Income Taxes

Federated files a consolidated federal income tax return. Financial statement tax expense is determined under the liability method.

Income tax provision consisted of the following expense/(benefit) components for the years ended December 31:



in thousands	2016			2015		2014
Current:
Federal	$	93,538		$	76,902	$	63,266
State	8,121			6,567		4,574
Foreign	265			188		76
Total Current	101,924			83,657		67,916
Deferred:
Federal	17,057			17,317		20,497
State	597			1,753		916
Foreign	(158		)	193		201
Total Deferred	17,496			19,263		21,614
Total	$	119,420		$	102,920	$	89,530

The reconciliation between the statutory income tax rate and the effective tax rate consisted of the following for the years ended December 31:



	2016		2015		2014
Expected federal statutory income tax rate	35.0	%	35.0	%	35.0	%
Increase/(decrease):
State and local income taxes, net of federal benefit	1.7		1.8		1.1
Other	(0.4	)	0.9		1.3
Effective tax rate (excluding noncontrolling interests)	36.3		37.7		37.4
Income attributable to noncontrolling interests	(1.3	)	(0.3	)	0.0
Effective tax rate per Consolidated Statements of Income	35.0	%	37.4	%	37.4	%

See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption Results of Operations - Income Taxes for information about the decrease in the effective tax rate for 2016 as compared to 2015.

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities consisted of the following at December 31:



in thousands	2016			2015
Deferred Tax Assets
Tax net operating loss carryforwards	$	20,839		$	18,109
Compensation related	11,692			13,130
Other	2,810			6,920
Total deferred tax assets	35,341			38,159
Valuation allowance	(20,419		)	(17,791		)
Total deferred tax asset, net of valuation allowance	$	14,922		$	20,368
Deferred Tax Liabilities
Intangible assets	$	168,748		$	155,212
Property and equipment	8,975			7,882
Deferred sales commissions	4,439			5,270
State taxes	8,723			8,248
Other	515			714
Total gross deferred tax liability	$	191,400		$	177,326
Net deferred tax liability	$	176,478		$	156,958

At December 31, 2016, Federated had deferred tax assets related to state and foreign tax net operating loss carryforwards in certain taxing jurisdictions in the aggregate of $20.8 million, of which the state net operating losses will expire through 2036. The foreign net operating losses have no expiration period. A valuation allowance has been recognized for $18.4 million (or 100%) of the deferred tax asset for state tax net operating losses, and for $2.0 million (or 85%) of the deferred tax asset for foreign tax net operating losses. The valuation allowances were recorded due to management's belief that it is more likely than not that Federated will not realize the full benefit of these net operating losses. Federated's remaining deferred tax assets as of December 31, 2016 primarily related to compensation-related expenses that have been recognized for book purposes but are not yet deductible for tax purposes. Management believes that it is more likely than not that Federated will receive the full benefit of these deferred tax assets due to the expectation that Federated will generate taxable income well in excess of these amounts in the years they become deductible.

At December 31, 2015, Federated had deferred tax assets related to state and foreign tax net operating loss carryforwards in certain taxing jurisdictions in the aggregate of $18.1 million, of which the state net operating losses will expire through 2035. The foreign net operating losses have no expiration period. A valuation allowance has been recognized for $15.6 million (or 99%) of the deferred tax asset for state tax net operating losses, and for $2.2 million (or 92%) of the deferred tax asset for foreign tax net operating losses. The valuation allowances were recorded due to management's belief that it is more likely than not that Federated will not realize the full benefit of these net operating losses.

Federated and its subsidiaries file annual income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and in certain foreign jurisdictions. Based upon its review of these filings, there were no material unrecognized tax benefits as of December 31, 2016 or 2015. Therefore, there were no material changes during 2016, and no reasonable possibility of a significant increase or decrease in unrecognized tax benefits within the next twelve months.