NOTE 4. INCOME TAXES

Income before provision for income taxes consisted of the following:

(in thousands)	Year Ended December 31,
	2016			2015			2014
U.S.	$	67,199		$	66,889		$	76,848
Foreign		(268	)		(512	)		(287	)
	$	66,931		$	66,377		$	76,561

The provision for income taxes consisted of the following:

(in thousands)	Year Ended December 31,
	2016		2015			2014
Current:
U.S. Federal	$	17,203	$	7,976		$	7,494
State		2,049		1,851			2,139
Foreign		1,683		1,645			1,572
		20,935		11,472			11,205
Deferred:
U.S. Federal		4,005		13,201			17,986
State		3,039		1,538			1,927
Foreign		701		(304	)		(266	)
		7,745		14,435			19,647
Total	$	28,680	$	25,907		$	30,852

The reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate is as follows:

	Year Ended December 31,
	2016			2015			2014
U.S. federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		4.2			4.2			4.1
State deferred tax rate change, net of federal benefit		2.0			(0.4	)		0.1
Valuation allowance		1.1			—			—
Other		0.6			0.2			1.1
		42.9	%		39.0	%		40.3	%

The following table shows the deferred income taxes related to the temporary differences between the tax bases of assets and liabilities and the respective amounts included in “Deferred income taxes, net” on the Company’s Consolidated Balance Sheets:

(in thousands)	December 31,
	2016		2015
Deferred tax liabilities:
Accelerated depreciation	$	293,141	$	286,618
Prepaid costs currently deductible		6,572		6,997
Other		5,747		5,034
Total deferred tax liabilities		305,460		298,649
Deferred tax assets:
Accrued costs not yet deductible		9,785		8,638
Allowance for doubtful accounts		809		804
Net operating loss carry forwards		—		577
Deferred revenues		965		1,945
Share-based compensation		1,882		3,334
Total deferred tax assets, net of valuation allowance of $0.7 million in 2016		13,441		15,298
Deferred income taxes, net	$	292,019	$	283,351

In December 2016, the Company decided to exit the Bangalore, India branch operations of its TRS-RenTelco electronics division. The wind down of operations in India will begin in 2017. As a result, a valuation allowance of $0.7 million was recorded against the deferred tax assets that resulted primarily from accumulated net operating loss carry forwards in India as of December 31, 2016 that management estimated the benefit of which will not be realized. There were no valuation allowances recorded as of December 31, 2015.

In 2016 and 2015 exercises of non-qualified stock options by employees resulted in a tax shortfall of $1.1 million and $0.3 million, respectively. In 2014 exercises of non-qualified stock options by employees resulted in an excess tax benefit of $1.8 million. The net tax benefit was recorded as common stock in conjunction with the proceeds received from the exercise of the stock options.

A deferred U.S. tax liability has not been provided on the undistributed earnings of certain foreign subsidiaries because it is the Company’s intent to permanently reinvest such earnings. Undistributed earnings of foreign subsidiaries, which have been or are intended to be permanently reinvested, aggregated approximately $1.9 million as of December 31, 2016 and 2015.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company evaluated all of its tax positions for which the statute of limitations remained open and determined there were no material unrecognized tax benefits as of December 31, 2016 and 2015. In addition, there have been no material changes in unrecognized benefits during 2016, 2015 and 2014.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to interpretation of the related tax laws and regulations and require the application of significant judgment. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2012.

Our income tax returns are subject to examination by federal, state and foreign tax authorities. There may be differing interpretations of tax laws and regulations, and as a result, disputes may arise with these tax authorities involving the timing and amount of deductions and allocation of income.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes for all periods presented. Such interest and penalties were not significant for the years ended December 31, 2016, 2015 and 2014.