Income Taxes

Income before provision for income taxes consists of the following:



	Year Ended June 30,
	2016		2015		2014
	(Dollars in Thousands)
Domestic	$	201,885	$	175,805	$	121,329
Foreign	8,754		3,666		7,204
Income before provision for income taxes	$	210,639	$	179,471	$	128,533

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



	Year Ended June 30,
	2016		2015			2014
	(Dollars in Thousands)
Federal—
Current	$	56,535	$	—		$	—
Deferred	7,496		55,895			32,996
State—
Current	1,866		2,176			528
Deferred	204		729			1,005
Foreign—
Current	4,554		3,382			7,785
Deferred	33		(1,118		)	436
	$	70,688	$	61,064		$	42,750

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



	Year Ended June 30,
	2016			2015			2014
	(Dollars in Thousands)
Federal tax provision at statutory rate	$	73,723		$	62,815		$	44,989
State income taxes	1,153			2,114			78
Subpart F and dividend income	3,581			2,799			6,667
Foreign taxes and rate differences	(663		)	(222		)	1,881
Stock-based compensation	1,359			763			631
Tax credits	(3,867		)	(3,562		)	(8,902		)
Tax contingencies	(581		)	(641		)	(261		)
Return to provision adjustments	658			384			150
Domestic Production Activity Deduction	(4,892		)	(3,600		)	(2,443		)
Valuation allowance	49			176			(16		)
Other	168			38			(24		)
Provision for income taxes	$	70,688		$	61,064		$	42,750

Deferred tax assets (liabilities) consist of the following at June 30, 2016 and 2015:



	Year Ended June 30,
	2016			2015
	(Dollars in Thousands)
Deferred tax assets:
Federal and state credits	$	1,270		$	2,144
Capital loss carryforwards	8,073			8,028
Foreign loss carryforwards	1,742			2,133
Deferred revenue	7,821			5,620
Other reserves and accruals	6,762			6,838
Intangible assets	1,616			2,478
Property, leasehold improvements, and other basis differences	1,853			2,136
Other temporary differences	870			2,916
	30,007			32,293
Deferred tax liabilities:
Deferred revenue	(1,276		)	(1,362		)
Intangible assets	(2,912		)	(1,065		)
Property, leasehold improvements, and other basis differences	(3,305		)	(2,812		)
Other temporary differences	(508		)	(645		)
	(8,001		)	(5,884		)
Valuation allowance	(10,119		)	(10,144		)
Net deferred tax assets	$	11,887		$	16,265

Reflected in the deferred tax assets above at June 30, 2016, we have foreign net operating loss carryforwards of $6.9 million some of which will expire beginning in 2019 and others with unlimited carryforwards, state research and development credits of $1.2 million which begin to expire in 2025, and U.S. federal alternative minimum tax credit carryforwards of $0.4 million which has an unlimited carryforward.

In fiscal 2016 and fiscal 2015, we recorded reductions in the income taxes payable of $2.2 million and $37.0 million, respectively, with an increase to additional paid in capital, for the benefits of excess stock-based compensation deductions recognized during the period in the United States and United Kingdom.

Our valuation allowance for deferred tax assets was $10.1 million and $10.1 million as of June 30, 2016 and 2015 respectively. The most significant portion of the valuation allowance is attributable to a reserve against US capital loss carryforward deferred tax asset of $8.1 million.

We have determined that we underwent an ownership change (as defined under section 382 of the Internal Revenue Code of 1986, as amended) during fiscal 2011. As such, the utilization of certain tax attributes is subject to an annual limitation. The annual limitation is not expected to impact the realizability of the deferred tax assets.

For fiscal 2016, 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,
	2016			2015			2014
	(Dollars in Thousands)
Uncertain tax positions, beginning of year	$	19,870		$	21,193		$	22,031
Gross increases—tax positions in prior period	67			238			112
Gross increases—tax positions in current period	5,474			—			—
Gross decreases—lapse of statutes	(1,772		)	(1,024		)	(823		)
Currency translation adjustment	(104		)	(537		)	(127		)
Uncertain tax positions, end of year	$	23,535		$	19,870		$	21,193

At June 30, 2016, the total amount of unrecognized tax benefits is $23.5 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, 2016, we had approximately $1.2 million of accrued interest and $0.8 million of penalties related to uncertain tax positions. We recorded a benefit for interest and penalties of approximately $0.8 million during fiscal 2016.

During the fourth quarter of fiscal 2016, we were notified by the Internal Revenue Services (“IRS”) that the fiscal 2015 U.S. federal income tax return will be audited. We believe our allowances for income tax contingencies are adequate and do not expect final resolution of the audit for approximately 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies. We also continue to be subject to examination by the IRS for tax years 2007 to 2015.

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 2006 to 2015, 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.