INCOME TAXES

The U.S. operations of the Company are included in the consolidated U.S. federal income tax return of Holdings. However, for financial reporting purposes, the Company's U.S. provision for income taxes has been computed on the basis that the Company files separate consolidated U.S. federal income tax returns with its subsidiaries.

Income Tax Expense (Benefit)

Income (loss) before income taxes for our U.S. and foreign operations was comprised of the following (in thousands):



	Year Ended December 31,
	2015			2014			2013
U.S.	$	(20,234	)	$	26,957		$	22,375
Foreign	(9,851		)	(6,986		)	1,366
	$	(30,085	)	$	19,971		$	23,741

The provision (benefit) for income taxes was comprised of the following (in thousands):



	Year Ended December 31,
	2015			2014			2013
Current:
Federal	$	(4	)	$	334		$	69
State	132			686			2,038
Foreign	65			—			(5,184		)
	193			1,020			(3,077		)
Deferred:
Federal	80,586			10,241			(90,827		)
State	1,119			526			(1,600		)
Foreign	(1,993		)	(1,494		)	5,564
	79,712			9,273			(86,863		)
Tax provision (benefit):
Federal	80,582			10,575			(90,758		)
State	1,251			1,212			438
Foreign	(1,928		)	(1,494		)	380
	$	79,905		$	10,293		$	(89,940	)

The differences between the U.S. federal income taxes computed at the statutory rate (35%) and the Company's income taxes for financial reporting purposes were as follows (in thousands):



	Year Ended December 31,
	2015			2014		2013
Statutory federal income tax	$	(10,530	)	$	6,990	$	8,309
Change in unrecognized tax benefits	422			186		199
State income tax, less federal benefit	(6		)	972		370
Foreign investment in U.S. property	—			999		1,203
Tax difference on foreign earnings	871			675		(196		)
Change in foreign taxes	415			—		(33		)
Change in valuation allowance	88,737			—		(100,492		)
Tax credits	(346		)	—		(361		)
Non-deductible expenses	359			289		869
Other, net	(17		)	182		192
Income tax provision (benefit)	$	79,905		$	10,293	$	(89,940	)

Deferred Tax Asset/Liability

The components of the net deferred income tax asset (liability) reflected in the Company's consolidated balance sheets at December 31, 2015 and 2014 were as follows (in thousands):



	Deferred Tax Assets (Liabilities)
	December 31,
	2015			2014
Deferred tax assets:
Depreciation and amortization	$	9,297		$	8,288
Deferred revenue	655			716
Net operating loss carryforwards	71,330			67,148
Alternative minimum tax credit carryforward	2,523			2,527
Research and development tax credit carryforward	566			1,133
Accrued expenses and other	8,211			8,153
Total deferred tax assets	92,582			87,965
Deferred tax liabilities:
Depreciation and amortization	(4,186		)	(7,870		)
Intangible assets	(1,854		)	(3,276		)
Deferred expenses and other	(127		)	(409		)
Total deferred tax liabilities	(6,167		)	(11,555		)
Valuation allowance:
Beginning balance	—			—
Increase during the period	(88,737		)	—
Total valuation allowance	(88,737		)	—
Net deferred tax asset (liability)	$	(2,322	)	$	76,410
Deferred income taxes have been classified in the consolidated balance sheet as:
Deferred income tax asset	$	39		$	81,744
Deferred income tax liability	(2,361		)	(5,334		)
Net deferred income tax asset (liability)	$	(2,322	)	$	76,410

At December 31, 2015, the Company recorded a valuation allowance of $88.7 million against all of its U.S. federal deferred tax assets and the majority of its state net deferred tax assets based on management’s assessment that it is more likely than not that the deferred tax assets will not be realized. In making this assessment, management considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income and results of recent operations. The most significant piece of negative evidence available in assessing the Company’s U.S. deferred tax assets was its current year pretax loss coupled with the outlook for cumulative pretax losses in the near future. As a result of the current industry environment and reduced capital spending in 2016 announced by the Company’s clients, management anticipates that the Company’s financial results in 2016 will continue to be negatively impacted and that tax losses will be generated in the immediate future. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as management's projections for recovery and growth.

As of December 31, 2015, the Company has a U.S. federal NOL carryforward of approximately $184.0 million which can be used to offset U.S. income taxes payable in future years. This U.S. NOL carryforward will expire in periods beginning 2027 through 2035. As of December 31, 2015, the Company has an alternative minimum tax (AMT) credit carryforward of approximately $2.5 million which can be used to offset regular U.S. federal income taxes payable in future years and which has an indefinite carryforward period. As of December 31, 2015, the Company has a Colorado state NOL carryforward of approximately $2.7 million which can be used to offset Colorado state income taxes payable in future years. This state NOL carryforward will expire in periods beginning 2028 through 2035.

As of December 31, 2015, the Company has Canadian NOL carryforwards for federal taxes of approximately $11.8 million (Canadian) and for provincial taxes of approximately $5.4 million (Canadian), both of which can be used to offset Canadian income taxes payable in future years. These Canadian NOL carryforwards will expire in periods beginning 2029 through 2035.

In April 2011, Seitel Canada Ltd. (“Seitel Canada”), a wholly-owned subsidiary of the Company, was notified that Canada Revenue Agency (“CRA”) concluded their prior year audits of Seitel Canada's tax returns, disallowing Seitel Canada’s deductions for certain royalties payable to the Company’s U.S. entities for years 2003 to 2007. Seitel Canada and the Company object to and are appealing the audit results. As a condition to appeal the audit results, Seitel Canada paid $7.7 million (Canadian) to CRA in 2011. As of December 31, 2015, the appeal process has not been concluded. The Company has recorded liabilities associated with potential adjustments that may occur as a result of the appeal based on management’s assessment of the probability of the outcome of the appeal, net of certain payments made to CRA. See “Uncertain Tax Benefits” below.

In September 2014, Seitel Canada was notified by CRA that CRA was going to perform a domestic audit of Seitel Canada’s tax returns for the years 2011 and 2012. In November 2015 and January 2016, CRA notified Seitel Canada that the current audit was expanded to include tax years 2013 and 2014, respectively. As of December 31, 2015, the audit has not been concluded. The Company has recorded liabilities associated with potential adjustments that may occur as a result of the audit. See “Uncertain Tax Benefits” below.

Uncertain Tax Benefits

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes,” which prescribes a minimum recognition threshold a tax position must meet before being recognized in the financial statements. A reconciliation of the beginning and ending gross unrecognized tax benefits was as follows (in thousands):



	Year Ended December 31,
	2015			2014			2013
Balance at beginning of year	$	5,274		$	5,752		$	6,150
Additions based on prior year tax positions	197			—			—
Foreign currency translation	(853		)	(478		)	(398		)
Balance at end of year	$	4,618		$	5,274		$	5,752

As of December 31, 2015, approximately $4.4 million of the total unrecognized tax benefits would impact the effective income tax rate, if recognized in future periods. In addition, as of December 31, 2015, the Company has recorded $5.9 million in related assets which are fully offset with a valuation allowance.

Uncertain tax positions are reflected as income tax assets and liabilities. Income tax-related interest and penalty expenses are recorded as a component of income tax expense. As of December 31, 2015, we had $1.3 million of accrued interest and $0.7 million of accrued penalties. As of December 31, 2014, we had $1.0 million of accrued interest and $0.9 million of accrued penalties. Income tax expense for the year ended December 31, 2015 included $0.5 million related to interest on unrecognized tax benefits. Income tax expense (benefit) for each of the years ended December 31, 2014 and 2013 included $0.2 million related to interest on unrecognized tax benefits.

With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2012, 2012 and 2008, respectively.