7. Income Taxes

The provision for income taxes consists of the following:

	Year Ended December 31,
		2016			2015		2014
	(In thousands)
Current:
Federal	$	45,455		$	38,357	$	31,700
State and local		7,087			7,180		6,505
Foreign		6,166			4,346		1,456
Total current provision		58,708			49,883		39,661
Deferred:
Federal		5,884			1,492		3,583
State and local		1,141			299		530
Foreign		(303	)		189		(44	)
Total deferred provision		6,722			1,980		4,069
Provision for income taxes	$	65,430		$	51,863	$	43,730

Pre-tax income from U.S. operations was $161.9 million, $126.4 million and $112.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. Pre-tax income from foreign operations was $29.7 million, $21.5 million and $6.0 million for the years ended December 31, 2016, 2015 and 2014, 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,
		2016			2015			2014

U.S. federal tax at statutory rate		35.0		%	35.0		%	35.0		%
State and local taxes - net of federal benefit		2.9			3.4			4.2
Credits and deductions related to research activities		(1.3	)		(1.3	)		(1.7	)
Foreign rate differential benefit		(2.3	)		(2.0	)		(0.6	)
Other, net		(0.2	)		—			—
Provision for income taxes		34.1		%	35.1		%	36.9		%

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

	As of December 31,
		2016			2015
	(In thousands)
Deferred tax assets
U.S. net operating loss carryforwards	$	1,909		$	2,580
Capital loss carryforwards		7,235			7,294
Stock compensation expense		11,307			9,115
Other		1,468			3,745
Total deferred tax assets		21,919			22,734
Valuation allowance		(7,235	)		(7,294	)
Net deferred tax assets		14,684			15,440
Deferred tax liabilities
Depreciation and amortization		(1,456	)		(1,953	)
Capitalized software development costs		(4,923	)		(4,344	)
Intangible assets		(1,037	)		(1,310	)
Deferred tax assets, net	$	7,268		$	7,833

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, 2016, the Company had restricted U.S. federal net operating loss carryforwards of approximately $5.4 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, 2016, 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. 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,
		2016			2015			2014
	(In thousands)
Valuation allowance at beginning of year	$	7,294		$	7,428		$	7,743
(Decrease) to valuation allowance attributable to:
Current year income		—			—			(101	)
State net operating loss		—			—			(155	)
Other changes		(59	)		(134	)		(59	)
Valuation allowance at end of year	$	7,235		$	7,294		$	7,428

The Company or one of its subsidiaries files U.S. federal, state and foreign income tax returns. Income tax returns for U.S. Federal (through 2013), New York City (through 2003) and state (through 2009) and Connecticut state (through 2003) have been audited. An examination of the Company’s New York State income tax returns for 2010 through 2012 is currently underway. The Company cannot estimate when the examination 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,
		2016			2015		2014
	(In thousands)
Balance at beginning of year	$	265		$	265	$	265
Reductions for tax positions of prior years		(236	)		—		—
Balance at end of year	$	29		$	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 $36.9 million of undistributed earnings of foreign subsidiaries at December 31, 2016. 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 $1.2 million.