NOTE 4. INCOME TAXES

On a quarterly basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances, including discrete events, by each tax jurisdiction. Our effective tax rate for the three and nine months ended September 30, 2016 was (26%) and 51%, respectively. Our effective tax rate for the three and nine months ended September 30, 2015 was 38% and 36%, respectively. The effective tax rate for the year ended December 31, 2016 is expected to be 32% compared to 36% for the year ended December 31, 2015. The decrease is due mainly to the impact of the federal research and development credit.

The differences between federal income taxes computed at the federal statutory rate and reported income taxes for the three and nine months ended September 30, 2016 and 2015 are as follows:

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2016			2015			2016			2015
Statutory federal tax benefit	$	17,000		$	(57,000	)	$	(38,000	)	$	(327,000	)
State income taxes (benefits)	8,000			(6,000		)	24,000			(32,000		)
Income tax credits	(20,000		)	(14,000		)	(60,000		)	(39,000		)
Return to provision true up	(22,000		)	5,000			(22,000		)	5,000
Foreign tax benefit	44,000			—			44,000			—
Other	(40,000		)	(4,000		)	(4,000		)	(4,000		)

Income tax benefit	$	(13,000	)	$	(76,000	)	$	(56,000	)	$	(397,000	)

At September 30, 2016, we had $48,000 of net uncertain tax benefit positions remaining in other long-term liabilities related to research and development credits that would increase our effective income tax rate if recognized. At December 31, 2015, we had $51,000 of net uncertain tax benefit postions recorded in other long-term liabilities that would reduce our effective income tax rate if recognized.

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, “Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes” which requires that deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet. The amendment takes effect for public entities for fiscal years beginning after December 15, 2016, with early adoption available. We have adopted the standard in this report and reclassified comparative periods for consistency.