Income Taxes

Income before income taxes from continuing operations attributable to CoreLogic is as follows for the years ended December 31, 2016, 2015 and 2014:



(in thousands)	2016					2015					2014
	Continuing Operations Attributable to CoreLogic		Equity In Earnings of Affiliates			Continuing Operations Attributable to CoreLogic		Equity In Earnings of Affiliates			Continuing Operations Attributable to CoreLogic		Equity In Earnings of Affiliates
United States	$	143,749	$	2,630		$	155,345	$	23,790		$	86,195	$	22,988
Foreign	20,225		(1,121		)	16,729		(970		)	19,196		—
Total	$	163,974	$	1,509		$	172,074	$	22,820		$	105,391	$	22,988

For the years ended December 31, 2016, 2015 and 2014, income before income taxes from continuing operations attributable to CoreLogic includes income of certain incorporated noncontrolling interests.

Provision for Income Taxes

The provision for taxes consists of the following for the years ended December 31, 2016, 2015 and 2014:



(in thousands)	2016					2015				2014
	Continuing Operations Attributable to CoreLogic			Equity In Earnings of Affiliates		Continuing Operations Attributable to CoreLogic		Equity In Earnings of Affiliates		Continuing Operations Attributable to CoreLogic			Equity In Earnings of Affiliates
Current:
Federal	$	28,232		$	871	$	17,108	$	7,910	$	186		$	7,603
State	9,187			142		2,166		1,190		2,137			1,265
Foreign	2,881			—		3,394		—		3,249			—
	40,300			1,013		22,668		9,100		5,572			8,868
Deferred:
Federal	12,186			—		29,561		—		26,769			—
State	(267		)	—		3,562		—		1,299			—
Foreign	2,305			—		1,603		—		(3,870		)	—
	14,224			—		34,726		—		24,198			—
Total income tax provision	$	54,524		$	1,013	$	57,394	$	9,100	$	29,770		$	8,868

A reconciliation of the provision for taxes based on the federal statutory income tax rate on income from continuing operations attributable to CoreLogic to our effective income tax rate is as follows for the years ended December 31, 2016, 2015 and 2014:



	2016				2015				2014
	Continuing Operations Attributable to CoreLogic		Equity In Earnings of Affiliates		Continuing Operations Attributable to CoreLogic		Equity In Earnings of Affiliates		Continuing Operations Attributable to CoreLogic		Equity In Earnings of Affiliates
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	4.0		6.1		3.4		3.4		6.2		3.6
Foreign taxes (less than)/in excess of federal rate	(0.9	)	26.0		0.4		1.5		(5.6	)	—
Nontaxable gain on contingent payment reversal	(1.7	)	—		—		—		—		—
Nontaxable/nondeductible items	0.6		—		0.5		—		1.7		—
Change from investee to subsidiary	—		—		(2.5	)	—		—		—
Change in uncertain tax positions	(1.3	)	—		(0.7	)	—		1.3		—
Research and development credits	(1.6	)	—		(2.6	)	—		(7.9	)	—
Net impact of FAFC indemnity	(8.7	)	—		—		—		—		—
Valuation allowance on impaired investments	8.2		—		—		—		—		—
Other items, net	(0.3	)	—		(0.1	)	—		(2.5	)	—
Effective income tax rate	33.3	%	67.1	%	33.4	%	39.9	%	28.2	%	38.6	%

For the years ended December 31, 2016 and 2015, we recognized income tax benefits of $2.6 million and $4.5 million respectively, related to domestic research and development credits. Additionally, due to the closure of the Internal Revenue Servies (IRS) audit for examination of the years 2005-2009, we recognized a net tax benefit of $14.4 million, including interest and penalties, for the year ended December 31, 2016, which were accrued for and fully indemnified by FAFC.

As of December 31, 2016, we had an estimated $43.7 million of undistributed earnings from foreign subsidiaries that are intended to be indefinitely reinvested in foreign operations. No incremental U.S. tax has been provided for these earnings. If in the future, these earnings are repatriated to the U.S., or if we determine that the earnings will be remitted, additional tax provisions may be required. It is not practicable to calculate the deferred taxes associated with those earnings because of multiple factors that would need to be assessed at the time of assumed repatriation; however, foreign tax credits may be available to reduce federal income taxes in the event of distribution.

Deferred Tax Assets and Liabilities

Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities, and operating loss and tax credit carryforwards for tax purposes. The components of the deferred income tax assets and liabilities as of December 31, 2016 and 2015 are as follows:



(in thousands)	2016			2015
Deferred tax assets:
Net losses and credit carryforwards	$	90,773		$	92,537
Deferred revenue	149,022			132,359
Investment in affiliates	14,501			—
Employee benefits	47,823			46,586
Accrued expenses and loss reserves	38,024			32,796
Other	20,693			1,042
Less: valuation allowance	(44,880		)	(19,171		)
	$	315,956		$	286,149
Deferred tax liabilities:
Depreciable and amortizable assets	415,879			279,435
Investment in affiliates	18,624			11,199
Other	—			4,658
	$	434,503		$	295,292
Net deferred tax liability	$	(118,547	)	$	(9,143	)

As of December 31, 2016 and 2015, we had federal net operating losses (“NOLS”) of $176.6 million and $181.4 million, respectively, which begin to expire in 2021. The state NOLS were $271.1 million and $251.1 million as of December 31, 2016 and 2015, respectively, which begin to expire in 2016. The foreign NOLS were $9.9 million and $12.8 million as of December 31, 2016 and 2015, respectively. As of December 31, 2016 we had available federal and state capital losses of $17.8 million and $30.1 million, respectively, expiring at various times beginning in 2017. A portion of our NOL's and capital losses may be utilized prior to the expiration of carryover statutes. The change of ownership provisions of the Tax Reform Act of 1986 may limit utilization of a portion of our domestic NOL and tax credit carryforwards to future periods.

As of December 31, 2016 and 2015, we had valuation allowances of approximately $44.9 million and $19.2 million, respectively, against certain U.S. and foreign deferred tax assets. The increase in the valuation allowance was primarily due to deferred tax assets of $17.5 million that were capital in nature, a release of approximately $4.0 million on various domestic tax attributes that are more likely than not to be realized and the impact of the foreign out-of-period adjustment of $12.2 million. The increase in the valuation allowance due to the foreign deferred tax out-of-period adjustment of $12.2 million was offset by a $15.3 million benefit related to a reduction in foreign deferred tax liabilities resulting in a net out-of-period benefit to the tax provision of $3.1 million. See Note 2 - Significant Accounting Policies for additional information on out-of-period adjustment.

Unrecognized Tax Benefits

A reconciliation of the unrecognized tax benefits for the years ended December 31, 2016, 2015 and 2014 are as follows:



(in thousands)	2016			2015			2014
Unrecognized tax benefits - opening balance	$	34,301		$	35,663		$	55,325
Gross increases - tax positions in prior period	1,835			13			2,950
Gross decreases - tax positions in prior period	(106		)	(2,152		)	(22,698		)
Gross increases - current-period tax positions	528			896			651
Settlements with taxing authorities	(17		)	(119		)	(565		)
FAFC indemnification release	(13,147		)	—			—
Expiration of the statute of limitations for the assessment of taxes	(2,215		)	—			—
Unrecognized tax benefits - ending balance	$	21,179		$	34,301		$	35,663

As of December 31, 2016 and 2015, our unrecognized tax benefits of $21.2 million and $34.3 million, respectively, include $13.0 million and $13.3 million, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate.

We recognize a provision for interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2016 and 2015, we had $9.3 million and $17.3 million, respectively, accrued for the payment of interest and penalties. These balances are gross amounts before any tax benefits and are included in other liabilities in the accompanying consolidated balance sheets. For the years ended December 31, 2016, 2015 and 2014, we recognized approximately $0.7 million, $0.2 million and $0.6 million, respectively, in interest and penalties in the accompanying consolidated statements of income.

In November, 2016, we closed our 2005-2009 IRS exam which resulted in a reversal of approximately $13.2 million of unrecognized tax benefits and a reversal of approximately $8.7 million of accrued interest and penalties. These reversals reduced the total FAFC indemnification receivable to $14.0 million pursuant to the Tax Sharing Agreement entered in connection with the Separation. The remaining reserves subject to indemnification of $8.3 million and the associated accrued interest and penalties of $5.7 million are related to various taxing jurisdictions for the years 2006-2009. Any future decrease in this reserve would not have a material impact to net income.

We are currently under examination for the tax years 2006 through 2011 by the U.S., our primary taxing jurisdiction, and various taxing authorities. It is reasonably possible the amount of the unrecognized benefit with respect to certain unrecognized positions that are not subject to the FAFC indemnification could significantly increase or decrease within the next twelve months and would have an impact on net income.