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Income Taxes
6 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

The quarterly income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which the Company operates. However, losses in certain jurisdictions and discrete items are treated separately. The gain on the Kingstone transaction, described in Note 10, was treated as a discrete item and accounted for $1.7 million of the tax expense in the quarter, with the tax calculated utilizing the effective tax rate and other discrete items nearly offsetting each other.
Deferred tax assets and liabilities reflect the tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company records a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized. Our expectations regarding realization of our deferred tax assets is based upon the weight of all available evidence, including such factors as our recent earnings history, expected future taxable income and available tax planning strategies. The Company maintains a valuation allowance with respect to certain state, federal and foreign deferred tax assets that may not be recovered. Each quarter, the valuation allowance is re-evaluated. During the six months ended March 31, 2016 the valuation allowance increased by a net of $1.1 million primarily due to net operating losses in The Netherlands, France and China, partially offset by a decrease in the valuation allowance due to utilization of net operating losses in the United States.
The Company classifies all of our uncertain tax positions as non-current income taxes payable. At March 31, 2016 and September 30, 2015, the total amount of unrecognized tax benefits was approximately $2.4 million and $1.8 million, respectively. If recognized, these amounts would favorably impact the effective tax rate. Income taxes payable long-term primarily includes, among other items, withholding taxes that are not due until the related intercompany service fees are paid.
The Company classifies interest and penalties related to unrecognized tax benefits as income tax expense. As of March 31, 2016 and September 30, 2015, the Company had an accrual for potential interest and penalties of approximately $2.0 million and $1.8 million, respectively, classified with non-current income taxes payable.
The Company and one or more of its subsidiaries file income tax returns in The Netherlands, France, China, Singapore, Malaysia, Hong Kong, and Germany, as well as the U.S. and various states in the U.S. The Company and its subsidiaries have a number of open tax years dictated by statute in each of their respective taxing jurisdictions, but generally is from 3 to 5 years in the jurisdictions in which the Company files tax returns.