4. Income Taxes

The provision for income tax expense (benefit) consists of (in thousands):

	2016		2015
Current:
Federal	$	525	$	52
State		193		24
Total current		718		76
Deferred:
Federal		-		-
State		-		-
Total deferred		-		-
Income tax expense (benefit)	$	718	$	76

A reconciliation of the difference between the federal statutory income tax rate and the effective income tax rate follows:

	2016		2015
Federal statutory rate	35.0	%	35.0	%
State tax, net of federal benefit	(6.1)		.6
State tax credits and adjustments	1.8		(1.9)
Change in cash surrender value of life insurance policies	(185.1)		(9.0)
Valuation allowance increase (decrease)	143.2		(23.6)
Other, net	(4.6)		.3
Effective income tax rate	(15.8)	%	1.4	%

The income tax effects of temporary differences that comprise deferred tax assets and liabilities at December 31 follow (in thousands):

	2016		2015
Noncurrent deferred tax assets (liabilities):
Accounts receivable	$	99	$	150
Other accrued expenses		587		248
Property, plant and equipment		(1,190)		(1,255)
Employee benefits		3,979		4,252
Contribution carryforward		181		278
AMT credit		1,205		676
Net operating loss		7,727		14,845
Gross non-current deferred tax assets		12,588		19,194
Less valuation allowance		(12,588)		(19,194)
Net noncurrent deferred tax assets	$	-	$	-

We have U.S. federal net operating loss carryforwards of approximately $20.6 million which are available to reduce future taxable income. The federal net operating loss will begin expiring in 2033. We have combined state net operating loss carryforwards of $18.4 million that will expire at various times beginning in 2027.

During 2016, we recorded a non-cash credit to our valuation allowance of $6.6 million against our December 31, 2016 deferred tax assets. The primary assets which are covered by this valuation allowance are employee benefits and net operating losses in excess of the amounts which can be carried back to prior periods. The valuation allowance was calculated in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance. Our results over the most recent three-year period were heavily affected by our business restructuring activities. Our cumulative loss, excluding income from the Continued Dumping and Subsidy Offset Act, in the most recent three-year period, in our view, represented sufficient negative evidence to require a valuation allowance. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal, resulting in no deferred tax asset balance being recognized. Should we determine that we will not be able to realize all or part of our deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.

The unrecognized tax benefits activity for the year ended December 31 follows (in thousands):

	2016		2015
Unrecognized tax benefits balance at January 1	$	307	$	309
Gross increases in tax positions of prior years		164		-
Lapse of statute of limitations		-		(2)
Unrecognized tax benefits balance at December 31	$	471	$	307

As of December 31, 2016 and 2015, we had approximately $97,000 and $76,000 of accrued interest related to uncertain tax positions, respectively.

Total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $307,000 at December 31, 2016 and $200,000 at December 31, 2015. The 2010 through 2015 tax years remain open to examination by major taxing jurisdictions.