Progressive 2015 Annual Report Download - page 32

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, 2015 and 2014, the
components of the net deferred tax asset (liability) were as follows:
(millions) 2015 2014
Federal deferred tax assets:
Unearned premiums reserve $ 453.3 $ 378.8
Investment basis differences 40.5 60.6
Non-deductible accruals 231.4 208.0
Loss and loss adjustment expense reserves 75.3 76.9
Hedges on forecasted transactions 4.4 0
Other 9.6 7.5
Federal deferred tax liabilities:
Net unrealized gains on securities (436.7) (550.3)
Hedges on forecasted transactions 0 (0.8)
Deferred acquisition costs (197.4) (160.0)
Property and equipment (110.7) (100.9)
Prepaid expenses (11.9) (11.4)
Intangible assets-ARX acquisition (166.4) 0
Deferred gain on extinguishment of debt (2.2) (3.0)
Other (7.0) (4.3)
Net federal deferred tax liability (117.8) (98.9)
Net state deferred tax asset 8.5 0
Net deferred tax liability $(109.3) $ (98.9)
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, 2015 or 2014.
At December 31, 2015 and 2014, we had $25.1 million and $49.4 million, respectively, of net taxes payable (included in
other liabilities on the balance sheet).
The Progressive Corporation and its wholly-owned subsidiaries file a consolidated income tax return. This group has 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 2012 are closed. The IRS exams for 2012-2014 have been completed. We consider
these years to be effectively settled.
ARX and its wholly owned subsidiaries file their own consolidated income tax return since we own less than 80% of their
outstanding stock. This group was last examined by the IRS for the 2011 and 2012 tax years, which we consider to be
effectively settled. The 2013-2015 tax years remain open to examination.
The statute of limitations for state income tax purposes generally remains open for three to four years from the return filing
date, depending upon the jurisdiction. There has been no significant state income tax audit activity.
We recognize interest and penalties, if any, as a component of income tax expense. For the year ended December 31,
2015, $0.1 million of interest and penalties expense has been recorded in the tax provision. For the year ended
December 31, 2013, $0.2 million of interest benefit has been recorded in the tax provision. We have not recorded any
unrecognized tax benefits, or any related interest and penalties, as of December 31, 2015 and 2014.
App.-A-31