8.	INCOME TAXES

The Company’s income tax provision for the first quarter of fiscal 2017 and 2016 reflects estimates of the effective tax rates expected to be applicable for the full fiscal years, adjusted for any discrete events which are recorded in the period they occur.

The Company recorded income tax (benefit) expense of $(1.1) million and $0.2 million in the first quarter of fiscal 2017 and fiscal 2016, respectively. The effective tax rate was 28% during the first quarter of fiscal 2017 compared to 27% for the same period in the prior year. The difference in rates was primarily due to jurisdictional mix and lower forecasted book income in fiscal 2017. The estimated annual effective tax rate increased to 30% from 28% in the previous fiscal year 2016. The difference in rates is primarily due to jurisdictional mix.

The gross amount of unrecognized tax benefits was $1.5 million at April 30, 2016, including interest and penalties. As a result of adoption of ASU 2013-11, the Company reduced its unrecognized tax benefits by $1.0 million with an accompanying reduction of deferred tax assets by $1.0 million. The entire amount of unrecognized tax benefits, if recognized, will impact the Company’s effective tax rate. This liability is classified as long-term unless the liability is expected to conclude within twelve months of the reporting date. In the next twelve months, due to potential settlements with domestic tax authorities related to tax credits and lapse in statute of limitations, an estimated $0.1 million of gross unrecognized tax benefits may be recognized.

The Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. As of April 30, 2016, the Company has accrued approximately $0.2 million of interest and penalty expense relating to unrecognized tax benefits.

The Company files U.S. federal, state, and foreign tax returns that are subject to audit by various tax authorities. The Company is currently under audit in:

India for fiscal years ended March 31, 1998, 1999, 2010, 2012, 2013 and 2014

Thailand for fiscal year ended 2014

During the first three months of fiscal year 2017, QAD has settled the following audits with immaterial or no adjustments made as a result of the settlements:

Italy for the fiscal years ended 2011, 2012, 2013 and 2014

Wisconsin for the fiscal years ended 2012, 2013 and 2014