Income Taxes

Total income tax (benefit) expense from continuing operations was allocated as follows:



(in thousands)	Year ended December 31,
	2015			2014			2013
Current taxes:
Federal taxes	$	(144	)	$	(8,790	)	$	(17,711	)
State taxes	23			93			140
Foreign taxes	219			330			—
Current taxes	$	98		$	(8,367	)	$	(17,571	)
Deferred taxes:
Federal taxes	$	(88	)	$	(1,319	)	$	—
State taxes	238			(3,181		)	—
Foreign taxes	(19		)	(64		)	—
Deferred taxes	$	131		$	(4,564	)	$	—
Income tax (benefit) expense	$	229		$	(12,931	)	$	(17,571	)

Actua Corporation, GovDelivery (beginning in 2010, following the December 31, 2009 merger), VelocityEHS (beginning March 30, 2012, the date of acquisition), and FolioDynamix (beginning November 3, 2014, the date of acquisition) file a consolidated federal income tax return. InvestorForce (through January 29, 2013, the date of disposition) and Procurian (through December 4, 2013, the date of disposition) were previously included in Actua’s consolidated federal income tax return.

Actua recorded $0.1 million consolidated current income tax expense in continuing operations for the year ended December 31, 2015 with a federal benefit offsetting state and foreign taxes and $0.4 million and $0.1 million for the years ended December 31, 2014 and 2013, respectively, related to state and foreign taxes. The current federal income tax benefit of $8.8 million and $17.7 million recognized in 2014 and 2013, respectively, is offset by $8.9 million and $17.6 million income tax expense in discontinued operations since there was a loss in continuing operations and income in discontinued operations in that same year. Additionally, Procurian recognized $1.3 million of current federal income tax expense in 2014, which is included in discontinued operations.

As of December 31, 2014, in light of VelocityEHS’s consistent recent history of profitability, current-year results and its estimates of projected future profitability, management believed that it was more likely than not that the benefit of the majority of its state net deferred tax assets would be realized and therefore a reduction of the valuation allowance against its state net deferred tax asset was appropriate. Accordingly the Company recognized a deferred tax benefit of $3.1 million related to the reduction of the valuation allowance in 2014. Based on the Company's projections, the valuation allowance increased by $0.2 million. Realization of the remaining net deferred tax assets will depend on the generation of sufficient taxable income in the appropriate jurisdiction, the reversal of deferred tax liabilities, tax planning strategies and other factors prior to the expiration date of the carryforwards. A change in the estimates used to make this determination could require a reduction in deferred tax assets if they are no longer considered realizable. Additionally, Bolt recorded a foreign deferred tax asset of $0.1 million for the year ended December 31, 2014. For the rest of the Company’s deferred income taxes, after evaluating all the positive and negative evidence, both historical and prospective, and determining it is not more likely than not to be realized; Actua maintained a full valuation allowance against those net deferred tax assets.

As a result of a change in ownership under Internal Revenue Code Section 382 that occurred in 2004, Actua’s net operating loss (“NOL”) carryforwards and capital loss carryforwards are subject to an annual limitation. The annual limitation on the utilization of these carryforwards is approximately $14.5 million. This annual limitation can be carried forward if it is not used. The limitation amount available for 2013 was $43.5 million, all of which was used in 2013 to offset the capital gains realized in 2013. The amount available for 2014 and 2015 was not used. The total limitation amount available in future years for these carryforwards at December 31, 2015 was $145.2 million. These losses expire in varying amounts between 2018 and 2023.

Additionally, as of December 31, 2015, Actua consolidated group had $172.0 million of NOL carryforwards that are not subject to the Section 382 annual limitation. These net operating losses expire between 2018 and 2035. Of the $172.0 million of NOL carryforwards, approximately $25.7 million is attributable to excess deductions for equity compensation, the benefit of which will be recorded to additional paid-in capital when realized.

GovDelivery joined in filing a consolidated federal income tax return with Actua beginning in 2010. At the time of acquisition, GovDelivery had approximately $2.8 million of NOL carryforwards. Actua’s acquisition of GovDelivery constituted a change in ownership under Internal Revenue Code Section 382. As a result, these NOL carryforwards are limited to approximately $1.0 million per year, plus any recognized built-in gains. As of December 31, 2015, all of these NOLs are available and included in the $172.0 million of NOLs that are not subject to the Internal Revenue Code Section 382 limitations noted above.

VelocityEHS joined in Actua’s consolidated federal tax return beginning on March 30, 2012 (when it was acquired). VelocityEHS had NOLs totaling approximately $50.9 million when it was acquired. These NOLs expire in varying amounts between 2019 and 2031. The acquisition of VelocityEHS constituted a change in ownership under Internal Revenue Code Section 382. The annual limitation on the utilization of VelocityEHS’s NOLs equals approximately $1.7 million plus recognized built-in gains. Approximately $50.9 million of NOLs are expected to be available as a result of this limitation, of which, $20.2 million is currently available and included in the $172.0 million of NOLs that are not subject to the Section 382 limitations noted above.

FolioDynamix joined in Actua’s consolidated federal tax return beginning on November 3, 2014 (when it was acquired). FolioDynamix had NOLs totaling approximately $36.5 million when it was acquired. These NOLs expire in varying amounts between 2027 and 2033. Approximately $8.9 million of these NOLs are subject to Internal Revenue Code Section 382 limitations from ownership changes FolioDynamix experienced prior to its acquisition by Actua. The acquisition of FolioDynamix constituted a change in ownership under Internal Revenue Code Section 382. The annual limitation on the utilization of FolioDynamix’s NOLs equals approximately $6.0 million plus recognized built-in gains. All of these NOLs are expected to be available prior to their expiration, of which, $23.3 million is currently available and included in the $172.0 million of NOLs that are not subject to the Internal Revenue Code Section 382 limitations noted above.

The purchase price allocation for the acquisition of FolioDynamix identified approximately $46.6 million of non-goodwill intangible assets. The associated deferred tax liability exceeded FolioDynamix’s other net deferred tax assets by approximately $1.6 million, which resulted in an increase to goodwill. The Company released the valuation allowance on a portion of Actua’s consolidated federal NOLs that will be available to offset the federal portion of the future taxable income associated with this deferred tax liability. The $1.3 million deferred federal tax benefit is recorded in continuing operations in Actua’s Consolidated Statements of Operations for the year ending December 31, 2014. The remaining $0.3 million of deferred tax liability related to state taxes is recorded on Actua’s Consolidated Balance Sheets at December 31, 2014 and December 31, 2015.

The purchase price allocation for the acquisition of Textizen identified approximately $0.6 million of non-goodwill intangible assets. The associated deferred tax liability exceeded Textizen’s other net deferred tax assets by approximately $0.1 million, which resulted in an increase to goodwill. The Company released the valuation allowance on a portion of Actua’s consolidated federal and state NOLs that will be available to offset the future taxable income associated with this deferred tax liability. The $0.1 million deferred federal and state tax benefit is recorded in continuing operations in Actua’s Consolidated Statements of Operations for the year ending December 31, 2015.

Actua’s net deferred tax asset (liability) consists of the following:



(in thousands)	As of December 31,
	2015			2014
Deferred tax assets:
Net operating loss and capital loss carryforward - 382 limited	$	57,158		$	68,210
Net operating loss carryforward - not 382 limited	60,414			40,925
State net operating loss carryforward, net	2,844			3,114
Capital loss carryforward - not 382 limited	48,071			35,982
Company basis difference	20,150			17,978
Reserves and accruals	3,293			2,045
Equity-based compensation expense	16,105			8,926
AMT and other credits	81			81
Other, net	2,429			1,174
Total deferred tax assets	$	210,545		$	178,435
Valuation allowance	(187,757		)	(151,389		)
Total deferred tax assets, net of valuation allowance	$	22,788		$	27,046
Deferred tax liabilities:
Intangible assets	20,130			24,132
Total deferred tax liabilities	$	20,130		$	24,132
Total net deferred tax assets	$	2,658		$	2,914

The $0.3 million reduction in the net deferred tax asset from December 31, 2015 to December 31, 2014 differs from the $0.1 million of deferred tax expense recognized in 2015 due to the deferred tax benefit recognized as a result of the Textizen acquisition and the increase in Bolt’s deferred tax asset in 2015, which is not included in the table above.

Actua’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Actua had no material accrual for interest or penalties on Actua’s Consolidated Balance Sheets at December 31, 2015, 2014 or 2013. Interest and penalty of $0.1 million is included in income tax expense included in discontinued operations for the year ended December 31, 2014.

Tax years 2011 and forward are subject to examination for federal tax purposes. Tax years 1998 through 2010 are subject to examination for federal tax purposes to the extent of net operating losses used in future years.

The effective tax rate differs from the federal statutory rate as follows:



	Year ended December 31,
	2015		2014		2013
Tax expense (benefit) at statutory rate	35.0	%	35.0	%	35.0	%
Foreign and state taxes	(0.4	)%	10.4	%	(2.3	)%
Non-deductible expenses and other	(15.5	)%	(4.8	)%	0.6	%
Valuation allowance	(19.3	)%	—	%	—	%
Effective tax rate	(0.2	)%	40.6	%	33.3	%