13. Income Taxes

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



	Year Ended December 31,
	2013	2012
Current
Federal	$ -	$ -
State	37	15
Foreign	2,315	2,131
Deferred	(1,670)	(413)
Total income tax provision	$ 682	$ 1,733

The components of earnings before income taxes are summarized below (in thousands):



	Year Ended December 31,
	2013	2012
U.S. operations	$ (2,208)	$ (343)
Foreign	8,160	5,265
Income from continuing operations before income taxes	$ 5,952	$ 4,922

A reconciliation from the statutory U.S. income tax rate and the Company's effective income tax rate, as computed on earnings before income taxes, is as follows:



	Year Ended December 31,
	2013		2012
Federal Income tax at statutory rate	35	%	35	%
State and local income tax, net	(1)		-
Foreign rate differential	(9)		(8)
Uncertain tax positions	-		1
Other	(6)		7
Recognition of prior years' NOLs	(8)		-
Effective income tax expense rate	11	%	35	%

The Company’s provision for income taxes reflects an effective tax rate on earnings before income taxes of 11% in 2013 (35% in 2012). The decrease in the Company’s effective tax rate during 2013 primarily reflects a $1.0 million income tax benefit recognized during the fourth quarter resulting from a corporate legal reorganization by which all of the Company’s directly and indirectly wholly-owned Canadian subsidiaries were amalgamated into a single corporation, Pioneer Electrogroup Canada Inc. These subsidiaries included the Company’s discontinued wind energy equipment business, Pioneer Wind Energy Systems Inc., whose accumulated tax losses since the date its business was first acquired will now be available for future use by the continuing businesses of Pioneer Electrogroup Canada Inc.

The net deferred income tax asset (liability) was comprised of the following (in thousands):



	December 31,
	2013	2012
Current deferred income taxes
Gross assets	$ 1,982	$ 563
Gross liabilities	-	-
Net current deferred income tax asset	1,982	563

Noncurrent deferred income taxes
Gross assets	1,091	700
Gross liabilities	(3,306)	(2,992)
Net noncurrent deferred income tax liability	(2,215)	(2,292)
Net deferred income tax liability	$ (233)	$ (1,729)

The tax effect of temporary differences between GAAP accounting and federal income tax accounting creating deferred income tax assets and liabilities were as follows (in thousands):



	December 31,
	2013	2012
Deferred tax assets
Canada net operating loss carry forwards	$ 1,688	$ 244
Pension plan	80	253
Foreign tax credits	1,064	497
Property and equipment	245	-
Other	477	269
	3,554	1,263
Less valuation allowance	(481)	-
Net deferred tax assets	3,073	1,263
Deferred tax liabilities
Other	(3,306)	(2,992)
Deferred liability, net	$ (233)	$ (1,729)

The Company believes that its deferred tax assets in other tax jurisdictions are more likely than not realizable through future reversals of existing taxable temporary differences and its estimate of future taxable income.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, exclusive of interest and penalties, is as follows (in thousands):



	UTP
Balance as of December 31, 2011	$ 265
Increases related to tax positions taken during the period	52
Decreases related to expectations of statute of limitations	-
Balance as of December 31, 2012	317
Increases related to tax positions taken during the period	13
Decreases related to expectations of statute of limitations	(13)
Balance as of December 31, 2013	$ 317

The Company’s policy is to recognize interest and penalties related to income tax matters as interest expense.

Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although timing of the resolution and/or closure of audits is highly uncertain, the Company does not believe it is reasonably possible that its unrecognized tax benefits would materially change in the next twelve months.