INCOME TAXES

Income (loss) before income taxes from continuing operations relate to the following jurisdictions (in thousands):



	Years Ended December 31,
	2017			2016			2015
United States	$	(6,502	)	$	(5,306	)	$	(244	)
Foreign	14,020			8,777			2,152
	$	7,518		$	3,471		$	1,908

The provision for income taxes for continuing operations consists of the following (in thousands):



	Years Ended December 31,
	2017			2016			2015
Current:
Federal	$	—		$	—		$	—
State	1			—			(13		)
Foreign	2,230			2,103			1,494
	2,231			2,103			1,481
Deferred:
Federal	(155		)	—			—
State	—			—			—
Foreign	886			(861		)	(1,112		)
	731			(861		)	(1,112		)
Total	$	2,962		$	1,242		$	369

The significant differences between the U.S. federal statutory tax rate and the Company’s effective income tax expense for earnings (in thousands) are as follows:



	Years Ended December 31,
	2017			2016			2015
Statutory federal income tax rate	$	2,631		$	1,180		$	649
State income taxes, net of federal effect	(62		)	(173		)	(240		)
Net operating loss limitation	2,975			—			—
Deferred tax true-up	—			(4,103		)	8,078
Change in deferred tax asset valuation allowance	(15,338		)	4,877			(6,729		)
Statutory rate change	13,850			—			—
Foreign tax rate differential	(899		)	(712		)	(223		)
Compensation deduction limitation	—			113			(1,201		)
Other, net	(195		)	60			35
Total	$	2,962		$	1,242		$	369

The tax effects of temporary differences and carry-forwards that give rise to deferred tax assets and liabilities consist of the following (in thousands):



	Years Ended December 31,
	2017		2016
Deferred income tax assets:
Accounts payable and accrued expenses	$	1,215	$	737
Accrued payroll and related expenses	1,691		3,062
Stock-based compensation expense	3,508		3,531
Depreciation of property and equipment	1,711		2,579
Capitalized Software	—		—
Non-compete agreements	—		—
Unbilled receivables and refund liabilities	1,811		2,216
Operating loss carry-forwards of foreign subsidiary	11,000		10,907
Federal operating loss carry-forwards	17,161		33,087
State operating loss carry-forwards	3,591		3,919
Other	376		1,181
Gross deferred tax assets	42,064		61,219
Less valuation allowance	34,776		50,114
Gross deferred tax assets net of valuation allowance	7,288		11,105
Deferred income tax liabilities:
Intangible assets	1,987		2,299
Capitalized software	29		1,928
Other	3,734		4,609
Gross deferred tax liabilities	5,750		8,836
Net deferred tax assets	$	1,538	$	2,269

Our reported effective tax rates on income approximated 39.4% in 2017, 35.8% in 2016, and 19.3% in 2015. Reported income tax expense in each year primarily results from taxes on the income of foreign subsidiaries. The effective tax rates generally differ from the expected tax rate primarily due to the Company’s deferred tax asset valuation allowance on the domestic earnings and taxes on income of foreign subsidiaries.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act"), was signed into law making significant changes to the Internal Revenue Code. The new legislation contains several key provisions that impact the consolidated financial statements for the year ended December 31, 2017. Additionally, in December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of the transition tax, deferred tax re-measurements, and other items to be incomplete though we have recorded provisional amounts in the consolidated financial statements. We expect to complete our analysis within the measurement period in accordance with SAB 118.

The new legislation contains several key provisions that affect us. The lowering of the corporate tax rate from 35% to 21% resulted in our deferred tax balances and related valuation allowances being re-measured to reflect the future tax benefit at the new enacted rate. The U.S. deferred tax assets were reduced by $13.9 million and the valuation allowance was also reduced by $13.9 million. This remeasurement results in no net impact to the effective tax rate for the year ended December 31, 2017. In addition the Alternative Minimum Tax (“AMT”) has been repealed for tax years beginning after December 31, 2017 and the AMT credit will be refundable in future years. The Company has an AMT credit balance of approximately $155,000 recorded as a deferred tax asset and has now released the valuation allowance related to this balance, resulting in a $155,000 income tax benefit. The Tax Act requires the payment of a transition tax on the mandatory deemed repatriation of cumulative unremitted foreign earnings, the larger amount measured on November 2, 2017 and December 31, 2017. Based upon all available evidence and the Company’s analysis, there is no transition tax liability due to a net earnings and profits deficit in our controlled foreign corporations and no impact to the effective tax rate for the year ended December 31, 2017. The Global Intangible Low Tax Income Tax (“GILTI”) is a U.S. minimum tax on the foreign earnings on intangible assets. The Company has elected to account for the impact of the minimum tax in the period realized. GILTI results in no impact to the effective tax rate for the year ended December 31, 2017.

We undertook a detailed review of our deferred taxes and it was determined with the exception of the deferred tax assets associated with the AMT credit described above, a valuation allowance was required for all other U.S. deferred tax assets. We continue to maintain a valuation allowance on our U.K. deferred tax assets. We reduce our deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. In making this determination, we consider all available positive and negative evidence affecting specific deferred tax assets, including our past and anticipated future performance, the reversal of deferred tax liabilities, the length of carryback and carryforward periods and the implementation of tax planning strategies. Since this evaluation requires consideration of future events, significant judgment is required in making the evaluation, and our conclusion could be materially different should certain of our expectations not be met. The balance of our valuation allowance was $34.8 million as of December 31, 2017, representing a change of $15.3 million from the valuation allowance of $50.1 million recorded as of December 31, 2016. The primary driver of the valuation allowance movement was determined by the re-measurement of deferred tax assets and corresponding valuation allowance due to the reduction in the U.S. corporate tax rate under The Act as discussed above.

In 2015, management determined that a valuation allowance was no longer required against the deferred tax assets of one of its U.S. branches in Australia. As of December 31, 2015, we had gross deferred tax assets of $1.5 million relating to this subsidiary. The benefit of these deferred tax assets is reflected as a credit to tax expense of $0.5 million during the year ended December 31, 2015.

In 2016, management determined that a valuation allowance was no longer required against the deferred tax assets of its U.S. branches in New Zealand and Singapore. As of December 31, 2016, we had gross deferred tax assets of $8.4 million relating to those foreign subsidiaries. The benefit of these deferred tax assets is reflected as a credit of $1.7 million to tax expense during the year ended December 31, 2016.

In 2017, management determined that a valuation allowance was no longer required against the deferred tax assets of certain of its U.S. branches in Spain, Taiwan, Thailand and Mexico. As of December 31, 2017, we had gross deferred tax assets of $0.9 million relating to those foreign subsidiaries. The benefit of these deferred tax assets is reflected as a credit of $0.2 million to tax expense during the year ended December 31, 2017.

As of December 31, 2017, we had approximately $81.7 million of U.S. federal loss carry-forwards available to reduce future U.S. federal taxable income. The U.S. federal loss carry-forwards expire between 2025 and 2035. As of December 31, 2017, we had approximately $65.0 million of state loss carry-forwards available to reduce future state taxable income. The state loss carry-forwards expire between 2018 and 2037 and are subject to certain limitations. The U.S. federal and state loss carry-forwards at December 31, 2017, reflect adjustments for current period write-downs associated with ownership changes for state tax purposes.

Generally, we have not provided deferred taxes on the undistributed earnings of international subsidiaries as we consider these earnings to be permanently reinvested. As it relates to the earnings of our Brazilian subsidiary, we assert that we are not permanently reinvested. We did not provide additional incremental U.S. income tax expense on these amounts as our Brazilian subsidiary did not have undistributed earnings during the year.

On December 30, 2016, the Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code (“IRC”). This ownership change resulted in an annual IRC Section 382 limitation that limits the use of certain tax attribute carry-forwards and also resulted in the write-off of certain deferred tax assets and the related valuation allowances that the Company recorded in 2017. The Company has performed its assessment and has determined that $87.3M million of the gross federal net operating losses outstanding as of December 30, 2016 will be available for use going-forward.

A reconciliation of our beginning and ending amount of unrecognized tax benefits and related accrued interest thereon is as follows:



	Unrecognized Tax Benefits			Accrued Interest and Penalties
Balance at January 1, 2015	$	677		$	220
Additions based on tax positions related to the current year	—			—
Additions based on tax positions related to the prior years	—			24
Decrease based on payments made during the year	—			—
Decreases based on tax positions related to the prior years	$	(142	)	$	(42	)
Balance at December 31, 2015	$	535		$	202
Additions based on tax positions related to the current year	—			—
Additions based on tax positions related to the prior years	—			11
Decreases based on payments made during the year	—			—
Decreases based on tax positions related to the prior years	(38		)	(59		)
Balance at December 31, 2016	$	497		$	154
Additions based on tax positions related to the current year	—			—
Additions based on tax positions related to the prior years	116			19
Decreases based on payments made during the year	—			—
Decreases based on tax positions related to the prior years	(420		)	(145		)
Balance at December 31, 2017	$	193		$	28

Due to the complexity of the tax rules underlying these unrecognized tax benefits, and the unclear timing of tax audits, tax agency determinations, and other events, we cannot establish reasonably reliable estimates for the periods in which the cash settlement of these liabilities will occur.

We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. As of December 31, 2017, the 2014 through 2016 tax years generally remain subject to examination by federal and most state and foreign tax authorities. The use of net operating losses generated in tax years prior to 2014 may also subject returns for those years to examination.