INCOME TAXES

For financial reporting purposes, income before income taxes includes the following components (in thousands):



	Years ended December 31,
	2015			2014		2013
United States	$	3,358		$	13,088	$	16,319
Foreign	(243		)	117		25
Total income before income taxes	$	3,115		$	13,205	$	16,344

The provision (benefit) for income taxes for 2015, 2014 and 2013 consists of the following (in thousands):



	Years ended December 31,
	2015			2014			2013
Current:
Federal	$	75		$	210		$	196
State	293			385			239
Foreign	44			68			51
Total current	412			663			486
Deferred:
Federal	1,808			3,777			(62,150		)
State	(324		)	(36		)	(6,370		)
Foreign	(1		)	—			—
Total deferred	1,483			3,741			(68,520		)
Total provision (benefit) for income taxes	$	1,895		$	4,404		$	(68,034	)

The provision (benefit) for income taxes for 2015, 2014 and 2013 differ from the amounts computed by applying the U.S. federal income tax rate of 35% to income (loss) before income taxes for the following reasons (in thousands):



	Year ended December 31,
	2015			2014			2013
U.S. federal income tax provision (benefit) at statutory rate	$	1,091		$	4,622		$	5,720
Change in valuation allowance	1,832			1,000			(69,937		)
Lobbying expenses	243			266			209
Other	—			336			242
Adjustment to reserves in prior years (1)	—			—			4,418
State income tax expense, net of federal benefit	(20		)	385			(4,828		)
Non-deductible fines and penalties	(26		)	(112		)	2,387
Stock based compensation expense	(32		)	(43		)	(176		)
Research and development credit	(1,193		)	(2,050		)	(6,069		)
Income tax provision (benefit)	$	1,895		$	4,404		$	(68,034	)

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(1)	Adjustments to reserves in prior years includes (1) the effects of reconciling income tax amounts recorded in our consolidated income statement to amounts reflected on our tax returns, including any adjustments to the Consolidated Balance Sheets; and (2) reductions to the NOLs from previous acquisitions.

We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). ASC 740 requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.

The components of our deferred tax assets and liabilities as of December 31, 2015 and 2014 are as follows (in thousands):



	December 31,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	47,793		$	50,952
Accrued expenses	12,605			10,924
Research and development tax credits	8,574			7,382
Reserves and other	3,227			3,119
AMT and other tax credits	1,034			850
Gross deferred tax assets	73,233			73,227
Valuation allowance	(3,071		)	(1,000		)
Total deferred tax assets	70,162			72,227
Deferred tax liabilities:
Fixed assets	(4,569		)	(5,786		)
Prepaid expenses	(1,397		)	(1,275		)
Total deferred tax liabilities	(5,966		)	(7,061		)
Total deferred tax assets, net	$	64,196		$	65,166

At December 31, 2015, we had federal net operating loss carryforwards of approximately $149.3 million and state net operating loss carryforwards of approximately $139.4 million, which may be used to offset future taxable income. Of the total federal and state NOLs, $24.5 million was generated from stock option deductions and are not reflected in our deferred tax assets. The net tax benefit of $9.4 million will be credited to additional paid-in capital in our consolidated balance sheets under the "with-and-without" method of utilization for tax attributes. We utilize the with-and-without approach in determining if and when such excess tax benefits are realized. Under this approach excess tax benefits related to stock-based compensation are the last to be realized. Our NOLs begin to expire in 2019 to 2035 if unused. In accordance with an Internal Revenue Code section 382 study completed during 2014, the NOL carryforwards indicated above are not limited in future periods.

At December 31, 2015, we had income tax net operating loss carryforwards related to our international operations of approximately $630,000 with a five year carry forward and $528,000 which have an indefinite life. The carryforwards begin expiring in 2020 if unused.

At December 31, 2015, we had federal research credit carryforwards of approximately $9.2 million and state research credit carryforwards of approximately $4.7 million, which may be used to offset future income tax. These tax credits expire at various dates between 2021 and 2035. We do not have any indefinite lived intangibles and the remaining deferred tax assets have no expiration date.

Each quarter we assess the recoverability of our deferred tax assets under ASC 740. We are required to establish a valuation allowance for any portion of the assets that we conclude is not more likely than not realizable. Our assessment considers, among other things, the three year cumulative net income, positive pretax net income and taxable income, forecasts of our future taxable income, carryforward periods, our utilization experience with operating loss and tax credit carryforwards, and tax planning strategies. We have concluded based on all available positive and negative evidence it is more likely than not that our deferred tax assets as of December 31, 2015 arising from ordinary income and deductions and tax credits will be realized in the future, with the exception of current year operating losses generated by separate tax-filing subsidiaries in domestic and foreign jurisdictions and foreign deferred tax assets recorded as part of an acquisition. On the basis of this evaluation, as of December 31, 2015, a valuation allowance of $1.5 million has been recorded to reflect on the portion of the deferred tax assets that are more likely than not to be realized. We have also concluded it is unlikely that our deferred tax asset arising from unrealized capital losses will be realized in the future. On the basis of this evaluation, as of December 31, 2015, a valuation allowance of $1.6 million has been recorded to reflect only the portion of the deferred tax asset that is more likely than not to be realized. This assessment required significant judgment and estimates about our ability to generate revenue, gross profit, operating income and taxable income in future periods. Except as otherwise disclosed, there are no known trends, events, transactions or other uncertainties that are expected to negatively impact the future levels of taxable income. We will continue to monitor the need for a valuation allowance against our federal and state deferred tax assets on a quarterly basis.

A reconciliation of the beginning and ending tax contingencies, excluding interest and penalties, as of December 31, 2015 and 2014 is as follows (in thousands):



	Year ended December 31,
	2015			2014		2013
Beginning balance	$	4,128		$	2,968	$	231
Additions for tax positions related to the current year	751			959		2,737
Additions (reductions) for tax positions taken in prior years	(126		)	201		—
Ending balance	$	4,753		$	4,128	$	2,968

Accrued interest and penalties on tax contingencies as of December 31, 2015 and 2014 were $236,000 and $184,000, respectively.

We are subject to taxation in the United States and several state and foreign jurisdictions. Tax years beginning in 2011 are subject to examination by taxing authorities, although net operating loss and credit carryforwards from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used. As of December 31, 2015, we were under audit by the Internal Revenue Service for our 2013 federal income tax return. The IRS has not indicated or communicated any deficiencies. We expect the audit to conclude in 2016.

We operate under an income tax holiday in Ireland, which is effective through December 31, 2015. The impact has been tax savings of approximately $23,000, $15,000 and $3,000 for December 31, 2015, 2014 and 2013.

We intend to reinvest the earnings of our non-U.S. subsidiaries in those operations. We have begun expansion of operations outside of the U.S. and have plans for additional expansion for which we have incurred and will continue to incur capital requirements. We have considered ongoing capital requirements of the parent company in the U.S. As of December 31, 2015, we had not made a provision for U.S. or additional foreign withholding taxes on approximately $366,000 of indefinitely reinvested foreign earnings. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends to the U.S. and under certain other circumstances. It is not practicable to estimate the amount of deferred taxes related to investments in these foreign subsidiaries.