INCOME TAXES

The (benefit from) provision for income taxes consists of the following:

	2017			2016			2015
Current:
Federal	$	(2,570,000	)	$	(268,000	)	$	458,000
State		(6,000	)		(30,000	)		(271,000	)
		(2,576,000	)		(298,000	)		187,000
Deferred:
Federal		(3,854,000	)		(1,369,000	)		(1,053,000	)
State		(720,000	)		(268,000	)		(254,000	)
		(4,574,000	)		(1,637,000	)		(1,307,000	)
	$	(7,150,000	)	$	(1,935,000	)	$	(1,120,000	)

The difference between the statutory federal income tax rate and the Company

’s effective rate is summarized below:

	2017			2016			2015

Statutory federal income tax rate		34.0	%		34.0	%		34.0	%
State franchise taxes (net of federal tax benefit)		6.2			5.2			(23.3	)
State enterprise zone benefits		---			---			134.9
Business meals/gifts		(0.8	)		(2.3	)		(18.8	)
Domestic production activity deduction		---			---			(2.2	)
Dividends received deduction		10.0			24.5			225.7
Reversal of uncertain and unrecognized tax position		37.6			---			---
Penalties for uncertain and unrecognized tax benefits		2.0			---			---
Prior year true-up		1.0			(2.0	)		(7.3	)
Foreign tax credits		2.0			4.0			28.4
Effect of state rate change on beginning balance of deferred tax liabilities		(0.3	)		1.4			(5.0	)
Others		(3.0	)		0.2			(5.5	)
Effective tax rate		88.7	%		65.0	%		360.9	%

The Company’s deferred income tax assets and liabilities were comprised of the following:

	2017			2016			2015
Deferred tax assets attributable to:
Accrued liabilities, including supplemental compensation and vacation pay accrual	$	(69,000	)	$	455,000		$	605,000
Impairment losses on investments		1,376,000			1,382,000			1,369,000
Bad debt reserves not yet deductible		62,000			62,000			82,000
Depreciation and amortization		5,977,000			4,549,000			3,251,000
Deferred revenues		1,431,000			1,555,000			1,378,000
Credits and other		4,403,000			1,519,000			869,000
Total deferred tax assets		13,180,000			9,522,000			7,554,000

Deferred tax liabilities attributable to:
Unrealized gains on investments		(64,550,000	)		(42,250,000	)		(43,278,000	)
Goodwill		(311,000	)		(1,227,000	)		(896,000	)
Total deferred tax liabilities		(64,861,000	)		(43,477,000	)		(44,174,000	)
Net deferred income taxes	$	(51,681,000	)	$	(33,955,000	)	$	(36,620,000	)

During fiscal

2017,

the Company recorded an income tax benefit of

$7,150,000

on pretax loss of

$8,068,000.

The effective tax rate (before the discrete item discussed below) was greater than the statutory rate primarily due to the dividends received deduction which increases the loss for tax purposes. On pretax loss of

$2,978,000

for fiscal

2016,

the Company recorded an income tax benefit of

$1,935,000.

The effective tax rate was greater than the statutory rate mainly resulting from the dividends received deduction. On pretax loss of

$310,000

for fiscal

2015,

the Company recorded a tax benefit of

$1,120,000.

The effective tax rate was greater than the statutory rate mainly resulting from the dividends received deduction, the domestic production activity deduction and a discrete benefit of approximately

$400,000

related to the California Enterprise Zone hiring credits which resulted from the Company’s filing amended California tax returns for fiscal

2010

through fiscal

2013.

The Company’s effective tax rate was

89%,

65%

and

361%

for fiscal

2017,

2016

and

2015,

respectively.

At the beginning of fiscal

2017,

the Company had a liability for uncertain and unrecognized tax benefits in the amount of

$2,723,000

relating to an acquisition in fiscal

2013.

During the

second

quarter of fiscal

2017,

the Internal Revenue Service concluded its examination of the Company’s fiscal

2014

income tax return and proposed

changes to the tax position that gave rise to this liability. Consequently, this liability was reversed in

March 2017

along with the related accrued interest and penalty expenses of

$743,000.

In addition, a deferred tax liability, in the amount of

$352,000,

relating to temporary differences that would only exist if the uncertain tax position was never recognized, was reversed. At

September 30, 2016,

the liability was approximately

$2,723,000,

after a reduction of

$521,000

resulting from the recognition of deferred revenues and from the amortization of goodwill for tax purposes. At

September 30, 2015,

the Company had an

accrued liability of approximately

$2,991,000

for uncertain and unrecognized tax benefits after a reduction of

$253,000.

During

2016

and

2015,

interest expense of approximately

$112,000

and

$96,000,

respectively, was recorded as “interest and penalty expense accrued for uncertain and unrecognized tax benefits” in the consolidated statements of comprehensive income (loss).

A reconciliation of the beginning and ending balance for liabilities associated with these uncertain and unrecognized tax benefits is as follows:

Uncertain Tax Liability

	2017			2016			2015

Beginning balance	$	2,723,000		$	2,991,000		$	3,244,000
Added liability for the prior year		---			---			---
Added liability for the current year		---			---			---
Tax payment upon settlement		---			---			---
Reversal/r educed liability for the current year		(2,723,000	)		(268,000	)		(253,000	)
Ending balance	$	---		$	2,723,000		$	2,991,000

The Company files consolidated federal income tax returns in the United States and with various state jurisdictions and is

longer subject to examinations for fiscal years before fiscal

2015

with regard to federal income taxes and fiscal

2013

for state income taxes.