NOTE G — INCOME TAXES

As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. Our operations are treated as a partnership for federal tax purposes with each partner being separately taxed on its share of taxable income. However, a portion of our business is conducted through taxable U.S. corporate subsidiaries. Accordingly, a U.S. federal and state income tax provision has been reflected in the accompanying statements of operations. We have a tax sharing agreement with TETRA with respect to the Texas franchise tax liability. The resulting state tax expense is included in the provision for income taxes. Certain of our operations are located outside of the U.S., and the Partnership is responsible for income taxes in these countries.

In connection with the CSI Acquisition, we and the seller of CSI made a joint Section 338(h)(10) election under the U.S. Internal Revenue Code to treat the purchase of CSI as an asset acquisition for U.S. federal income tax purposes. Accordingly, no U.S. federal deferred tax assets or liabilities were recorded as part of the acquisition.

The income tax provision (benefit) attributable to our operations for the years ended December 31, 2015, 2014, and 2013 consists of the following:



	Year Ended December 31,
	2015			2014			2013
	(In Thousands)
Current
Federal	$	(1,632	)	$	(50	)	$	846
State	1,330			172			150
Foreign	806			2,220			1,528
	504			2,342			2,524
Deferred
Federal	(847		)	(2,764		)	(438		)
State	(354		)	(122		)	(49		)
Foreign	596			(628		)	221
	(605		)	(3,514		)	(266		)
Total tax provision (benefit)	$	(101	)	$	(1,172	)	$	2,258

A reconciliation of the provision (benefit) for income taxes, computed by applying the federal statutory rate to income before income taxes and the reported income taxes, is as follows:



	Year Ended December 31,
	2015			2014			2013
	(In Thousands)
Income (loss) tax provision computed at statutory federal income tax rates	$	(49,888	)	$	3,429		$	6,939
Partnership (earnings) losses	49,888			(3,429		)	(6,939		)
Corporate subsidiary earnings (loss) subject to federal tax	(36,712		)	(2,917		)	405
Impact of goodwill impairments	3,341			—			—
Valuation allowances	33,682			—			—
Income tax expense attributable to foreign earnings	92			1,592			1,749
State income taxes (net of federal benefit)	(619		)	97			89
Nondeductible expenses	79			56			15
Other	36			—			—
Total tax provision (benefit)	$	(101	)	$	(1,172	)	$	2,258

Income (loss) before income tax provision includes the following components:



	Year Ended December 31,
	2015			2014		2013
	(In Thousands)
Domestic	$	(150,814	)	$	2,578	$	9,883
International	4,083			7,508		9,942
Total	$	(146,731	)	$	10,086	$	19,825

We file U.S. federal, state, and foreign income tax returns on behalf of all of our consolidated subsidiaries. With few exceptions, we are not subject to U.S. federal, state, local, or non-U.S. income tax examinations by tax authorities for years prior to 2009. We file tax returns in the U.S. and in various state, local and non-U.S. jurisdictions. The following table summarizes the earliest tax years that remain subject to examination by taxing authorities in any major jurisdiction in which we operate:



Jurisdiction	Earliest Open Tax Period
United States – Federal	2012
United States – State and Local	2011
Non-U.S. jurisdictions	2009

We use the liability method for reporting income taxes, under which current and deferred tax assets and liabilities are recorded in accordance with enacted tax laws and rates. Under this method, at the end of each period, the amounts of deferred tax assets and liabilities are determined using the tax rate expected to be in effect when the taxes are actually paid or recovered. We establish a valuation allowance to reduce the deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. While we consider future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, there can be no guarantee that we will be able to realize all of our deferred tax assets. Significant components of our deferred tax assets and liabilities are as follows:

Deferred Tax Assets



	December 31,
	2015			2014
	(In Thousands)
Inventory reserve	$	1,016		$	—
Excess tax over book basis in long-lived assets	15,795			—
Accruals	680			1,132
Net operating losses	21,661			8,903
Bad debt reserve	443			374
Other	82			—
Total deferred tax assets	39,677			10,409
Valuation allowance	(36,325		)	(2,217		)
Net deferred tax assets	$	3,352		$	8,192

Deferred Tax Liabilities



	December 31,
	2015		2014
	(In Thousands)
Accruals	$	2,889	$	1,117
Excess book over tax basis in long-lived assets	—		7,416
All other	1,099		976
Total deferred tax liability	3,988		9,509
Net deferred tax liability	$	636	$	1,317

At December 31, 2015, we have approximately $22.0 million of federal, foreign, and state net operating loss carryforwards/carrybacks. In those foreign jurisdictions and states in which net operating losses are subject to an expiration period, our loss carryforwards, if not utilized, will expire from 2019 to 2035.

The increases in the valuation allowance during the years ended December 31, 2015, 2014, and 2013 were $34.1 million, $2.2 million, and $0 million, respectively. The change in the valuation allowance during 2015 primarily relates to deferred tax assets associated with losses generated in our U.S. corporate subsidiaries and certain foreign jurisdictions. We believe that it is more likely than not we will not realize all the tax benefits of the deferred tax assets within the allowable carryforward period. Therefore, an appropriate valuation allowance has been provided.

In November 2015, the FASB issued ASU 2015-17. The update changes how deferred taxes are classified on the balance sheet, eliminating the existing requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016. As permitted by ASU 2015-17, we elected to early adopt this guidance effective December 31, 2015. The impact of the retrospective adoption of this standard was not material to our consolidated financial statements.

ASC 740 provides guidance on measurement and recognition in accounting for income tax uncertainties and provides related guidance on derecognition, classification, disclosure, interest, and penalties. As of December 31, 2015 and 2014, the Partnership had no material unrecognized tax benefits (as defined in ASC 740-10). We do not expect to incur interest charges or penalties related to our tax positions, but if such charges or penalties are incurred, our policy is to account for interest charges as interest expense and penalties as tax expense in the consolidated statements of operations.