INCOME TAXES

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



	Years Ended December 31,
	2018			2017			2016
United States	$	(4,673	)	$	(6,502	)	$	(5,306	)
Foreign	9,345			14,020			8,777
	$	4,672		$	7,518		$	3,471

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



	Years Ended December 31,
	2018			2017			2016
Current:
Federal	$	—		$	—		$	—
State	70			1			—
Foreign	2,920			2,230			2,103
	2,990			2,231			2,103
Deferred:
Federal	(145		)	(155		)	—
State	—			—			—
Foreign	(1,524		)	886			(861		)
	(1,669		)	731			(861		)
Total	$	1,321		$	2,962		$	1,242

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,
	2018			2017			2016
Statutory federal income tax rate	$	981		$	2,631		$	1,180
State income taxes, net of federal effect	(285		)	(62		)	(173		)
Net operating loss limitation	—			2,975			—
Adjustment to deferred taxes	939			301			(4,103		)
Change in deferred tax asset valuation allowance	(2,867		)	(15,338		)	4,877
Change in tax law	(992		)	13,850			—
Foreign tax rate differential	1,306			(899		)	(1,153		)
Compensation and equity adjustments	1,474			—			113
Acquisition earnout adjustment	(320		)	87			60
Other permanent differences	183			(682		)	—
Withholding taxes	591			342			441
Changes in uncertain tax positions	19			(429		)	—
Return to provision adjustments	257			155			—
Other, net	35			31			—
Total	$	1,321		$	2,962		$	1,242

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,
	2018		2017
Deferred income tax assets:
Accounts payable and accrued expenses	$	714	$	1,215
Accrued payroll and related expenses	2,315		1,691
Stock-based compensation expense	2,336		3,508
Depreciation of property and equipment	853		1,711
Capitalized software	119		—
Unbilled receivables and refund liabilities	97		1,811
Operating loss carry-forwards of foreign subsidiary	9,484		11,000
Federal operating loss carry-forwards	17,109		17,161
State operating loss carry-forwards	4,537		3,591
Other	1,624		376
Gross deferred tax assets	39,188		42,064
Less valuation allowance	31,597		34,776
Gross deferred tax assets net of valuation allowance	7,591		7,288
Deferred income tax liabilities:
Intangible assets	1,269		1,987
Capitalized software	—		29
Other	3,427		3,734
Gross deferred tax liabilities	4,696		5,750
Net deferred tax assets	$	2,895	$	1,538

Our reported effective tax rates on income approximated 28.3% in 2018, 39.4% in 2017, and 35.8% in 2016. 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 allowed 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 was expected during the 2018 calendar year, we considered the accounting of the transition tax, deferred tax re-measurements, and other items to be incomplete as of December 31, 2017, though we recorded provisional amounts in the consolidated financial statements. As of December 31, 2018, we have completed our analysis related to the Tax Act in accordance with SAB 118 and there was no additional adjustment required.

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. During 2017, the U.S. deferred tax assets were reduced by $13.9 million and the valuation allowance was also reduced by $13.9 million, resulting in no net impact to the effective tax rate for the year ended December 31, 2017. During 2018, the Company finalized the accounting for this item resulting in a $0.6 million increase to both the U.S. deferred tax assets and the valuation allowance, with no impacts to tax expense or the effective tax rate. In addition, the Alternative Minimum Tax (“AMT”) was repealed for tax years beginning after December 31, 2017 and the AMT credit will be refundable in future years. As 50% of this credit will be refundable along with the 2018 tax return, that portion was reclassified to a current asset on the balance sheet. 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 was 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. No amounts were recorded during 2018, and the accounting for this item is considered complete. 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, 2018.

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 released the valuation allowance on our UK deferred tax assets during the year ended December 31, 2018. 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 $31.6 million as of December 31, 2018, representing a change of $3.2 million from the valuation allowance of $34.8 million recorded as of December 31, 2017. The primary driver of the valuation allowance movement was determined by the release of the valuation allowances against the deferred tax assets in France and the UK.

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.

In 2018, management determined that a valuation allowance was no longer required against the deferred tax assets of the UK subsidiary and U.S. branch in France. As of December 31, 2018, we had gross deferred tax assets of $6.6 million relating to those foreign subsidiaries. The benefit of these deferred tax assets is reflected as a credit of $1.2 million to tax expense during the year ended December 31, 2018.

As of December 31, 2018, we had approximately $81.5 million of U.S. federal loss carry-forwards available to reduce future U.S. federal taxable income. Approximately $80.9 million of the U.S. federal loss carry-forwards expire between 2026 and 2035. The remaining $0.6 million of U.S. federal loss carry-forwards do not expire. As of December 31, 2018, we had approximately $70.9 million of state loss carry-forwards available to reduce future state taxable income. The state loss carry-forwards expire between 2022 and 2037 and are subject to certain limitations. The U.S. federal and state loss carry-forwards at December 31, 2018, reflect adjustments for prior period write-downs associated with ownership changes.

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 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 $87.3 million of the gross federal net operating losses outstanding as of December 30, 2016 will be available for use going-forward. The Company utilized $6.4 million of these losses on the 2017 U.S. federal tax return and the remaining $80.9 million remains available.

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, 2016	$	535		$	202
Additions based on tax positions related to the current year	—			—
Additions based on tax positions related to the prior years	—			11
Decrease 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
Additions based on tax positions related to the current year	4			—
Additions based on tax positions related to the prior years	10			6
Decreases based on payments made during the year	—			—
Decreases based on tax positions related to the prior years	—			—
Balance at December 31, 2018	$	207		$	34

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. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. As of December 31, 2018, the 2015 through 2017 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 2015 may also subject returns for those years to examination.