Income Taxes

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



(in thousands)	Year ended December 31,
	2016			2015			2014
Current taxes:
Federal taxes	$	(15,758	)	$	(144	)	$	(6,352	)
State taxes	597			20			93
Foreign taxes	47			184			295
Current taxes	$	(15,114	)	$	60		$	(5,964	)
Deferred taxes:
Federal taxes	$	—		$	—		$	(1,319	)
State taxes	1,898			253			(3,181		)
Foreign taxes	6			(20		)	(64		)
Deferred taxes	$	1,904		$	233		$	(4,564	)
Income tax (benefit) expense	$	(13,210	)	$	293		$	(10,528	)

Actua Corporation, GovDelivery (beginning in 2010 through October 18, 2016, the date of the GovDelivery Sale), 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 (the "Consolidated Group").

Actua recorded $0.6 million consolidated current income tax expense in continuing operations for the year ended December 31, 2016 related to state and foreign taxes, $0.1 million for the year ended December 31, 2015 related to state and foreign taxes, net of a federal benefit and $0.4 million for the year ended December 31, 2014 related to state and foreign taxes. The current federal income tax benefit of $15.8 million and $6.4 million recognized during the years ended December 31, 2016 and 2014, respectively, are offset by $15.8 million and $6.5 million of income tax expense in discontinued operations since there was a net loss recognized from continuing operations and net income recognized from discontinued operations in that same year. Additionally, GovDelivery recognized $3.4 million of current state income tax expense during the year ended December 31, 2016 related to the GovDelivery Sale which is included in "Income (loss) from discontinued operations, including gain on sale, net of tax" in Actua’s Consolidated Statement of Operations and Comprehensive Income (Loss).

As of December 31, 2014, in light of VelocityEHS’s consistent 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, VelocityEHS 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 and the expansion of its business, which reduces the income apportionment to the state in which VelocityEHS has the most deferred tax assets, the valuation allowance increased by $1.9 million during the year ended December 31, 2016. 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 has recorded a foreign deferred tax asset of $0.2 million as of December 31, 2015 and 2016 that is included in "Other assets, net" in Actua’s Consolidated Balance Sheets. For the rest of the Company’s deferred tax assets, after evaluating all the positive and negative evidence, both historical and prospective, and determining that it is not more likely than not that they will be realized, the Company 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 that existed at the time of the ownership change, as well as any built-in losses recognized during the five-year period immediately following the ownership change, 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 amount available for 2014 through 2016 was not used. The total limitation amount available in future years for these carryforwards at December 31, 2016 was $145.2 million. These losses expire in varying amounts between 2018 and 2023.

As of December 31, 2016, the Consolidated Group had $208.6 million of NOL carryforwards that are not subject to the Section 382 annual limitation. These net operating losses expire between 2018 and 2036. Of the $208.6 million of NOL carryforwards, approximately $18.8 million is attributable to excess deductions for equity compensation, the benefit of which will be recorded in the Consolidated Statement of Operations and Comprehensive Income (Loss) when realized.

GovDelivery joined in filing a consolidated federal income tax return with Actua beginning in 2010. At the time of the 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, those NOL carryforwards are limited to approximately $1.0 million per year, plus any recognized built-in gains. As of December 31, 2016, all of these NOLs are available and included in the $208.6 million of NOLs that are not subject to the Internal Revenue Code Section 382 limitations noted above.

An election under Section 336(e) of the Internal Revenue Code is being made with respect to the GovDelivery Sale to have the sale treated as a deemed asset sale for income tax purposes. Vista agreed to assume a certain amount of income taxes that arose as a result of making this election (the "336(e) Cap"). The $3.4 million of current state income taxes reflected in discontinued operations is below the 336(e) Cap and therefore will be paid by Vista directly to the respective taxing authorities. GovDelivery’s federal NOLs that remained after 2016 will remain with Actua after the sale pursuant to the mechanics of the Section 336(e) election.

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’ 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, $25.6 million is currently available and included in the $208.6 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 $6.4 million plus recognized built-in gains. All of these NOLs are currently available and included in the $208.6 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 Statement of Operations and Comprehensive Income (Loss) for the year ended 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, 2015. During 2016, the remaining balance was reduced to zero as a result of the amortization of the intangible assets and an increase in other deferred tax assets.

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 discontinued operations in Actua’s Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2015.

Actua’s net deferred tax assets (liabilities) consists of the following:



(in thousands)	As of December 31,
	2016			2015
Deferred tax assets:
Net operating loss and capital loss carryforward - 382 limited	$	45,606		$	57,158
Net operating loss carryforward - not 382 limited	73,003			60,414
State net operating loss carryforward, net	4,361			2,844
Capital loss carryforward - not 382 limited	—			48,071
Company basis difference	22,984			20,150
Reserves and accruals	3,703			3,293
Equity-based compensation expense	14,057			16,105
AMT and other credits	81			81
Other, net	2,085			2,405
Total deferred tax assets	165,880			210,521
Valuation allowance	(147,197		)	(187,757		)
Total deferred tax assets, net of valuation allowance	18,683			22,764
Deferred tax liabilities:
Intangible assets	(17,921		)	(20,130		)
Total deferred tax liabilities	(17,921		)	(20,130		)
Total net deferred tax assets	$	762		$	2,634

The effective tax rate, for continuing operations, differs from the federal statutory rate as follows:



	Year ended December 31,
	2016		2015		2014
Tax expense (benefit) at statutory rate	(35.0	)%	(35.0	)%	(35.0	)%
Foreign and state taxes	3.1	%	0.5	%	6.2	%
Non-deductible expenses and other	1.4	%	15.5	%	7.2	%
Valuation allowance	(1.4	)%	19.3	%	—	%
Effective tax rate	(31.9	)%	0.3	%	(21.6	)%

Tax years 2013 and forward are subject to examination for federal tax purposes. Tax years 1998 through 2011 are subject to examination for federal tax purposes to the extent of net operating losses used in future years.

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 Sheet at December 31, 2015. Interest and penalties of $0.1 million is included in income tax expense included in discontinued operations for the year ended December 31, 2014.

As of December 31, 2016, we had $0.3 million of unrecognized tax benefits that, if recognized, would impact the Company's effective tax rate. There were no uncertain tax positions for the years ended December 31, 2015 and 2014. The total amount of unrecognized tax benefits could change within the next twelve months for a number of reasons including audit settlements, tax examination activities and the recognition and measurement considerations under this guidance. During 2016, we established a reserve of $0.3 million related to certain state taxes; the reserve includes interest and penalties of $0.1 million.

The following is a roll forward of our total gross unrecognized tax benefits, which if reversed would impact the effective tax rate, for the year ended December 31, 2016:



(in thousands)	2016
Balance as of January 1	$	—

Tax positions related to the current year:
Additions	257
Reductions	—

Tax positions related to the prior years:
Additions	—
Reductions	—
Settlements	—
Lapses in statutes of limitations	—

Balance as of December 31	$	257