12. INCOME TAXES

We file a consolidated U.S. federal income tax return, unitary tax returns in certain states and separate income tax returns for certain of our subsidiary companies in other states, as well as in foreign jurisdictions. Included in our federal and state income tax returns is our proportionate share of the taxable income or loss of partnerships and limited liability companies that are treated as partnerships for tax purposes (“pass-through entities”). Our consolidated financial statements do not include any significant provision for income taxes on the income of pass-through entities attributed to the non-controlling interests.

Food Network and Cooking Channel are operated under the terms of a general partnership agreement (“Partnership”). The Travel Channel is a limited liability company and treated as a partnership for tax purposes.

Income (loss) from operations before income taxes consisted of the following:

	For the years ended December 31,
(in thousands)	2015			2014			2013
United States	$	1,187,353		$	1,063,942		$	1,025,761
Foreign		(65,489	)		(36,091	)		(35,110	)
Total	$	1,121,864		$	1,027,851		$	990,651

The determination of US/non-US is primarily based on legal entity structure, which differs from our reportable segment structure.

The provision for income taxes consisted of the following:

	For the years ended December 31,
(in thousands)		2015			2014			2013
Current:
Federal		$	345,204		$	269,047		$	181,403
State and local			32,393			31,155			37,655
Foreign			(6,183	)		2,038			517
Total current income tax provision			371,414			302,240			219,575
Deferred:
Federal			(31,731	)		694			84,504
State and local			5,611			85			5,742
Foreign			(1,903	)		(1,976	)		(2,198	)
Total deferred income tax (benefit) provision			(28,023	)		(1,197	)		88,048
Provision for income taxes		$	343,391		$	301,043		$	307,623

During the years ended December 31, 2015, December 31, 2014 and December 31, 2013, a current tax benefit of $1.2 million, $12.3 million and $4.9 million, respectively, was allocated directly to shareholders’ equity for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes.

The difference between the statutory rate for federal income tax and the effective income tax rate was as follows:

	For the years ended December 31,
	2015			2014			2013
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Effect of:
U.S. state and local income taxes, net of federal income tax benefit		2.2			2.2			2.2
Income of pass-through entities allocated to non-controlling interests		(5.4	)		(6.2	)		(6.3	)
Section 199 - Domestic Production Activities deduction		(2.5	)		(2.3	)		(2.4	)
Other		1.3			0.6			2.6
Effective income tax rate		30.6	%		29.3	%		31.1	%

The approximate effect of the temporary differences giving rise to deferred income tax (assets) liabilities were as follows:

	As of December 31,
(in thousands)		2015			2014
Deferred tax assets:
Accrued expenses		$	(30,764	)	$	(13,200	)
Deferred compensation			(73,672	)		(73,150	)
Capital loss carry-forwards			(9,316	)		(6,867	)
Net operating loss carry-forwards			(157,475	)		(33,745	)
Investments			(80,992	)		(96,387	)
State taxes and interest			(35,671	)		-
Property and equipment			(30,885	)		(22,648	)
Other			(26,530	)		(10,110	)
Total deferred tax assets:			(445,305	)		(256,107	)
Deferred tax liabilities:
Intangible assets			178,132			71,570
Programs and program licenses			45,897			64,765
Other			5,880			-
Total deferred tax liabilities:			229,909			136,335
Valuation allowance for deferred tax assets			123,442			40,676
Net deferred tax asset		$	(91,954	)	$	(79,096	)

As of December 31, 2015, there were $2.3 million of net operating loss carry-forwards for federal income tax purposes with expiration beginning in 2032 while there were approximately $17.9 million of net operating loss carry-forwards in various state jurisdictions with expiration dates between 2028 and 2034. Net operating loss carry-forwards in various foreign jurisdictions were approximately $736.4 million as of December 31, 2015. Some of the foreign losses have an indefinite carry-forward period and certain of the foreign losses expire beginning in 2016. A large portion of the deferred tax assets for the foreign and state loss carry-forwards have been reduced by a valuation allowance of $109.2 million, as it is more likely than not that these loss carry-forwards will not be realized.

At December 31, 2015, capital losses available to the Company totaled $25.6 million, with most of these losses scheduled to expire in 2016. Accordingly, a valuation allowance of $9.3 million was recorded on the deferred tax asset for these losses, as management believed it was more likely than not that the capital losses would not be utilized based on information available as of December 31, 2015. However, as described in Note 24 – Subsequent Events, the Company and the controlling interest owner of Fox Sports agreed to a purchase price for which the Company would exercise its put right to require the controlling interest owner to acquire SNI’s interest in this investment. The sale of the Company’s interest in Fox Sports is expected to generate a capital gain, which would enable the utilization of these capital loss carry-forwards.

The Company has recorded a valuation allowance against deferred tax assets of $123.4 million and $40.7 million as of December 31,

2015 and December 31, 2014, respectively, as management believes it is more likely than not that certain deferred tax assets will not be realized in future tax periods. Future reductions in the valuation allowance associated with a change in management’s determination of the Company’s ability to realize these deferred tax assets may result in a decrease in the provision for income taxes. During the year ended December 31, 2015, the valuation allowance was increased by $47.3 million related to net operating losses generated by N-Vision and the TVN entities prior to the Transactions. The remainder of the valuation allowance increase is primarily related to management’s determination that it is more likely than not that certain foreign net operating losses incurred during the year ended December 31, 2015 will not be realized. Additionally as of December 31, 2015, $73.0 million of the total valuation allowance recorded relates to deferred tax assets in connection the TVN Transactions. If any portion of this valuation allowance is reversed during the measurement period, which is still open as of December 31, 2015, it is possible that the reversal could result in a credit directly to goodwill or contributed capital. However, the Company does not believe this is a likely event.

No provision has been made for United States federal and state income taxes or international income taxes that may result from future remittances of the undistributed earnings of foreign subsidiaries that are determined to be indefinitely reinvested, which were approximately $105.6 million at December 31, 2015. Determination of the amount of any unrecognized deferred income tax liability on these is not practicable.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:

	For the years ended December 31,
(in thousands)	2015			2014			2013
Gross unrecognized tax benefits - beginning of year	$	96,166		$	109,462		$	94,219
Increases in tax positions for prior years		19,679			2,169			20,931
Decreases in tax positions for prior years		-			(11,254	)		(6,020	)
Increases in tax positions for current year		17,712			15,149			13,709
Settlements with taxing authorities		495			-			-
Lapse in statute of limitations		(24,359	)		(19,360	)		(13,377	)
Gross unrecognized tax benefits - end of year	$	109,693		$	96,166		$	109,462

The total net unrecognized tax benefits that would affect the effective tax rate if recognized was $78.3 million at December 31, 2015, $62.8 million at December 31, 2014 and $65.4 million at December 31, 2013. We accrue interest and penalties related to unrecognized tax benefits in our provision for income taxes. We have recognized interest expense of approximately $0.1 million in 2015, $0.5 million in 2014 and $2.8 million in 2013. We have accrued gross interest and penalties of approximately $11.5 million in 2015, $10.9 million in 2014 and $10.2 million in 2013.

We file income tax returns in the U.S. and in various state, local and foreign jurisdictions. We are routinely examined by tax authorities in these jurisdictions. As of December 31, 2015, the Company is no longer subject to U.S. federal examinations for years before 2012. It is possible that examinations by tax authorities in state and foreign jurisdictions may be resolved within twelve months. Exclusive of interest and penalties, it is reasonably possible that our gross unrecognized tax benefits may decrease within the next twelve months by a range of zero to $63.5 million, primarily due to settlement of tax examinations and expiration of the statute of limitations.

With a few exceptions, the Company is no longer subject to examinations by state, local or foreign tax authorities for years prior to 2011.