4. INCOME TAXES

Loss before income tax benefit (provision) consisted of the following (in thousands):


	Year Ended June 30,
	2016		2015		2014
United States	$	(11,823)	$	(24,621)	$	(3,830)
Foreign		4,720		12,512		(825)
Loss before income tax benefit (provision)	$	(7,103)	$	(12,109)	$	(4,655)

The following table reconciles the federal statutory tax rate to the effective tax rate of the income tax provision:


	Year Ended June 30,
	2016		2015		2014

Federal statutory income tax rate	34.0	%	34.0	%	34.0	%
Current state taxes	(0.1)		—		(8.3)
Foreign rate differential	(0.8)		(4.9)		(7.1)
Expired net operating losses	—		—		—
Research and development credits	3.5		1.5		3.0
Foreign withholding tax	(5.4)		(2.2)		(1.0)
Nondeductible secondary offering expenditures	—		—		—
Other items	(2.4)		1.8		(2.3)
Net change in valuation allowance	(16.7)		(32.8)		(31.0)
Effective tax rate	12.1	%	(2.6)	%	(12.7)	%

The components of the income tax (benefit) provision are as follows (in thousands):


	Year Ended June 30,
	2016		2015		2014
Current provision:
Federal	$	—	$	23	$	54
Foreign		533		560		567
State		10		5		6
Total current:		543		588		627
Deferred (benefit):
Foreign		(1,406)		(268)		(36)
Total deferred:		(1,406)		(268)		(36)
Income tax (benefit) provision	$	(863)	$	320	$	591

As of June 30, 2016, we had federal and state net operating loss carryforwards of approximately $215.8 million and $35.4 million, respectively. The net operating loss carryforwards will expire at various dates beginning in 2019 through 2035, if not utilized. Partial amounts of the net operating losses are generated from the exercise of options and the tax benefit would be credited directly to stockholders’ equity (deficit). We also had federal research and development credit carryforwards of approximately $2.7 million as of June 30, 2016 which will expire at various dates beginning in 2016 through 2035, if not utilized. The California research and development credit carryforwards are approximately $4.0 million as of June 30, 2016 and have an indefinite carryover period. We also have U.K. net operating loss carryforwards of approximately $4.7 million as of June 30, 2016.

Utilization of the Federal and California net operating losses and credits may be subject to a substantial limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Deferred tax assets and liabilities reflect the net tax effects of net operating loss and credit carryforwards and of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities for federal, state and foreign income taxes are as follows (in thousands):


	June 30,
	2016		2015
Deferred tax assets:
Net operating loss carryforwards	$	74,751	$	71,671
Research credits		5,289		4,659
Deferred revenue		372		156
Stock-based compensation		111		650
Accruals and Reserves		1,199		1,193
Other		(294)		(580)
Total deferred tax assets		81,428		77,749
Valuation allowance for deferred tax assets		(80,863)		(78,591)
Net deferred tax assets (liabilities), included in other assets and other long term liabilities	$	565	$	(842)

ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. For the legacy eGain business in the United States, based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in all prior years, we have provided a full valuation allowance against our net deferred tax assets. For the legacy eGain business in the United Kingdom, the Company has determined based on the positive evidence it would be able to utilize the deferred tax assets and therefore released the valuation allowance against the deferred tax assets in the United Kingdom. The remaining eGain foreign operations as well as Exony’s business have historically been profitable and we believe it is more likely than not that those assets will be realized. Our tax provision primarily relates to foreign activities as well as state income taxes. Our income tax rate differs from the statutory tax rates primarily due to the utilization of net operating loss carryforwards which had previously been valued against as well as our foreign operations.

The net valuation allowance increased by $2.3 million for the year ended June 30, 2016, compared to the increase of $4.5 million for year ended June 30, 2015, and the increase of $914,000 for year ended June 30, 2014, respectively.

Deferred tax liabilities have not been recognized for $12.2 million of undistributed earnings of our foreign subsidiaries as of June 30, 2016. It is our intention to reinvest such undistributed earnings indefinitely in our foreign subsidiaries. If we distribute these earnings, in the form of dividends or otherwise, we would be subject to both United States income taxes (net of applicable foreign tax credits) and withholding taxes payable to the foreign jurisdiction.

Uncertain Tax Positions

The aggregate changes in the balance of our gross unrecognized tax benefits during fiscal years 2016, 2015 and 2014 were as follows (in thousands):


	Year Ended June 30,
	2016		2015		2014
Beginning balance	$	1,346	$	1,290	$	1,778
Increases in balances related to tax positions taken during current periods		67		56		58
Decrease in balances related to tax positions taken during prior periods		—		—		(546)
Ending balance	$	1,413	$	1,346	$	1,290

We recognize accrued interest and penalties related to unrecognized tax benefits in the income tax (benefit) provision, and the amounts were insignificant for the last three fiscal years.

We do not anticipate the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. We file income tax returns in the United States, and various state and foreign jurisdictions. In these jurisdictions tax years 1994-2015 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years.