Income Taxes

Income before provision for income taxes consists of the following:



	Year Ended June 30,
	2017		2016		2015
	(Dollars in Thousands)
Domestic	$	202,053	$	201,885	$	175,805
Foreign	8,293		8,754		3,666
Income before provision for income taxes	$	210,346	$	210,639	$	179,471

The provision for income taxes shown in the accompanying consolidated statements of operations is composed of the following:



	Year Ended June 30,
	2017			2016		2015
	(Dollars in Thousands)
Federal—
Current	$	69,385		$	56,535	$	—
Deferred	(22,449		)	7,496		55,895
State—
Current	1,737			1,866		2,176
Deferred	(1,079		)	204		729
Foreign—
Current	2,067			4,554		3,382
Deferred	(1,511		)	33		(1,118		)
	$	48,150		$	70,688	$	61,064

The provision for income taxes differs from that based on the federal statutory rate due to the following:



	Year Ended June 30,
	2017			2016			2015
	(Dollars in Thousands)
Federal tax provision at statutory rate	$	73,621		$	73,723		$	62,815
State income taxes	967			1,153			2,114
Subpart F and dividend income	2,912			3,581			2,799
Foreign taxes and rate differences	(206		)	(663		)	(222		)
Stock-based compensation	991			1,359			763
Tax credits	(6,614		)	(3,867		)	(3,562		)
Tax contingencies	(19,645		)	(581		)	(641		)
Return to provision adjustments	464			658			384
Domestic Production Activity Deduction	(6,261		)	(4,892		)	(3,600		)
Valuation allowance	1,522			49			176
Other	399			168			38
Provision for income taxes	$	48,150		$	70,688		$	61,064

Deferred tax assets (liabilities) consist of the following at June 30, 2017 and 2016:



	Year Ended June 30,
	2017			2016
	(Dollars in Thousands)
Deferred tax assets:
Federal and state credits	$	2,553		$	1,270
Capital loss carryforwards	7,940			8,073
Net operating loss carryforwards	3,028			1,742
Deferred revenue	5,881			7,821
Other reserves and accruals	10,701			6,762
Intangible assets	1,730			1,616
Property, leasehold improvements, and other basis differences	2,470			1,853
Other temporary differences	971			870
	35,274			30,007
Deferred tax liabilities:
Deferred revenue	(44		)	(1,276		)
Intangible assets	(7,017		)	(2,912		)
Property, leasehold improvements, and other basis differences	(2,634		)	(3,305		)
Other temporary differences	—			(508		)
	(9,695		)	(8,001		)
Valuation allowance	(11,259		)	(10,119		)
Net deferred tax assets	$	14,320		$	11,887

Reflected in the deferred tax assets above at June 30, 2017, we have foreign net operating loss carryforwards of $3.0 million, some of which will expire beginning in 2019 and others with unlimited carryforwards, and state research and development credits of $2.4 million which begin to expire in 2025.

In fiscal 2017 and fiscal 2016, we recorded reductions in the income taxes payable of $6.0 million and $2.2 million, respectively, with an increase to additional paid in capital, for the benefits of excess stock-based compensation deductions recognized during the period primarily in the United States.

Our valuation allowance for deferred tax assets was $11.3 million and $10.1 million as of June 30, 2017 and 2016 respectively. The most significant portion of the valuation allowance is attributable to a reserve against US capital loss carryforward deferred tax assets of $8.0 million and state R&D tax credits.

For fiscal 2017, our income tax provision included amounts determined under the provisions of ASC 740 intended to satisfy additional income tax assessments, including interest and penalties, that could result from any tax return positions for which the likelihood of sustaining the position on audit does not meet a threshold of "more likely than not." Tax liabilities were recorded as a component of our income taxes payable and other non-current liabilities. The ultimate amount of taxes due will not be known until examinations are completed and settled or the audit periods are closed by statutes.

A reconciliation of the reserve for uncertain tax positions is as follows:



	Year Ended June 30,
	2017			2016			2015
	(Dollars in Thousands)
Uncertain tax positions, beginning of year	$	23,535		$	19,870		$	21,193
Gross (decreases) increases—tax positions in prior period	(19,116		)	67			238
Gross increases—tax positions in current period	—			5,474			—
Gross decreases—lapse of statutes	(830		)	(1,772		)	(1,024		)
Currency translation adjustment	332			(104		)	(537		)
Uncertain tax positions, end of year	$	3,921		$	23,535		$	19,870

At June 30, 2017, the total amount of unrecognized tax benefits is $3.9 million. Upon being recognized, the amount would reduce the effective tax rate. Our policy is to recognize interest and penalties related to income tax matters as provision for (benefit from) income taxes. At June 30, 2017, we had approximately $0.5 million of accrued interest and $0.2 million of penalties related to uncertain tax positions. We recorded a benefit for interest and penalties of approximately $1.3 million during fiscal 2017.

During the fourth quarter of fiscal 2017, we settled an audit with the Internal Revenue Services (“IRS”) for the fiscal 2015. As a result of settling the audit, we released a significant portion of our reserve for US tax positions. The amount reversed in the fourth quarter related to settling the tax audit was $19.2 million.

We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 2007 to 2016, some of which are currently under audit by local tax authorities. The resolutions of these audits are not expected to be material to our consolidated financial statements.