INCOME TAXES:

The components of income before income taxes for the years ended December 31, 2016, 2015 and 2014 were as follows (dollars in thousands):



	2016			2015		2014
United States	$	273,361		$	236,613	$	276,594
Foreign	(57,870		)	64,318		91,519
Total	$	215,491		$	300,931	$	368,113

The components of the provision for income taxes for the years ended December 31, 2016, 2015 and 2014 were as follows (dollars in thousands):



	2016			2015			2014
United States:
Current
Federal	$	20,877		$	12,003		$	15,647
State	11,284			8,181			7,134
Deferred
Federal	43,820			41,975			49,799
State	2,263			5,383			8,727
	78,244			67,542			81,307
Foreign:
Current	3,289			11,031			17,591
Deferred	(7,138		)	(2,679		)	8,209
	(3,849		)	8,352			25,800
Total	$	74,395		$	75,894		$	107,107

The Company's provision for income taxes for the years ended December 31, 2016 and 2015 included $4.3 million and $9.7 million, respectively, of tax benefit due to a U.K. tax rate change. The Company's provision for income taxes for the year ended December 31, 2014 included a $3.9 million tax benefit as a result of receiving consent from the United States Internal Revenue Service (IRS) to change a tax accounting method retroactively for companies acquired as a result of the RailAmerica acquisition. The Company's effective income tax rates also included adjustments to reflect differences between book income tax expense and final tax returns filed each year related to the previous fiscal year, which the Company does not consider material.

The United States track maintenance credit is an income tax credit for Class II and Class III railroads, as defined by the United States Surface Transportation Board (STB), to reduce their federal income tax based on qualified railroad track maintenance expenditures (the Short Line Tax Credit). Qualified expenditures include amounts incurred for maintaining track, including roadbed, bridges and related track structures owned or leased by a Class II or Class III railroad. The credit is equal to 50% of the qualified expenditures, subject to an annual limitation of $3,500 multiplied by the number of miles of railroad track owned or leased by the Class II or Class III railroad as of the end of its tax year. The United States Short Line Tax Credit was initially enacted for a three year period, 2005 through 2007, and was subsequently extended a series of times with the last extension expiring on December 31, 2016.

The provision for income taxes differs from that which would be computed by applying the statutory United States federal income tax rate to income before income taxes. The following is a summary of the effective income tax rate reconciliation for the years ended December 31, 2016, 2015 and 2014:



	2016		2015		2014
Tax provision at statutory rate	35.0	%	35.0	%	35.0	%
Effect of foreign operations	4.3	%	(3.8	)%	(1.7	)%
Foreign valuation allowance	2.9	%	2.1	%	—	%
Foreign goodwill impairment	2.4	%	—	%	—	%
Effect of foreign tax rate change	(2.0	)%	(3.3	)%	—	%
State income taxes, net of federal income tax benefit	4.1	%	3.0	%	2.8	%
Benefit of track maintenance credit	(13.4	)%	(9.1	)%	(7.3	)%
Other, net	1.2	%	1.3	%	0.3	%
Effective income tax rate	34.5	%	25.2	%	29.1	%

The Company’s effective income tax rate was 9.3% higher for the year ended December 31, 2016 as compared with the year ended December 31, 2015, primarily driven by the effect of foreign operations, which resulted from losses incurred in some foreign jurisdictions (including impairments) generating a tax benefit at tax rates lower than the United States statutory rate, a portion of which were reduced by the recording of a valuation allowance. As the Company concluded it is more likely than not, some of those losses will not be able to be utilized to offset future income taxes, the Company recorded a valuation allowance. This valuation allowance further increased the Company’s consolidated effective income tax rate.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes, which requires that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. For public entities, the amendments in this guidance are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted as of the beginning of an interim or annual reporting period. The Company early adopted the provisions of this ASU as of January 1, 2016 and applied it retrospectively to all periods presented. The December 31, 2015 consolidated balance sheet was adjusted to reflect a reduction of current deferred income tax assets of $69.2 million, an increase in non-current deferred income tax assets of $0.2 million and a reduction in non-current deferred income tax liabilities of $69.0 million. There was no other impact on the consolidated financial statements from the adoption of this guidance.

Deferred income taxes reflect the effect of temporary differences between the book and tax basis of assets and liabilities as well as available income tax credit and net operating loss carryforwards. The components of net deferred income taxes as of December 31, 2016 and 2015 were as follows (dollars in thousands):



	2016			2015
Deferred income tax assets:
Track maintenance credit carryforward	$	217,054		$	237,411
Net operating loss carryforwards	23,168			20,810
Accruals and reserves not deducted for tax purposes until paid	15,131			14,896
Stock-based compensation	10,089			9,253
Deferred revenue	6,311			5,736
Deferred compensation	3,891			3,454
Nonshareholder contributions	1,978			2,150
Interest rate swaps	—			4,223
Alternative minimum tax credit carryforward	1,592			1,592
Pension and postretirement benefits	18,693			15,411
Other	2,072			752
	299,979			315,688
Valuation allowance	(24,075		)	(19,315		)
Deferred income tax liabilities:
Interest rate swaps	(4,579		)	—
Property and equipment basis difference	(1,012,109		)	(967,998		)
Intangible assets basis difference	(418,398		)	(302,903		)
Other	(368		)	(6,338		)
Net deferred tax liabilities	$	(1,159,550	)	$	(980,866	)

As of December 31, 2016, the Company had United States net operating loss carryforwards in various state jurisdictions that totaled approximately $303.7 million, United States track maintenance credit carryforwards of $217.1 million and foreign net operating loss carryforwards in the Netherlands that totaled approximately $42.6 million. Some of the Company's credit carryforwards are subject to Section 382 limitations of the Internal Revenue Code (Section 382). Section 382 imposes limitations on a corporation's ability to utilize its credits if it experiences an "ownership change." In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders or new stockholders in the stock of a corporation by more than 50% during a three-year testing period. The Company expects to fully utilize its track maintenance credit carryforwards. The state net operating losses exist in different states and expire between 2017 and 2036. The United States track maintenance credits expire between 2027 and 2036. The Netherlands net operating losses expire between 2018 and 2025.

The Company maintains a valuation allowance on state net operating losses, foreign net operating losses and certain other deferred tax assets for which, based on the weight of available evidence, it is more likely than not that some or all of the deferred income tax assets will not be realized.

A reconciliation of the beginning and ending amount of the Company's valuation allowance is as follows (dollars in thousands):



	2016			2015
Balance at beginning of year	$	19,315		$	14,793
(Decrease)/increase for state net operating losses	(1,476		)	89
Increase for foreign net operating losses and impairments	6,236			6,397
Decrease for certain other deferred income tax assets	—			(1,964		)
Balance at end of year	$	24,075		$	19,315

A reconciliation of the beginning and ending amount of the Company's liability for uncertain tax positions is as follows (dollars in thousands):



	2016			2015			2014
Balance at beginning of year	$	4,197		$	4,324		$	3,155
Increase for tax positions related to prior years	3,970			—			1,169
Decrease for tax positions related to prior years	(1,169		)	—			—
Increase/(decrease) for effects of foreign exchange rates	127			(127		)	—
Balance at end of year	$	7,125		$	4,197		$	4,324

At December 31, 2016, 2015 and 2014, there was $7.1 million, $4.2 million and $4.3 million, respectively, of unrecognized tax benefits that if recognized would affect the annual effective income tax rate. The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes.

As of December 31, 2016 the Company reasonably expects that approximately $3.2 million in unrecognized tax benefits will be recognized in the next 12 months as a result of a lapse of the statute of limitations.

As of December 31, 2016, the following tax years remain open to examination by the major taxing jurisdictions to which the Company is subject:



	Open Tax Years
	From		To
United States	2002	-	2016
Australia	2010	-	2016
Belgium	2014	-	2016
Canada	2009	-	2016
Germany	2010	-	2016
Mexico	2008	-	2016
Netherlands	2011	-	2016
Poland	2011	-	2016
Saudi Arabia	2015	-	2016
U.K.	2010	-	2016