7. Income Taxes

The provision for income taxes consists of the following:

	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Current:
Federal	$	36,045		$	45,455		$	38,357
State and local		3,848			7,087			7,180
Foreign		7,234			6,166			4,346
Total current provision		47,127			58,708			49,883
Deferred:
Federal		6,171			5,884			1,492
State and local		661			1,141			299
Foreign		(280	)		(303	)		189
Total deferred provision		6,552			6,722			1,980
Provision for income taxes	$	53,679		$	65,430		$	51,863

Pre-tax income from U.S. operations was $165.2 million, $161.9 million and $126.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. Pre-tax income from foreign operations was $36.6 million, $29.7 million and $21.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.

On December 22, 2017, the Tax Act was enacted into law. The Tax Act significantly revises the U.S. corporate income tax regime by, among other things, lowering the U.S. federal corporate income tax rate from 35% to 21%, implementing a territorial tax system and imposing a repatriation tax on deemed earnings of foreign subsidiaries. The Company has made a reasonable estimate of the impact of the Tax Act and recorded a provisional tax charge in 2017 of $11.7 million, composed of $6.7 million to re-measure U.S. deferred tax assets and $5.0 million for the repatriation tax on accumulated undistributed foreign earnings. The final impact of the Tax Act may differ materially from the provisional tax charge recognized in 2017 due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued by the U.S. Department of Treasury and actions the Company may take as a result of the Tax Act.

Pursuant to the Tax Act, all previously undistributed foreign earnings have now been subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, the Company considers its undistributed foreign earnings to be indefinitely reinvested outside of the U.S. and does not expect to incur any significant additional taxes related to such amounts.

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,
	2017				2016				2015

U.S. federal tax at statutory rate		35.0		%		35.0		%		35.0		%
State and local taxes - net of federal benefit		1.5				2.9				3.4
Credits and deductions related to research activities		(1.2	)			(1.3	)			(1.3	)
Foreign rate differential benefit		(2.9	)			(2.3	)			(2.0	)
Excess tax benefit from stock-based compensation		(11.6	)			—				—
Tax Cuts and Jobs Act provisional tax charge		5.8				—				—
Other, net		—				(0.2	)			—
Provision for income taxes		26.6		%		34.1		%		35.1		%

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

	As of December 31,
	2017			2016
	(In thousands)
Deferred tax assets:
U.S. net operating loss carryforwards	$	872		$	1,909
Capital loss carryforwards		4,648			7,235
Stock compensation expense		4,534			11,307
Other		1,143			1,468
Total deferred tax assets		11,197			21,919
Valuation allowance		(4,648	)		(7,235	)
Net deferred tax assets		6,549			14,684
Deferred tax liabilities:
Depreciation and amortization		(1,369	)		(1,456	)
Capitalized software development costs		(3,479	)		(4,923	)
Intangible assets		(967	)		(1,037	)
Deferred tax assets, net	$	734		$	7,268

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, 2017, the Company had restricted U.S. federal net operating loss carryforwards of approximately $4.2 million related to the prior ownership change, 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, 2017, 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,
	2017			2016			2015
	(In thousands)
Valuation allowance at beginning of year	$	7,235		$	7,294		$	7,428
(Decrease) to valuation allowance attributable to:
Federal and state tax rate changes		(2,587	)		(59	)		(134	)
Valuation allowance at end of year	$	4,648		$	7,235		$	7,294

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 2013 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,
	2017			2016			2015
	(In thousands)
Balance at beginning of year	$	29		$	265		$	265
Additions attributable to state and local apportionment		2,650			—			—
Reductions for tax positions of prior years		(29	)		(236	)		—
Balance at end of year	$	2,650		$	29		$	265