8. Income Taxes

The provision for income taxes from continuing operations consists of the following:

	Year Ended December 31,
		2014			2013			2012
	(In thousands)
Current:
Federal	$	31,700		$	26,071		$	14,402
State and local		6,505			5,958			2,287
Foreign		1,456			1,014			1,315
Total current provision		39,661			33,043			18,004
Deferred:
Federal		3,583			5,507			8,542
State and local		530			812			1,046
Foreign		(44	)		(645	)		(6	)
Total deferred provision		4,069			5,674			9,582
Provision for income taxes	$	43,730		$	38,717		$	27,586

Pre-tax income from U.S. operations was $112.5 million, $105.2 million and $84.7 million for the years ended December 31, 2014, 2013 and 2012, respectively. Pre-tax income from foreign operations was $6.0 million, $2.1 million and $4.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.

The difference between the Company’s reported provision for income taxes and the U.S. federal statutory rate of 35% is as follows:

	Year Ended December 31,
		2014			2013			2012

U.S. federal tax at statutory rate		35.0		%	35.0		%	35.0		%
State and local taxes - net of federal benefit		4.2			4.1			2.4
Credits and deductions related to research activities		(1.7	)		(3.0	)		—
Release of previously unrecognized tax benefits		—			—			(7.5	)
Other, net		(0.6	)		—			1.0
Provision for income taxes		36.9		%	36.1		%	30.9		%

The following is a summary of the Company’s net deferred tax assets:

	As of December 31,
		2014			2013
	(In thousands)
Deferred tax assets
U.S. net operating loss carryforwards	$	3,102		$	4,273
Capital loss carryforwards		7,428			7,487
Stock compensation expense		7,266			6,022
Other		3,482			3,307
Total deferred tax assets		21,278			21,089
Valuation allowance		(7,428	)		(7,743	)
Net deferred tax assets		13,850			13,346
Deferred tax liabilities
Depreciation and amortization		(2,461	)		(1,905	)
Capitalized software development costs		(4,495	)		(4,163	)
Intangible assets		(1,854	)		(2,331	)
Deferred tax assets, net	$	5,040		$	4,947

As of December 31, 2014, the Company had deferred tax assets associated with stock-based compensation of approximately $7.3 million. There is a risk that the ultimate tax benefit realized upon the exercise of stock options or vesting of restricted stock could be less than the tax benefit previously recognized and exhaust the additional-paid-in-capital pool. If this should occur, any excess tax benefit previously recognized would be reversed, resulting in an increase in tax expense. Since the tax benefit to be realized in the future is unknown, it is not currently possible to estimate the impact on the deferred tax balance. As of December 31, 2014, the additional paid-in-capital pool, which is determined under a one pool approach for employee and non-employee awards, was approximately $52.6 million. The additional paid-in-capital pool is currently sufficient to absorb a complete write-off of the stock-based compensation deferred tax asset.

In 2001 and 2000, MarketAxess Holdings Inc. and MarketAxess Corporation had an ownership change within the meaning of Section 382 of the Internal Revenue Code. As of December 31, 2014, the Company had restricted U.S. federal net operating loss carryforwards of approximately $8.0 million, which begin to expire in 2021. The Company’s net operating loss carryforwards may be subject to additional annual limitations if there is a 50% or greater change in the Company’s ownership, as determined over a rolling three-year period.

The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. If it is not more likely than not that some portion or all of the gross deferred income tax assets will be realized in future years, a valuation allowance is recorded. As of December 31, 2014, the valuation allowance relates to certain capital loss carryforwards that are not expected to be realized. In October 2013, the Company recognized a $20.6 million capital loss on the sale of Greenline Financial Technologies, Inc. (“Greenline”) (See Note 14, “Discontinued Operations”) of which $1.2 million was carried back or otherwise utilized against current period capital gains. A full valuation allowance was provided against the remaining capital loss carryforward.

A summary of the changes in the valuation allowance is as follows:

	Year Ended December 31,
		2014			2013			2012
	(In thousands)
Valuation allowance at beginning of year	$	7,743		$	727		$	287
(Decrease) increase to valuation allowance attributable to:
Current year income		(101	)		(65	)		440
State net operating loss		(155	)		(406	)		—
Capital (loss) gain		(59	)		7,487			—
Valuation allowance at end of year	$	7,428		$	7,743		$	727

The Company or one of its subsidiaries files U.S. federal, state and foreign income tax returns. Income tax returns for New York City (through 2003) and state (through 2006) and Connecticut state (through 2003) tax returns have been audited. Examinations of the Company’s federal tax return for 2011 and 2012 and New York state franchise tax returns for 2007 through 2009 are currently underway. The Company cannot estimate when the examinations will conclude or the impact such examinations will have on the Company’s Consolidated Financial Statements, if any.

In 2012, the Company recorded a reduction to the income tax provision of $6.7 million. The Company updated the recognition of certain acquired net operating loss carryforwards in response to a private letter ruling received from the Internal Revenue Service. As a result, the reserve for unrecognized tax benefits amounting to $3.6 million was reversed and deferred tax assets were increased by $3.1 million to recognize additional tax loss carryforwards. A reconciliation of the unrecognized tax benefits is as follows:

	Year Ended December 31,
		2014		2013			2012
	(In thousands)
Balance at beginning of year	$	265	$	49		$	3,647
Additions for tax positions of current year		—		235			—
Reductions for tax positions of prior years		—		(19	)		(3,598	)
Balance at end of year	$	265	$	265		$	49

The Company has determined that unremitted earnings of its foreign subsidiaries will be considered indefinitely reinvested outside of the United States. No provision has been made for income tax on approximately $5.3 million of undistributed earnings of foreign subsidiaries at December 31, 2014. If these earnings were repatriated to the United States or no longer determined to be indefinitely reinvested outside the United States, the deferred tax liability associated with such earnings would have been approximately $0.5 million.