10. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Internal Revenue Service (the "IRS") has completed examinations of the Company's U.S. income tax returns or the statute of limitations has passed on returns for the years through 2010. The Company's 2011 and 2012 U.S. income tax returns are currently under examination by the IRS. The IRS has sought to disallow certain research credits on the Company's 2011 U.S. income tax return. The Company is actively appealing the IRS's initial findings. The Company believes the research credits taken are appropriate and intends to vigorously defend its position. The amount of adjustment, if any, and the timing of such adjustment is not reasonably estimable at this time.

As of December 31, 2015, the Company had U.S. federal tax net operating loss carry forwards of approximately $2.7 million that will begin to expire in 2020 if not utilized. Utilization of net operating losses may be subject to an annual limitation due to the "change in ownership" provisions of the Code. The annual limitation may result in the expiration of net operating losses before utilization.

Significant components of the provision for income taxes are as follows (in thousands):

	Year Ended December 31,
	2015		2014		2013
Current:
Federal	$	6,394	$	10,973	$	7,292
State		772		1,846		883
Foreign		1,165		876		286
Total current		8,331		13,695		8,461

Deferred:
Federal		1,057		550		1,455
State		170		112		149
Foreign		270		-		-
Total deferred		1,497		662		1,604
Total provision for income taxes	$	9,828	$	14,357	$	10,065

The components of pretax income for the years ended December 31, 2015, 2014 and 2013 are as follows (in thousands):

	Year Ended December 31,
	2015			2014			2013
Domestic		$	26,958		$	33,937		$	29,280
Foreign			5,877			3,583			2,217
Total		$	32,835		$	37,520		$	31,497

For the year ended December 31, 2015 and 2014, foreign operations included Canada, China, India, and the United Kingdom.

For the year ended December 31, 2013, foreign operations included Canada, China, and India.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred taxes as of December 31, 2015 and 2014 are as follows (in thousands):

	December 31,
	2015		2014
Deferred tax assets:
Accrued liabilities	$	1,164	$	1,172
Bad debt reserve		290		352
Net operating losses		1,051		1,265
Deferred compensation		3,375		3,060
Intangibles		646		-
Acquisition-related costs		-		380
Total deferred tax assets		6,526		6,229
Deferred tax liabilities:
Prepaid expenses		1,380		809
Equity in undistributed foreign earnings		-		125
Goodwill and intangibles		12,570		12,176
Fixed assets		1,039		1,352
Total deferred tax liabilities		14,989		14,462
Net deferred tax liability	$	8,463	$	8,233

Management regularly assesses the likelihood that deferred tax assets will be recovered from future taxable income. To the extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. Management believes it is more likely than not that the Company will generate sufficient taxable income in future years to realize the benefits of its deferred tax assets.

The federal corporate statutory tax rate is reconciled to the Company's effective income tax rate as follows:

	Year Ended December 31,
	2015		2014		2013
Federal statutory rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	4.0		4.5		4.3
Effect of foreign operations	(2.6)		(1.0)		(1.3)
Stock compensation	3.4		2.6		1.7
Non-deductible acquisition costs	0.3		0.7		0.2
Research and development tax credit	(9.0)		(3.3)		(5.7)
U.S. domestic production deduction	(1.0)		(0.9)		(3.1)
Other	(0.2)		0.7		0.9
Effective tax rate	29.9	%	38.3	%	32.0	%

The effective income tax rate decreased to 29.9% for the year ended December 31, 2015 from 38.3% for the year ended December 31, 2014. The effective rate for the year ended December 31, 2015 included the tax benefit for the 2015 research and development tax credit and domestic production deduction which were higher than the 2014 benefit. The effective tax rate for the year ended December 31, 2014 included a lower estimate of the tax benefit for the 2014 research and development credit and domestic production deduction.

Of the total cash and cash equivalents reported on the consolidated balance sheet as of December 31, 2015 of $8.8 million, approximately $6.6 million was held by the Company's Chinese operations and is considered to be indefinitely reinvested in those operations. The Company has no intention of repatriating cash from its Chinese operations in the foreseeable future.

Under the provisions of the ASC Subtopic 740-10-25, Income Taxes - Recognition, the Company had an unrecognized tax benefit of $1.0 and $0.5 million as of December 31, 2015 and 2014, respectively. If the Company's assessment of unrecognized tax benefits is not representative of actual outcomes, the Company's financial statements could be significantly impacted in the period of settlement or when the statute of limitations expires.

The following table is a reconciliation of beginning and ending balances of total amounts of gross unrecognized tax benefits (in thousands):

	December 31,
	2015			2014
Balance at beginning of year	$	545		$	519
Unrecognized tax benefits related to current year		460			211
Reductions for tax positions of prior years		(48	)		(185	)
Balance at end of year	$	957		$	545