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,
	2016			2015			2014
U.S.	$	(25,221	)	$	(20,234	)	$	26,957
Foreign	(2,599		)	(9,851		)	(6,986		)
	$	(27,820	)	$	(30,085	)	$	19,971

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



	Year Ended December 31,
	2016			2015			2014
Current:
Federal	$	—		$	(4	)	$	334
State	96			132			686
Foreign	465			65			—
	561			193			1,020
Deferred:
Federal	—			80,586			10,241
State	(53		)	1,119			526
Foreign	(3,904		)	(1,993		)	(1,494		)
	(3,957		)	79,712			9,273
Tax provision (benefit):
Federal	—			80,582			10,575
State	43			1,251			1,212
Foreign	(3,439		)	(1,928		)	(1,494		)
	$	(3,396	)	$	79,905		$	10,293

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,
	2016			2015			2014
Statutory federal income tax	$	(9,737	)	$	(10,530	)	$	6,990
Change in unrecognized tax benefits	(2,780		)	422			186
State income tax, less federal benefit	9			(6		)	972
Foreign investment in U.S. property	—			—			999
Tax difference on foreign earnings	225			871			675
Change in foreign taxes	—			415			—
Change in valuation allowance	8,606			88,737			—
Tax credits	—			(346		)	—
Non-deductible expenses	180			359			289
Other, net	101			(17		)	182
Income tax provision (benefit)	$	(3,396	)	$	79,905		$	10,293

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, 2016 and 2015 were as follows (in thousands):



	Deferred Tax Assets (Liabilities)
	December 31,
	2016			2015
Deferred tax assets:
Depreciation and amortization	$	10,210		$	9,297
Deferred revenue	2,115			655
Net operating loss carryforwards	74,656			71,330
Alternative minimum tax credit carryforward	2,523			2,523
Research and development tax credit carryforward	—			566
Accrued expenses and other	7,891			8,211
Total deferred tax assets	97,395			92,582
Deferred tax liabilities:
Depreciation and amortization	(3,315		)	(4,186		)
Intangible assets	(487		)	(1,854		)
Deferred expenses and other	(138		)	(127		)
Total deferred tax liabilities	(3,940		)	(6,167		)
Valuation allowance:
Beginning balance	(88,737		)	—
Increase during the period	(6,675		)	(88,737		)
Total valuation allowance	(95,412		)	(88,737		)
Net deferred tax asset (liability)	$	(1,957	)	$	(2,322	)
Deferred income taxes have been classified in the consolidated balance sheet as:
Deferred income tax asset	$	257		$	39
Deferred income tax liability	(2,214		)	(2,361		)
Net deferred income tax asset (liability)	$	(1,957	)	$	(2,322	)

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. At December 31, 2016, the Company continues to provide a full valuation allowance against its U.S. federal tax assets and the majority of its state net deferred tax assets. The most significant piece of negative evidence in making this assessment was the pretax book losses for the years ended December 31, 2015 and 2016 which resulted in a cumulative pretax book loss as of December 31, 2016. Available positive evidence considered did not outweigh this negative evidence as of December 31, 2016. However, the amount of the deferred tax assets considered realizable 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. During 2016, the Company’s valuation allowance increased by $8.6 million primarily due to U.S. net operating losses generated in 2016 partially offset by a $2.0 million decrease in the valuation allowance related to a U.S. deferred tax asset associated with uncertain tax positions that were adjusted due to the settlement with Canada Revenue Agency by Seitel Canada Ltd., a wholly-owned subsidiary of the Company (“Seitel Canada”).

As of December 31, 2016, the Company has a U.S. federal NOL carryforward of approximately $200.3 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 2036. As of December 31, 2016, 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, 2016, the Company has a Colorado state NOL carryforward of approximately $3.9 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 2036.

As of December 31, 2016, the Company has Canadian NOL carryforwards for federal taxes of approximately $5.8 million (Canadian) which can be used to offset Canadian income taxes payable in future years. This Canadian NOL carryforward will expire in 2035.

During 2016, Seitel Canada settled its outstanding appeal with Canada Revenue Agency related to certain royalty payments made to the Company’s U.S. entities for years 2003 to 2007 and a domestic audit for years 2011 to 2013. As a result of these settlements, the Company recorded a tax benefit of $2.3 million for the year ended December 31, 2016. The Company also recognized a $0.4 million tax benefit for the year ended December 31, 2016 due to a lapse in statute of limitations on previous uncertain tax positions.

Uncertain Tax Positions

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,
	2016			2015			2014
Balance at beginning of year	$	4,618		$	5,274		$	5,752
Additions (reductions) based on prior year tax positions	(2,156		)	197			—
Reductions related to settlements with taxing authorities	(1,783		)	—			—
Reductions as a result of a lapse of statute of limitations	(449		)	—			—
Foreign currency translation	263			(853		)	(478		)
Balance at end of year	$	493		$	4,618		$	5,274

As of December 31, 2016, approximately $0.5 million of the total unrecognized tax benefits would impact the effective income tax rate, if recognized in future periods.

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, 2016, we had $0.4 million of accrued interest and no accrued penalties. As of December 31, 2015, we had $1.3 million of accrued interest and $0.7 million of accrued penalties. Income tax expense (benefit) for the years ended December 31, 2016, 2015 and 2014 included $(0.1) million, $0.5 million and $0.2 million, respectively, 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 2013, 2013 and 2009, respectively.