(5) Income Taxes

Income before income taxes consists of the following (in thousands):

	Years Ended December 31,
	2015		2014		2013
Domestic	$	11,347	$	12,939	$	13,557
Foreign		7,973		5,450		6,435
Total	$	19,320	$	18,389	$	19,992

The components of the income tax provision (benefit) are as follows (in thousands):

	Years Ended December 31,
	2015			2014			2013
Current:
Federal	$	5,103		$	11,644		$	8,286
State		1,252			2,239			1,624
Foreign		1,954			1,167			1,587
Total current		8,309			15,050			11,497
Deferred:
Federal		(723	)		(6,470	)		(3,935	)
State		(232	)		(1,095	)		(562	)
Foreign		(30	)		39			(32	)
Total deferred		(985	)		(7,526	)		(4,529	)
Income tax provision	$	7,324		$	7,524		$	6,968

A reconciliation of the federal statutory rate to Forrester’s effective tax rate is as follows:

	Years Ended December 31,
	2015			2014			2013
Income tax provision at federal statutory rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in tax resulting from:
State tax provision, net of federal benefit		4.0			4.2			3.4
Foreign tax rate differential		(2.7	)		(3.2	)		(4.9	)
Stock option compensation deduction		2.5			2.6			2.0
Non-deductible expenses		1.7			1.1			2.4
Change in valuation allowance		(0.7	)		(1.0	)		0.5
Change in tax legislation		(3.1	)		—			—
Foreign tax credits		—			—			(3.7	)
Out-of-period adjustment		—			2.5			—
Other, net		1.2			(0.3	)		0.2
Effective tax rate		37.9	%		40.9	%		34.9	%

In July 2015 the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. The opinion invalidates part of a treasury regulation requiring stock-based compensation to be included in any qualified intercompany cost-sharing arrangement. We have reviewed this case and concluded that recording a tax benefit of $0.6 million during 2015, representing the benefit of adjusting our cost-sharing agreement for the years of 2012 through 2014, was appropriate based on the opinion in the case. This benefit is included in the change in tax legislation line in the table above. We will continue to monitor ongoing developments and potential impacts to our consolidated financial statements.

The components of deferred income taxes are as follows (in thousands):

	As of December 31,
	2015			2014
Non-deductible reserves and accruals	$	9,795		$	10,164
Net operating loss and other carryforwards		7,862			9,070
Stock compensation		5,900			5,086
Depreciation and amortization		813			—
Other assets		490			838
Gross deferred tax asset		24,860			25,158
Less - valuation allowance		(1,534	)		(1,565	)
Sub-total		23,326			23,593
Depreciation and amortization		—			(799	)
Goodwill amortization		(5,097	)		(5,224	)
Deferred commissions		(5,344	)		(5,399	)
Net deferred tax asset	$	12,885		$	12,171

In November 2015 the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. This standard requires all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. Each tax jurisdiction will now only have one net noncurrent deferred tax asset or liability. The Company adopted the new standard as of December 31, 2015. Deferred tax assets and liabilities for all years prior to 2015 continue to be classified under the prior standard that required net deferred taxes to be classified as either current and noncurrent based on the guidelines in the prior standard. Long-term net deferred tax assets were $13.1 million as of December 31, 2015 and are included in other assets in the Consolidated Balance Sheets. Long-term net deferred tax liabilities were $0.2 million as of December 31, 2015 and are included in non-current liabilities in the Consolidated Balance Sheets. Current net deferred tax assets and net long-term deferred tax assets were $4.6 million and $7.9 million, respectively, as of December 31, 2014 and are included in prepaid and other current assets and other assets, respectively, in the Consolidated Balance Sheets. Current net deferred tax liabilities and net long-term deferred tax liabilities were $0.2 million and $0.1 million as of December 31, 2014 and are included in other current liabilities and non-current liabilities, respectively, in the Consolidated Balance Sheets.

The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred income tax asset. Judgment is required in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. Although realization is not assured, based upon the Company’s historical taxable income and projections of the Company’s future taxable income over the periods during which the deferred tax assets are deductible and the carryforwards expire, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances, as discussed below.

As of December 31, 2015 and 2014, the Company maintained a valuation allowance of approximately $1.5 million and $1.6 million, respectively, primarily relating to foreign net operating loss carryforwards from an acquisition and U.S. capital losses.

As of December 31, 2015, the Company had U.S. federal net operating loss carryforwards of approximately $3.0 million obtained from acquired businesses. These carryforwards are limited pursuant to section 382 of the Internal Revenue Code due to changes in ownership as a result of the acquisitions. If unused, these carryforwards would expire in 2020.

The Company also has foreign net operating loss carryforwards of approximately $22.1 million, which can be carried forward indefinitely. Approximately $4.4 million of the foreign net operating loss carryforwards relate to a prior acquisition, the utilization of which is subject to limitation under the tax law of the United Kingdom.

As of December 31, 2015, the Company had U.S. federal and state capital loss carryforwards of $1.1 million, of which $0.7 million expires in 2016 and $0.4 million expires in 2018.

The following table provides a summary of the changes in the deferred tax valuation allowance for the years ended December 31, 2015, 2014 and 2013 (in thousands):

	2015			2014			2013
Deferred tax valuation allowance at January 1	$	1,565		$	2,200		$	2,086
Additions		150			17			801
Deductions		(134	)		(574	)		(712	)
Translation adjustments		(47	)		(78	)		25
Deferred tax valuation allowance at December 31	$	1,534		$	1,565		$	2,200

During the years ended December 31, 2015 and 2013, the Company recognized approximately $0.2 million and $0.3 million, respectively, of net tax deficiencies from tax deductions less than book deductions resulting from employee stock option exercises. Net tax benefits were insignificant for the year ended December 31, 2014. The net tax deficiencies were recorded as a decrease to additional paid-in-capital. Excess tax benefits from share-based payments are recognized in the year that the deduction reduces the amount of cash payable for taxes.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $18.9 million as of December 31, 2015. The Company has not provided any additional federal or state income taxes or foreign withholding taxes on the undistributed earnings as such earnings have been indefinitely reinvested in the business. Due to the various methods by which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings is not practicably determinable.

The Company utilizes a two-step process for the measurement of uncertain tax positions that have been taken or are expected to be taken on a tax return. The first step is a determination of whether the tax position should be recognized in the financial statements. The second step determines the measurement of the tax position. A reconciliation of the beginning and ending amount of unrecognized tax benefits is summarized as follows for the years ended December 31, 2015, 2014 and 2013 (in thousands):

	2015			2014			2013
Unrecognized tax benefits at January 1	$	2,136		$	2,012		$	1,844
Additions for tax positions of prior years		36			6			414
Reductions for tax positions of prior years		—			—			(256	)
Additions for tax positions of current year		46			121			19
Settlements		(303	)		—			—
Lapse of statute of limitations		—			—			—
Translation adjustments		(5	)		(3	)		(9	)
Unrecognized tax benefits at December 31	$	1,910		$	2,136		$	2,012

As of December 31, 2015, the total amount of unrecognized tax benefits totaled approximately $1.9 million, all of which if recognized, would decrease our effective tax rate in a future period. It is not expected that a significant amount of unrecognized tax benefits would be recognized within the next 12 months.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and such amounts were not significant in the years ended December 31, 2015, 2014 and 2013. At December 31, 2015 and 2014, the Company had $0.2 million and $0.2 million, respectively, of accrued interest and penalties related to uncertain tax positions.

The Company files income tax returns in the U.S. and in foreign jurisdictions. Generally, the Company is no longer subject to U.S., state, local and foreign income tax examinations by tax authorities in its major jurisdictions for years before 2009, except to the extent of net operating loss and tax credit carryforwards from those years. Major taxing jurisdictions include the U.S., the Netherlands, the United Kingdom, Germany and Switzerland. During 2014 the Internal Revenue Service completed the audit of the Company’s 2011 consolidated Federal income tax return and there were no material adjustments. The Company is currently under audit by the Internal Revenue Service for the Company’s amended 2010 consolidated Federal income tax return and anticipates that the audit will be completed by mid-year 2016. In addition, the Company recently received notification from a state challenging approximately $0.8 million of tax benefits recorded during 2015 and prior years. As of December 31, 2015, there is no reserve recorded.