INCOME TAXES

Deferred tax assets (liabilities) included in the balance sheet as of December 31, 2016 and 2015 are as follows (in thousands):



	2016			2015
Deferred tax assets:
Net operating loss carryforward	$	155		$	523
Allowance for doubtful accounts	519			671
Provision for accrued expenses and other, net	2,947			2,412
Stock based compensation	5,410			4,825
Deferred revenue	283			173
Tax credit carryforward	3,257			1,443
	12,571			10,047
Less valuation allowance	1,033			1,746
Deferred tax asset, net of valuation allowance	11,538			8,301
Deferred tax liabilities:
Acquired intangibles	(14,602		)	(15,264		)
Depreciation of fixed assets	(4,531		)	(3,564		)
Deferred tax liabilities	(19,133		)	(18,828		)
Net deferred tax liability	$	(7,595	)	$	(10,527	)
Recognized in Consolidated Balance Sheets:
Deferred tax asset	306			322
Deferred tax liability	(7,901		)	(10,849		)
Net deferred tax liability	$	(7,595	)	$	(10,527	)

At December 31, 2016 and 2015, the Company had deferred tax assets of $155,000 and $523,000, respectively, related to net operating loss carryforwards and $3.3 million and $1.4 million, respectively, related to tax credit carryforwards. The net operating losses expire in various years through 2021, and the tax credits expire in various years through 2026. The Company has recorded valuation allowances of $1.0 million and $1.7 million, respectively, at December 31, 2016 and 2015 in order to measure only the portion of the deferred tax assets which are more likely than not to be realized.

Tax expense (benefit) for the years ended December 31, 2016, 2015 and 2014 is as follows (in thousands):



	2016			2015			2014
Current income tax expense:
Federal	$	5,048		$	10,201		$	13,184
State	931			1,491			1,948
Foreign	2,259			3,500			3,753
Current income tax expense	8,238			15,192			18,885
Deferred income tax expense (benefit):
Federal	(891		)	998			(1,048		)
State	192			405			(448		)
Foreign	(2,260		)	(2,586		)	(2,152		)
Deferred income tax benefit	(2,959		)	(1,183		)	(3,648		)
Income tax expense	$	5,279		$	14,009		$	15,237

A reconciliation between the tax expense at the federal statutory rate and the reported income tax expense is summarized as follows:



	Year Ended December 31,
	2016			2015			2014
Federal statutory rate	$	(42	)	$	1,064		$	14,997
Permanent items excluding nondeductible impairment	(210		)	18			326
Nondeductible impairment	5,287			9,199			—
State taxes, net of federal effect	756			1,435			1,043
Difference between foreign and U.S. rates	297			2,366			(738		)
Change in unrecognized tax benefits	(923		)	46			774
Recognition of tax loss carryforwards	—			—			(1,832		)
Gross tax on foreign dividend	5,084			—			—
Tax credits related to foreign dividend	(4,244		)	—			—
Change in valuation allowances	(713		)	—			—
Other	(13		)	(119		)	667
Income tax expense	$	5,279		$	14,009		$	15,237
Effective tax rate	(4,436.1		)%	460.7		%	35.6		%

The Company recorded impairment charges of $24.6 million and $34.8 million for the years ended December 31, 2016 and 2015, respectively. Of the total impairment, the amounts relating to non-deductible goodwill were $15.4 million in 2016 and $33.6 million in 2015. Based on the jurisdictions where the impairment charges were recorded, the non-deductible amounts caused tax expense to exceed the expected expense at statutory tax rates by $5.3 million in 2016 and $9.2 million in 2015.

Because the 2016 impairment primarily related to the U.S., the Company’s 2016 state tax rate differed significantly from 2015 and 2014. U.S. income before taxes for the year ended December 31, 2016 included non-deductible impairment of $15.1 million. Excluding the non-deductible impairment, the Company had U.S. income before taxes of $18.3 million, which resulted in state tax expense of $756,000.

The Company’s 2016 allocation of income (loss) between the U.S. and foreign jurisdictions differed significantly from 2015 and 2014 due to the impact of the impairment. Income (loss) before taxes for the year ended December 31, 2016 was $3.2 million in the U.S. and $(3.4) million in foreign jurisdictions. The foreign loss included a non-deductible impairment charge of $263,000. Excluding the impairment, the Company had foreign loss before taxes of $(3.1) million, which resulted in foreign tax benefit of $(446,000).

The Company’s tax rate for 2016 was favorably impacted by a reduction of $923,000 in its accrual for unrecognized tax benefits. This primarily resulted from the lapse of the statute of limitations in various tax jurisdictions.

Prior to December 2016, the Company had asserted under ASC 740-30 that all of the unremitted earnings of its foreign subsidiaries were indefinitely invested. The Company evaluates this assertion each period based on a number of factors, including the operating plans, budgets, and forecasts for both the Company and its foreign subsidiaries; the long-term and short-term financial requirements in the U.S. and in each foreign jurisdiction; and the tax consequences of any decision to repatriate earnings of foreign subsidiaries to the U.S. In the fourth quarter of 2016, the Company evaluated a tax planning strategy related to the utilization of foreign tax credits on its U.S. federal tax return. Absent the strategy, the Company believed that it would not realize any of the credits during the allowable carryforward period under U.S. law. The Company concluded in December 2016 that it would implement the strategy, thus impacting the tax consequences of repatriation by enabling greater utilization of foreign tax credits. As a result, the Company changed its assertion regarding the indefinite reinvestment of its Canada subsidiary’s foreign earnings, but did not change its assertion with regard to the undistributed earnings of all other foreign subsidiaries. The Company recorded a tax liability of $840,000 reflecting the repatriation of $16.4 million from Canada to the U.S. All cumulative earnings of the Canada subsidiary through December 31, 2016 were distributed, so no additional accrual for deferred taxes related to earnings of the Canada subsidiary is required. The Company also recorded a tax benefit of $(680,000) to record the partial release of a valuation allowance related to its foreign tax credit carryforwards.

The Company’s income (loss) before tax from foreign entities was $(3.4) million, $(15.8) million, and $2.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. With the exception of its Canada subsidiary, the Company plans to continue to finance expansion and operating requirements of subsidiaries outside the U.S. through reinvestment of the undistributed earnings of these subsidiaries (approximately $19 million at December 31, 2016), and taxes that would result from potential distributions have not been provided. If earnings were distributed, additional taxes payable would be reduced by available tax credits arising from taxes paid outside the U.S.

An uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a tax return not yet filed, that has not been reflected in measuring income tax expense for financial reporting purposes. At December 31, 2016 and 2015, the Company has recorded a liability of $2.5 million and $3.4 million, respectively, which consists of unrecognized tax benefits of $2.2 million and $3.0 million, respectively, and estimated accrued interest and penalties of $361,000 and $447,000, respectively. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the years ended December 31, 2016, 2015 and 2014, interest and penalties recorded in the Consolidated Statements of Operations were $(86,000), $177,000 and $11,000, respectively. Following is a reconciliation of the amounts of unrecognized tax benefits for the years ended December 31, 2016, 2015 and 2014 (in thousands):



	2016			2015			2014
Unrecognized tax benefits—beginning of period	$	2,989		$	3,122		$	2,359
Increases in tax positions related to current year	117			169			608
Increases in tax positions related to prior year	—			76			201
Decreases in tax positions related to prior year	(43		)	—			—
Lapse of statute of limitations	(910		)	(378		)	(46		)
Unrecognized tax benefits—end of period	$	2,153		$	2,989		$	3,122

The foregoing table indicates unrecognized benefits, net of tax. The balance of gross unrecognized benefits was $2.9 million, $4.2 million, and $4.4 million at December 31, 2016, 2015 and 2014, respectively. If the unrecognized tax benefits at December 31, 2016, 2015 and 2014 were recognized in full, tax benefits of $2.5 million, $3.4 million and $3.4 million, respectively, would affect the effective tax rate.

The Company files income tax returns in the U.S. and various foreign jurisdictions. The Company is generally no longer subject to examinations by tax authorities for its U.S. federal tax return for years prior to 2013; or for its state, local, and foreign tax returns for years prior to 2012. The Company believes it is reasonably possible that as much as $567,000 of its unrecognized tax benefits may be recognized by the end of 2017 as a result of a lapse of the statute of limitations.