Note 4—

Taxes

The interim financial statement provision (benefit) for income taxes is different from the amounts computed by applying the United States federal statutory income tax rate of 34%. In summary, the reasons for these differences are as follows:

	Three months ended March 31
	2017		2016

Income taxes (benefit) at U.S. statutory rate	$	187,000	$	(23,000)
Change in valuation allowance		(152,000)		-
State income taxes, net of federal benefit		10,000		14,000
Higher / (lower) effective taxes on earnings/losses in certain foreign countries		(34,000)		(11,000)
Foreign corporate income taxes		13,000		17,000
Other, net		3,000		(20,000)

	$	27,000	$	(23,000)

For fiscal year 2016, beginning in the second quarter, the Company determined that it was more likely than not that 2016 U.S. federal and various state net operating losses primarily generated in 2016 would not be realized based on projections of future U.S. taxable income, estimated reversals of existing taxable timing differences, and other considerations. Accordingly, the Company's full year 2016 income tax provision included the impact of recording a total valuation allowance of $292,000 against all U.S. net deferred tax assets, including the 2016 losses generated, from a U.S. tax perspective.

From a U.S. tax perspective, the Company's income tax provision for the three months ended March 31, 2017 includes a partial release of valuation allowance which substantially offsets the federal income tax expense on the Company's pre-tax book income.

One of the Company's foreign subsidiaries is presently under local country audit for alleged deficiencies (totaling approximately $800,000 plus interest at 20% per annum) in value-added tax (VAT) and withholding tax for the years 2004 through 2006. The Company, in consultation with its legal counsel, believes that there are strong legal grounds that it is not liable to pay the majority of the alleged tax deficiencies. As of December 31, 2010, management estimated and reserved approximately $185,000 in taxes and interest for resolution of this matter and recorded this amount within Selling, General, and Administrative expense in the 2010 Consolidated Statement of Income. In 2011, the Company made good faith deposits to the local tax authority under the tax agency's administrative judicial resolution process. As of March 31, 2017 and December 31, 2016, management's estimated reserve (net of deposits) for this matter is approximately $162,000 and $158,000, respectively. There has been no change in this matter during the first three months of 2017.