Income Taxes

The principal components of deferred taxes at December 31, 2015 and 2014 are as follows (in thousands):



	2015			2014
Deferred tax asset:
NOL carryover	$	1,375,759		$	1,266,972
Compensation	284,761			334,576
Long-term debt	89,160			134,079
Other assets	162,393			160,586
Securities valuation reserves	32,141			25,499
Intangible assets, net and goodwill	6,855			13,842
Other liabilities	40,393			57,006
	1,991,462			1,992,560
Valuation allowance	(97,177		)	(110,404		)
	1,894,285			1,882,156
Deferred tax liability:
Unrealized gains on investments	(153,035		)	(10,406		)
Amortization of intangible assets	(103,561		)	(97,268		)
Property and equipment	(4,151		)	(866		)
Other	(58,170		)	(61,081		)
	(318,917		)	(169,621		)
Net deferred tax asset	$	1,575,368		$	1,712,535

As of December 31, 2015, we have consolidated U.S. federal NOLs of $1.6 billion that may be used to offset the taxable income of any member of our consolidated tax group. In addition, we have $2.1 billion of U.S. federal NOLs that are only available to offset the taxable income of certain subsidiaries. Federal NOLs begin to expire in 2017, with a substantial amount expiring between 2022 and 2025. Approximately $575.3 million of our NOLs can be used to fully offset federal minimum taxable income, and no federal regular or minimum income tax would be payable on such income. We have various state NOLs that expire at different times, which are reflected in the above table to the extent our estimate of future taxable income will be apportioned to those states. We have gross foreign net operating loss carryforwards of approximately $74.4 million. There is a valuation allowance with respect to $7.2 million of these foreign net operating loss carryforwards. Uncertainties that may affect the utilization of our tax attributes include future operating results, tax law changes, rulings by taxing authorities regarding whether certain transactions are taxable or deductible and expiration of carryforward periods.

Under certain circumstances, the ability to use the NOLs and future deductions could be substantially reduced if certain changes in ownership were to occur. In order to reduce this possibility, our certificate of incorporation includes a charter restriction that prohibits transfers of our common stock under certain circumstances.

At December 31, 2015, we had approximately $205.0 million of earnings attributable to foreign subsidiaries for which no U.S. federal income tax provision has been recorded because, except to the extent such earnings can be repatriated tax efficiently, these earnings are permanently invested abroad. Accordingly, a deferred tax liability of approximately $59.0 million has not been recorded with respect to these earnings.

The provision for income taxes for continuing operations for each of the three years in the period ended December 31, 2015 was as follows (in thousands):



	2015			2014		2013

Current taxes:
Federal	$	709		$	746	$	2,900
State and local	(25,308		)	17,232		22,006
Foreign	3,504			12,375		9,050
Total current income taxes	(21,095		)	30,353		33,956

Deferred taxes:
Federal	134,590			97,190		82,173
State and local	4,552			30,707		23,198
Foreign	(8,100		)	7,721		(2,846		)
Total deferred income taxes	131,042			135,618		102,525

Provision for income taxes	$	109,947		$	165,971	$	136,481

For the year ended December 31, 2015, we recorded a benefit related to certain state and local net operating loss carryforwards which we now believe are more likely than not to be realized in the future, a significant portion of which results from recently enacted state and local tax law changes. For the year ended December 31, 2014, we decreased our valuation allowance with respect to certain NOLs which we now believe are more likely than not to be utilized before they expire. For the year ended December 31, 2013, we increased our valuation allowance to reserve for a portion of our net deferred tax asset for state income taxes, resulting from the change in our expected state tax filings as a result of the Jefferies acquisition. In addition, the valuation allowance increased by $11.1 million for 2013 as a result of the valuation allowance required for Jefferies net deferred tax assets at the date of acquisition.

The table below reconciles the expected statutory federal income tax to the actual income tax provision (benefit) (in thousands):



	2015			2014			2013

Expected federal income tax	$	124,788		$	133,428		$	190,955
State income taxes, net of federal income tax benefit	(6,928		)	31,160			21,396
Increase (decrease) in valuation allowance	(13,227		)	(22,203		)	12,287
Tax expense not provided on income recorded on the Jefferies investment prior to the acquisition	—			—			(63,952		)
Reversal of prior years’ deferred tax liability related to Jefferies investment	—			—			(33,972		)
Foreign rate differential	(10,130		)	(14,305		)	(4,750		)
Permanent differences	8,064			6,181			13,210
Tax exempt income	(6,789		)	(6,812		)	(4,033		)
Income allocated to noncontrolling interest, not subject to tax	11,039			3,270			3,655
Nondeductible settlements	—			24,500			—
Foreign taxes	(2,989		)	2,542			4,033
Other	6,119			8,210			(2,348		)
Actual income tax provision	$	109,947		$	165,971		$	136,481

As discussed above, we elected the fair value option for our investment in Jefferies for periods prior to the Jefferies acquisition in March 2013. As of December 31, 2012, we had recorded a deferred tax liability related to our investment in Jefferies; as reflected in the table above, the income tax provision includes the reversal of that deferred tax liability for the year ended December 31, 2013. Since there was no net income tax provision recorded for income related to the fair value option for Jefferies for the year ended December 31, 2013, our effective tax rate was lower as a result of the acquisition, and the impact on the tax provision is reflected in the table above.

The following table reconciles the total amount of unrecognized tax benefits as of the beginning and end of the periods presented (in thousands):



	Gross Unrecognized Tax Benefits			Interest			Total

As of January 1, 2013	$	11,590		$	4,180		$	15,770
Jefferies amounts at date of acquisition	129,010			17,100			146,110
Increases based on tax positions related to current period	8,750			—			8,750
Increases based on tax positions related to prior periods	14,780			—			14,780
Decreases based on tax positions related to prior periods	(18,300		)	—			(18,300		)
Interest expense recognized	—			7,000			7,000
Audit payments	(310		)	(110		)	(420		)
Reductions as a result of the lapse of the statute of limitations	—			—			—
Balance, December 31, 2013	145,520			28,170			173,690
Increases based on tax positions related to current period	5,630			—			5,630
Increases based on tax positions related to prior periods	4,340			—			4,340
Decreases based on tax positions related to prior periods	(3,940		)	—			(3,940		)
Interest expense recognized	—			9,200			9,200
Audit payments	(2,960		)	(100		)	(3,060		)
Reductions as a result of the lapse of the statute of limitations	—			—			—
Balance, December 31, 2014	148,590			37,270			185,860
Increases based on tax positions related to current period	3,475			—			3,475
Increases based on tax positions related to prior periods	22,030			—			22,030
Decreases based on tax positions related to prior periods	(15,349		)	(4,884		)	(20,233		)
Interest expense recognized	—			10,336			10,336
Audit payments	—			—			—
Reductions as a result of the lapse of the statute of limitations	(7,879		)	(3,641		)	(11,520		)
Balance, December 31, 2015	$	150,867		$	39,081		$	189,948

The statute of limitations with respect to our federal income tax returns has expired for all years through 2011. Our New York State and New York City income tax returns are currently being audited for the 2009 to 2011 period and 2009 to 2012 period, respectively. Prior to becoming a wholly-owned subsidiary, Jefferies filed a consolidated U.S. federal income tax return with its qualifying subsidiaries and was subject to income tax in various states, municipalities and foreign jurisdictions. Jefferies is currently under examination by the Internal Revenue Service and other major tax jurisdictions. The statute of limitations with respect to Jefferies federal income tax returns has expired for all years through 2006.

We do not expect that resolution of these examinations will have a significant effect on our consolidated financial position, but could have a significant impact on the consolidated results of operations for the period in which resolution occurs. Over the next twelve months, we believe it is reasonably possible that various tax examinations will be concluded and statutes of limitation will expire which would have the effect of reducing the balance of unrecognized tax benefits by $4.3 million. If recognized, the total amount of unrecognized tax benefits reflected in the table above would lower our effective income tax rate.