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Income Taxes
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The Company recorded income tax provisions for continuing operations of $38.2 million, $27.2 million, and $48.6 million, during the years ended December 31, 2016, 2015 and 2014, respectively.
The effective tax rates for the respective periods are shown below:
 
Year Ended December 31,
 
2016
 
2015
 
2014
Federal provision
35.0
 %
 
35.0
 %
 
35.0
 %
State provision(1)
2.3
 %
 
0.2
 %
 
8.7
 %
International benefit(2)
(3.6
)%
 
(7.8
)%
 
(3.0
)%
Tax reserves(3)
(3.2
)%
 
(2.0
)%
 
(3.8
)%
Permanent items(4)
14.7
 %
 
6.0
 %
 
4.3
 %
Increase (decrease) in valuation allowance(5)
20.7
 %
 
(5.6
)%
 
0.0
 %
Other(6)
0.7
 %
 
1.9
 %
 
(6.9
)%
Effective rate
66.6
 %
 
27.7
 %
 
34.3
 %
________________________
(1)
Change from 2014 to 2015 relates primarily to a beneficial settlement with a state tax authority.
(2)
Relates primarily to the lower tax rate on the income attributable to international operations.
(3)
Represent release of reserves taken for certain tax positions.
(4)
Represents a provision for nondeductible items, including overall foreign loss in 2016 and a settlement with the Consumer Finance Protection Bureau (“CFPB”) in 2015. The Company incurred a $10.0 million civil monetary penalty related to a settlement with the CFPB during the year ended December 31, 2015, which is not deductible for income tax purposes.
(5)
Valuation allowance increased in 2016 due to a foreign subsidiary’s cumulative operating loss.
(6)
Includes the effect of discrete items, primarily relates to the recognition of tax benefit as a result of a favorable tax settlement with taxing authorities as discussed below.
The pretax income (loss) from continuing operations consisted of the following (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Domestic
$
112,483

 
$
59,056

 
$
120,461

Foreign
(55,108
)
 
38,877

 
21,181

 
$
57,375

 
$
97,933

 
$
141,642


The income tax provisions for continuing operations consisted of the following (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Current expense:
 
 
 
 
 
Federal
$
58,816

 
$
38,831

 
$
68,142

State
1,173

 
363

 
7,538

Foreign
10,364

 
7,124

 
3,752

 
70,353

 
46,318

 
79,432

Deferred (benefit) expense:
 
 
 
 
 
Federal
(22,951
)
 
(18,755
)
 
(34,479
)
State
25

 
(610
)
 
2,698

Foreign
(9,222
)
 
209

 
918

 
(32,148
)
 
(19,156
)
 
(30,863
)
 
$
38,205

 
$
27,162

 
$
48,569


The differences between the total income tax expense and the income tax expense computed using the applicable federal income tax rate of 35.0% per annum were as follows (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Computed “expected” Federal income tax expense
$
20,081

 
$
34,277

 
$
49,578

(Decrease) increase in income taxes resulting from:
 
 
 
 
 
State income taxes, net
1,331

 
637

 
7,975

Foreign non-taxed income, rate differential
(2,076
)
 
(7,609
)
 
(5,453
)
Other adjustments, net
18,869

 
(143
)
 
(3,531
)
 
$
38,205

 
$
27,162

 
$
48,569


The Company’s subsidiary in Costa Rica is operating under a 100% tax holiday through December 31, 2018 and a 50% tax holiday for the subsequent four years. The impact of the tax holiday in Costa Rica for the year ended December 31, 2016 was immaterial.
The Company has not provided for U.S. income taxes or foreign withholding taxes on the undistributed earnings from continuing operations of its subsidiaries operating outside of the United States. Undistributed net income of these subsidiaries as of December 31, 2016, were approximately $86.2 million. Such undistributed earnings are considered permanently reinvested. The Company does not provide deferred taxes on translation adjustments on unremitted earnings under the indefinite reversal exception. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable due the complexities of a hypothetical calculation.
The components of deferred tax assets and liabilities consisted of the following (in thousands):
 
December 31,
2016
 
December 31,
2015
Deferred tax assets:
 
 
 
Stock-based compensation expense
$
7,549

 
$
1,301

Accrued expenses
19,868

 
7,220

Differences in income recognition related to receivable portfolios
45,419

 
33,652

State and international operating losses
26,386

 
15,234

Difference in basis of depreciable assets
3,427

 
3,069

Capitalized legal fees—international
171

 
4,143

Cumulative translation adjustment
715

 
958

Tax benefit of uncertain tax positions
677

 
1,349

Difference in basis of bond and loan costs
3,007

 
9,480

Other
1,077

 
2,372

Valuation allowance
(18,892
)
 
(4,517
)
 
89,404

 
74,261

Deferred tax liabilities:
 
 
 
State taxes
(377
)
 
(707
)
Deferred court costs
(19,860
)
 
(25,277
)
Difference in basis of amortizable assets
(16,488
)
 
(11,044
)
Difference in basis of depreciable assets
(7,705
)
 
(8,932
)
Differences in income recognition related to receivable portfolios
—

 
(17,432
)
Deferred debt cancellation income
(1,313
)
 
(1,957
)
Other
(242
)
 
(46
)
 
(45,985
)
 
(65,395
)
Net deferred tax asset(1)
$
43,419

 
$
8,866

________________________ 
(1)
The Company operates in multiple jurisdictions. In accordance with authoritative guidance relating to income taxes, deferred tax assets and liabilities are netted for each tax-paying component of the Company within a particular tax jurisdiction, and presented as a single amount in the statement of financial condition.
Certain of the Company’s foreign subsidiaries have net operating loss carry forwards in the amount of approximately $87.9 million, which can be carried forward indefinitely. One of the Company’s domestic subsidiaries has a net operating loss carry forward in the approximate amount of $1.6 million which will begin to expire in 2024 unless previously utilized. Certain of the Company’s domestic subsidiaries have state net operating loss carry forwards in the amount of approximately $8.3 million, which will generally begin to expire in 2026.
Valuation allowances are recognized on deferred tax assets if the Company believes that it is more likely than not that some or all of the deferred tax assets will not be realized. The Company believes the majority of the deferred tax assets will be realized due to the reversal of certain significant temporary differences and anticipated future taxable income from operations. As of December 31, 2016, valuation allowance increased to $18.9 million, as compared to $4.5 million as of December 31, 2015. The increase in the valuation allowance was primarily related to the recording of a valuation allowance at one of the Company’s foreign subsidiaries that has incurred cumulative operating loss during the year ended December 31, 2016. The Company believes that it is more likely than not that the net operating loss carryforwards will not be realized at this jurisdiction, therefore, the Company has recorded a valuation allowance against the previously established deferred tax assets.
A reconciliation of the beginning and ending amount of the Company’s unrecognized tax benefit is as follows (in thousands):
 
Amount
Balance at December 31, 2013
$
71,273

Increases related to current and prior year tax positions
34,356

Decreases related to settlements with taxing authorities
(67,204
)
Balance at December 31, 2014
38,425

Increases related to prior year tax positions
5,835

Increases related to current year tax positions
11,882

Decreases related to prior year tax positions
(8,193
)
Balance at December 31, 2015
47,949

Increases related to prior year tax positions
2,505

Increases related to current year tax positions
1,259

Decreases related to settlements with taxing authorities
(31,111
)
Decreases related to prior year tax positions
(1,657
)
Balance at December 31, 2016
$
18,945


The Company had gross unrecognized tax benefits, inclusive of penalties and interest, of $21.2 million, $58.5 million and $44.4 million at December 31, 2016, 2015, and 2014 respectively. At December 31, 2016, 2015 and 2014, there were $7.1 million, $14.9 million and $12.7 million, respectively, of unrecognized tax benefits that if recognized, would result in a net tax benefit. During the year ended December 31, 2016, the decrease in the Company’s gross unrecognized tax benefit was primarily related to the settlement with tax authorities for unrecognized tax benefits associated with amortization of receivable portfolios. During the year ended December 31, 2015, the increase in the Company’s gross unrecognized tax benefit was primarily associated with certain business combinations. During the year ended December 31, 2014, the decrease in total gross unrecognized tax benefits was due to a favorable tax settlement in November 2014 with taxing authorities related to a previously uncertain tax position. The result of the settlement was a reduction in the unrecognized tax benefit offset by an increase in current taxes payable and deferred tax liabilities. Additionally, the Company recorded a net tax benefit as a result of the settlement of approximately $7.5 million. The uncertain tax benefit is included in “Other liabilities” in the Company’s consolidated statements of financial condition.
The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, it is reasonably possible that certain changes may occur within the next 12 months, which could significantly increase or decrease the balance of the Company’s gross unrecognized tax benefits.
The Company recognizes interest and penalties related to unrecognized tax benefits in its tax expense. The Company recognized expense of approximately $0.5 million, $0.3 million and $1.3 million in interest and penalties during the years ended December 31, 2016, 2015 and 2014, respectively. Interest and penalties accrued as of December 31, 2016 and 2015 were $2.2 million and $0.5 million, respectively.
The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2013 through 2016 tax years remain subject to examination by federal taxing authorities, 2012 through 2016 tax years generally remain subject to examination by state tax authorities, and the 2013 through 2016 tax years remain subject to examination by foreign tax authorities. Tax years from 2008 forward remain open at certain of the Company’s subsidiaries for adjustment for federal and state tax purposes.