I. INCOME TAXES

The calculation of the effective tax rate is as follows (in thousands):

	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016			2015
Income before income taxes	$	6,294		$	2,696		$	4,788		$	1,466

Income tax provision (benefit)		727			6,379			(320	)		5,388

Net income (loss)	$	5,567		$	(3,683	)	$	5,108		$	(3,922	)

Effective tax rate		12	%		237	%		(7)	%		368	%

	Six months ended March 31,
	2016			2015
Statutory rate		35	%		35	%
Foreign valuation allowance		(11	)		661
Research and development credit		(24	)		(327	)
State income taxes, net of federal benefit		2			2
Rate differential and other		(9	)		(3	)
Effective tax rate		(7	)%		368	%

We recorded an income tax benefit of $0.3 million for the six months ended March 31, 2016, compared to an income tax provision of $5.4 million for the six months ended March 31, 2015. The effective tax rate for the six months ended March 31, 2016 was a 7% benefit compared to an effective tax rate of 368% for the six months ended March 31, 2015. The effective tax rate for Fiscal 2016 was favorably impacted by the mix of income from our Canadian operations and the utilization of net operating loss carryforwards in Canada that have been fully reserved with a valuation allowance. Additionally, the effective tax rate for the six months ended March 31, 2016 was favorably impacted by a $0.8 million discrete item recorded in the first quarter of Fiscal 2016 related to the retroactive reinstatement of the Research and Development Tax Credit (R&D Tax Credit) for the previously expired period from January 1, 2015 to September 30, 2015. On December 18, 2015, the “Protecting Americans from Tax Hikes Act of 2015” was enacted which retroactively reinstated and made permanent the R&D Tax Credit.

In the first six months of Fiscal 2015, our effective tax rate increased due to a $9.0 million valuation allowance recorded against our Canadian deferred tax assets. In the second quarter of Fiscal 2015, we recorded a valuation allowance against the Canadian net deferred tax assets. Due to the historical Canadian losses, and the projected losses in the near term, we were required under the more-likely-than-not accounting standard to record a valuation allowance against the Canadian net deferred tax assets because we anticipated that we may not be able to realize the benefits of the net operating loss carryforwards and other deductible differences. This was partially offset by the release of a $4.1 million FIN 48 reserve related to the R&D Tax Credit upon closing an IRS audit. We recorded a $0.6 million discrete item for the six months ended March 31, 2015 also related to the retroactive reinstatement of the R&D Tax Credit referred to above.