Note 12. Income Taxes

The provision for income taxes for continuing operations consists of the following:

(in thousands)	Fiscal 2015			Fiscal 2014		Fiscal 2013
Current:
Domestic:
Federal	$	(53	)	$	759	$	—
State		522			344		43
Foreign		—			—		—
Total current		469			1,103		43
Deferred:
Domestic:
Federal		2,994			20,416		6,333
State		(249	)		2,475		905
Foreign		—			—		(13	)
Total deferred		2,745			22,891		7,225
Total provision for income taxes	$	3,214		$	23,994	$	7,268

The sources of income (loss) for continuing operations before provision for income taxes are from the United States for all years. We file U.S. federal income tax returns and income tax returns in various state and local jurisdictions.

Current income taxes are the amounts payable under the respective tax laws and regulations on each year’s earnings. A reconciliation of the federal statutory income tax rate to the effective tax rate is as follows:

	Fiscal 2015			Fiscal 2014			Fiscal 2013
Statutory federal rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		6.5	%		5.7	%		9.5	%
Nondeductible Tax Receivable Agreement adjustment		4.1	%		0.0	%		0.0	%
Nondeductible interest		0.0	%		0.0	%		18.1	%
Nondeductible transaction costs		0.0	%		0.0	%		6.7	%
Valuation allowance		(0.5	)%		(0.7	)%		(45.5	)%
Return to provision adjustment		(2.4	)%		0.0	%		0.0	%
Changes in tax laws		(3.2	)%		0.0	%		0.0	%
Other		(0.8	)%		0.2	%		(0.1	)%
Total		38.7	%		40.2	%		23.7	%

Deferred income tax assets and liabilities for continuing operations consisted of the following:

(in thousands)	January 30, 2016			January 31, 2015
Deferred tax assets:
Depreciation and amortization	$	17,071		$	29,935
Employee related costs		2,163			3,503
Allowance for asset valuations		2,551			3,172
Accrued expenses		6,088			3,933
Net operating losses		72,465			65,111
Tax credits		812			888
Other		457			90
Total deferred tax assets		101,607			106,632
Less: valuation allowances		(1,024	)		(1,074	)
Net deferred tax assets		100,583			105,558
Deferred tax liabilities:
Cancellation of debt income		(6,657	)		(8,876	)
Other		(482	)		(493	)
Total deferred tax liabilities		(7,139	)		(9,369	)
Net deferred tax assets	$	93,444		$	96,189
Included in:
Prepaid expenses and other current assets	$	4,164		$	4,015
Deferred income taxes and other assets		89,280			92,174
Net deferred income tax assets	$	93,444		$	96,189

As of January 30, 2016, various federal and state net operating losses were available for carryforward to offset future taxable income. Substantially all of these net operating losses will expire between 2030 and 2036. The valuation allowance of $1,024 at January 30, 2016 and $1,074 at January 31, 2015, reflects management’s assessment, based on available information, that it is more likely than not that a portion of the deferred tax assets will not be realized due to the inability to generate sufficient state taxable income. Adjustments to the valuation allowance are made when there is a change in management’s assessment of the amount of deferred tax assets that are realizable.

Net operating losses as of January 30, 2016 presented above do not include fiscal 2015, fiscal 2014 and fiscal 2013 deductions related to stock options that exceeded expenses previously recognized for financial reporting purposes since they have not yet reduced income taxes payable. The excess deduction will reduce income taxes payable and increase additional paid in capital by $2,732 when ultimately deducted in a future year. Net operating losses as of January 31, 2015 presented above do not include fiscal 2014 and fiscal 2013 deductions related to stock options that exceeded expenses previously recognized for financial reporting purposes since they have not yet reduced income taxes payable. The excess deduction will reduce income taxes payable and increase additional paid in capital by $2,675 when ultimately deducted in a future year.

As discussed in Note 2 “The IPO and Restructuring Transactions”, we completed an IPO during fiscal 2013. The completion of the IPO and Restructuring Transactions resulted in the non-Vince businesses being separated from the Vince business. As a result, the Company determined that the full valuation allowance on the U.S. net deferred tax assets was no longer necessary. Since the IPO and Restructuring Transactions occurred between related parties and were considered one integrated transaction along with the establishment of the Tax Receivable Agreement liability, the offset of the release of the valuation allowance was recorded as an adjustment to additional paid-in capital on our Consolidated Balance Sheet at February 1, 2014 in accordance with ASC 740-20-45-11(g). The total valuation allowance on deferred tax assets for continuing operations decreased on a net basis by $50 in the fiscal year ended January 30, 2016 and decreased by $769 in the fiscal year ended January 31, 2015.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:

(in thousands)	Fiscal 2015			Fiscal 2014			Fiscal 2013
Beginning balance	$	4,487		$	3,693		$	9,378
Increases for tax positions in current year		72			2,397			3,743
Increases for tax positions in prior years		27			135			356
Decreases for tax positions in prior years		(2,459	)		(1,738	)		(4,186	)
Settlements		—			—			(3,022	)
Lapse in statute of limitations		—			—			(102	)
Restructuring Transactions		—			—			(2,474	)
Ending balance	$	2,127		$	4,487		$	3,693

As of January 30, 2016 and January 31, 2015, unrecognized tax benefits in the amount of $2,161 (net of tax) and $2,195 (net of tax), respectively, would impact our effective tax rate if recognized. It is reasonably possible that within the next 12 months certain temporary unrecognized tax benefits could fully reverse. Should this occur, our unrecognized tax benefits could be reduced by up to $72.

We include accrued interest and penalties on underpayments of income taxes in our income tax provision. As of January 30, 2016 and January 31, 2015, we did not have any interest and penalties accrued on our Consolidated Balance Sheets. Net interest and penalty provisions (benefit) of $0, $0 and $(232) were recognized in our Consolidated Statements of Operations for the years ended January 30, 2016, January 31, 2015 and February 1, 2014, respectively. Interest is computed on the difference between the tax position recognized net of any unrecognized tax benefits and the amount previously taken or expected to be taken in our tax returns.

All amounts above related to unrecognized tax benefits include continuing and discontinued operations until the separation of the Vince and non-Vince businesses on November 27, 2013, and the Vince business after such date.

With limited exceptions, we are no longer subject to examination for U.S. federal and state income tax for 2007 and prior.