8) (5.8)
Other (4.0) (4.5)
Net deferred tax asset (liability) $ (28.4) $ 109.4
Although realization of the deferred tax assets is not assured, management believes that it is more likely than not that the
deferred tax assets will be realized based on our expectation that we will be able to fully utilize the deductions that are
ultimately recognized for tax purposes and, therefore, no valuation allowance was needed at December 31, 2013 or 2012.
At December 31, 2013, we had $17.1 million of net taxes recoverable (included in other assets on the balance sheet),
compared to net taxes payable of $17.9 million at December 31, 2012 (included in other liabilities on the balance sheet).
We have been a participant in the Compliance Assurance Program (CAP) since 2007. Under CAP, the Internal Revenue
Service (IRS) begins its examination process for the tax year before the tax return is filed, by examining significant
transactions and events as they occur. The goal of the CAP program is to expedite the exam process and to reduce the
level of uncertainty regarding a taxpayer’s tax filing positions.
All federal income tax years prior to 2010 are closed. The IRS exams for 2010-2012 have been completed; therefore, we
consider these years to be effectively settled.
We recognize interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense.
We have not recorded any unrecognized tax benefits, or any related interest and penalties, as of December 31, 2013 and
2012. For the year ended December 31, 2013, $0.2 million of interest benefit has been recorded in the tax provision. For the
years ended December 31, 2012 and 2011, no interest expense or benefit has been recorded in the tax provision.
App.-A-28