8. Income Taxes

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

	Year Ended December 31,
		2015		2014			2013
	(In thousands)
Current:
Federal	$	38,357	$	31,700		$	26,071
State and local		7,180		6,505			5,958
Foreign		4,346		1,456			1,014
Total current provision		49,883		39,661			33,043
Deferred:
Federal		1,492		3,583			5,507
State and local		299		530			812
Foreign		189		(44	)		(645	)
Total deferred provision		1,980		4,069			5,674
Provision for income taxes	$	51,863	$	43,730		$	38,717

Pre-tax income from U.S. operations was $126.4 million, $112.5 million and $105.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. Pre-tax income from foreign operations was $21.5 million, $6.0 million and $2.1 million for the years ended December 31, 2015, 2014 and 2013, 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,
		2015			2014			2013

U.S. federal tax at statutory rate		35.0		%	35.0		%	35.0		%
State and local taxes - net of federal benefit		3.4			4.2			4.1
Credits and deductions related to research activities		(1.3	)		(1.7	)		(3.0	)
Foreign rate differential benefit		(2.0	)		(0.6	)		(0.3	)
Other, net		—			—			0.3
Provision for income taxes		35.1		%	36.9		%	36.1		%

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

	As of December 31,
		2015			2014
	(In thousands)
Deferred tax assets
U.S. net operating loss carryforwards	$	2,580		$	3,102
Capital loss carryforwards		7,294			7,428
Stock compensation expense		9,115			7,266
Other		3,745			3,482
Total deferred tax assets		22,734			21,278
Valuation allowance		(7,294	)		(7,428	)
Net deferred tax assets		15,440			13,850
Deferred tax liabilities
Depreciation and amortization		(1,953	)		(2,461	)
Capitalized software development costs		(4,344	)		(4,495	)
Intangible assets		(1,310	)		(1,854	)
Deferred tax assets, net	$	7,833		$	5,040

As of December 31, 2015, the Company had deferred tax assets associated with stock-based compensation of approximately $9.1 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, 2015, the additional paid-in-capital pool, which is determined under a one pool approach for employee and non-employee awards, was approximately $56.9 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, 2015, the Company had restricted U.S. federal net operating loss carryforwards of approximately $6.7 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. As of December 31, 2015, the Company had state net operating loss carryforwards of approximately $4.4 million which expire in 2017.

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, 2015, 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,
		2015			2014			2013
	(In thousands)
Valuation allowance at beginning of year	$	7,428		$	7,743		$	727
(Decrease) increase to valuation allowance attributable to:
Current year income		—			(101	)		(65	)
State net operating loss		—			(155	)		(406	)
Blended state rate changes		(71	)		—			—
Capital (loss) gain		(63	)		(59	)		7,487
Valuation allowance at end of year	$	7,294		$	7,428		$	7,743

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 2009) 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 2010 through 2013 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.

A reconciliation of the unrecognized tax benefits is as follows:

	Year Ended December 31,
		2015		2014		2013
	(In thousands)
Balance at beginning of year	$	265	$	265	$	49
Additions for tax positions of current year		—		—		235
Reductions for tax positions of prior years		—		—		(19	)
Balance at end of year	$	265	$	265	$	265

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 $27.0 million of undistributed earnings of foreign subsidiaries at December 31, 2015. 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 $3.3 million.