The following table sets forth income before taxes and the expense for income taxes for the years ended December 31, 2016, 2015, and 2014:



	Year Ended December 31,
	2016			2015			2014
	(in thousands)
Income (loss) before taxes:
U.S.	$	(55,617	)	$	(83,537	)	$	(34,622	)
Foreign	48,404			8,793			26,073
Total income (loss) before taxes	$	(7,213	)	$	(74,744	)	$	(8,549	)
Income tax expense:
Current income taxes
U.S. federal	$	49		$	480		$	(12,049	)
U.S. state	126			195			(23		)
Foreign	9,494			7,488			7,620
Total current income taxes	9,669			8,163			(4,452		)
Deferred income taxes:
U.S. federal	263			(3,902		)	400
U.S. state	—			(118		)	236
Foreign	(651		)	4,309			193
Total deferred income taxes	(388		)	289			829
Total income tax expense (benefit)	$	9,281		$	8,452		$	(3,623	)

The increase in tax expense for 2016 versus 2015 was driven by the income tax effects on the pretax results in countries where the Company records a provision.

The following table sets forth income reconciliations of the statutory federal income tax rate to actual rates based on income or loss before income taxes for the years ended December 2016, 2015, and 2014:



	December 31,
	2016					2015					2014
	(in thousands)
Federal income tax rate	$	(2,524	)	35.0	%	$	(26,160	)	35.0	%	$	(2,992	)	35.0	%
State income tax rate, net of federal benefit	(202		)	2.8		(543		)	0.7		2,598			(30.4	)
Effect of rate differences	(12,624		)	175.0		(3,678		)	4.9		(3,362		)	39.3
Non-deductible / Non-taxable items	2,694			(37.4	)	(2,181		)	2.9		(9,904		)	115.8
Change in valuation allowance	16,041			(222.4	)	10,892			(14.5	)	5,370			(62.8	)
U.S. tax on foreign earnings	23,130			(320.6	)	82,311			(110.0	)	17,196			(201.2	)
Foreign tax credits	(18,581		)	257.6		(49,432		)	66.1		(11,026		)	129.0
Uncertain tax positions	19			(0.3	)	(3,952		)	5.3		(25,172		)	294.4
Audit settlements	253			(3.5	)	1,167			(1.6	)	13,448			(157.3	)
Stock Compensation Windfall / Shortfall	2,120			(29.4	)	—			—		—			—
Deferred income tax account adjustments	(842		)	11.7		—			—		8,679			(101.5	)
Write-off of income tax receivable	—			—		—			—		1,577			(18.4	)
Other	(203		)	2.8		28			(0.1	)	(35		)	0.5
Effective income tax rate	$	9,281		(128.7	)%	$	8,452		(11.3	)%	$	(3,623	)	42.4	%

The 2015 and 2014 amounts have been recast to reflect the pertinent amounts on the rows that were added this year.

The following table sets forth deferred income tax assets and liabilities as of December 2016 and 2015:



	December 31,
	2016			2015
	(in thousands)
Non-current deferred tax assets:
Stock compensation expense	$	4,597		$	7,142
Long-term accrued expenses	26,127			26,114
Net operating loss and charitable contribution carryovers	36,424			22,518
Intangible assets	3,654			4,725
Future uncertain tax position offset	396			456
Unrealized loss on foreign currency	—			466
Foreign tax credit	69,586			27,109
Other	5,481			5,548
Valuation allowance	(90,900		)	(56,572		)
Total non-current deferred tax assets	$	55,365		$	37,506
Non-current deferred tax liabilities:
Intangible assets	$	(41	)	$	(24,572	)
Unremitted earnings of foreign subsidiary	(32,427		)	(6,432		)
Property and equipment	(16,072		)	—
Total non-current deferred tax liabilities	$	(48,540	)	$	(31,004	)

We annually receive cash from our foreign subsidiaries’ current year earnings. Separately, while we have accrued U.S. federal income tax on substantially all current year foreign earnings from 2010-2016, we treat all other accumulated foreign subsidiary earnings through December 31, 2016, as indefinitely reinvested under the accounting guidance, and accordingly have not provided for any U.S. or foreign tax thereon. In order to arrive at this conclusion, we considered factors including, but not limited to, past experience, domestic cash requirements, and cash requirements to satisfy the ongoing operations, capital expenditures and other financial obligations of our foreign subsidiaries. As of December 31, 2016, U.S. federal income tax expense on approximately $178 million of undistributed earnings and profits attributable to foreign subsidiaries have been accrued. Furthermore, as of December 31, 2016, U.S. income and foreign withholding taxes have not been provided on for approximately $208.1 million of unremitted earnings of subsidiaries operating outside of the U.S. as these amounts are considered to be indefinitely reinvested. These earnings are estimated to represent the excess of the financial reporting over the tax basis in Crocs' investments in those subsidiaries. These earnings, which are considered to be indefinitely reinvested, would become subject to U.S. income tax if they were remitted to the U.S. The amount of unrecognized deferred U.S. federal income tax liability on the unremitted earnings has not been determined because the hypothetical calculation is not practicable.

The Company adopted ASU 2016-09 during the year, which caused an increase in tax attributes recorded for provision purposes. As the net impact of these difference was recorded to retained earnings as a cumulative change, and subsequently valued, there was no net impact to the Company’s financial statements.

During 2016, Crocs received a Private Letter Ruling from the IRS related to a request to claim bonus depreciation for tax years 2011-2013. As such, the Company filed amended tax returns for those periods and subsequently recorded additional deferred tax liabilities associated with our basis differences in fixed assets. This increase was offset against incremental deferred tax assets related to foreign tax credits.

During 2016, we recorded additional tax loss carryforwards in certain European, South American and Asian jurisdictions in the aggregate of $18.2 million, primarily driven by operational losses recognized based on local statutory accounting requirements. As the carryforwards were generated in jurisdictions where we have historically had book losses or do not have strong future projections related to those operations, we concluded that it was more likely than not that the net operating losses would not be realized, and thus recorded a full valuation allowance on the associated deferred tax assets. As such, as of December 31, 2016, Crocs maintains a valuation allowance of $90.9 million. The recognition of these deferred tax assets and fully offsetting valuation allowance resulted in a zero net impact to the consolidated statement of operations, balance sheet and statement of cash flows.

The following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits during the years ended December 31, 2016, 2015 and 2014:



	December 31,
	2016			2015			2014
	(in thousands)
Unrecognized tax benefit—January 1	$	4,957		$	8,444		$	31,616
Gross increases—tax positions in prior period	646			643			7
Gross decreases—tax positions in prior period	(664		)	(385		)	(3,711		)
Gross increases—tax positions in current period	245			549			904
Settlements	(238		)	(4,126		)	(20,210		)
Lapse of statute of limitations	(196		)	(168		)	(162		)
Unrecognized tax benefit—December 31	$	4,750		$	4,957		$	8,444

The Company recorded net expense of $0.3 million related to increases in 2016 unrecognized tax benefits combined with amounts effectively settled under audit. Unrecognized tax benefits as of December 31, 2016, relate to tax years that are currently open, and amounts may differ from those to be determined upon closing of the positions. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued. Given the uncertainty regarding the timing of the resolution, settlement, and closure of any audits, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining that are subject to examination, Crocs is unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.

As it relates to the impact of uncertain tax positions on the rate reconciliation, the primary impact includes audit settlements, net increases in position changes (both are noted as part of the tax position tabular disclosure), and accrued interest expense. The gross impact of positions effectively settled are disclosed separately as audit settlements. The net benefit related to 2014 audit settlements is not expected to recur in future periods. Note that the interest component, while carried as a liability on the balance sheet and recorded as a component of tax expense, is excluded from the tabular disclosure pursuant to the guidance under ASC 740-10-50.

Interest and penalties related to income tax liabilities are included in income tax expense in the consolidated statement of operations. For the years ended December 31, 2016, 2015 and 2014, Crocs recorded approximately $0.2 million, $0.2 million and $0.8 million, respectively, of penalties and interest. During the year ended December 31, 2016, Crocs released $0.1 million of interest from settlements, lapse of statutes, and change in certainty. The cumulative accrued balance of penalties and interest was $0.6 million, $0.5 million and $0.9 million, as of December 31, 2016, 2015 and 2014, respectively.

Unrecognized tax benefits of $4.8 million, $5.0 million and $8.4 million as of December 31, 2016, 2015 and 2014, respectively, if recognized, would reduce the annual effective tax rate offset by deferred tax assets recorded for uncertain tax positions.

The following table sets forth the tax years subject to examination for the major jurisdictions where we conduct business as of December 31, 2016:



Netherlands	2009 to 2016
Canada	2009 to 2016
Japan	2010 to 2016
China	2008 to 2016
Singapore	2012 to 2016
United States	2010 to 2016

State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various state jurisdictions for a period up to two years after formal notification to the states. As such, U.S. state income tax returns for the Company are generally subject to examination for the years 2011 to 2016.

The Company has recorded deferred tax assets related to U.S. federal tax carryforwards, including foreign tax credits and net operating losses, which expire at various dates between 2020 and 2036 of $57.3 million and $21.9 million at December 31, 2016, and December 31, 2015, respectively. The Company has recorded deferred tax assets related to U.S. state tax net operating loss carryforwards which expire at various dates between 2017 and 2036 of $9.4 million and $7.0 million at December 31, 2016, and December 31, 2015, respectively. The Company has recorded deferred tax assets related to foreign tax carryforwards, including foreign tax credits and net operating losses, which expire starting in 2020 and some that do not expire of $39.3 million and $20.7 million as of December 31, 2016, and December 31, 2015, respectively. The significant increase in tax carryforwards is primarily driven by $17.7 million of U.S. tax carryforwards recorded during 2016 which were previously unrecorded stock compensation windfall attributes and from current year net operating losses and foreign tax credit generation.