12. Income Taxes

The components of the Company’s deferred tax assets and liabilities as of December 31, 2015 and 2014 were as follows (dollars in thousands):



	As of December 31,
	2015			2014
Deferred tax assets:
Deferred finish-out allowances from lessors	$	226		$	157
Tax over book accrual of pawn loan fees and service charges	4,903			4,752
Allowance for consumer loan losses	1,768			1,778
Deferred compensation	12,941			8,524
Deferred state credits and net operating losses	2,334			1,358
Other	1,540			2,548
Total deferred tax assets	23,712			19,117
Deferred tax liabilities:
Amortizable intangible assets	$	54,264		$	46,551
Property and equipment	23,694			32,359
Investment in equity securities	7,828			39,294
Other	1,156			1,165
Total deferred tax liabilities	86,942			119,369
Net deferred tax liabilities before valuation allowance	$	(63,230	)	$	(100,252	)
Valuation allowance	(1,142		)	—
Net deferred tax liabilities after valuation allowance	$	(64,372	)	(100,252		)
Balance sheet classification:
Current deferred tax assets (liabilities)	$	7,672		$	(27,820	)
Noncurrent deferred tax liabilities	(72,044		)	(72,432		)
Net deferred tax liabilities	$	(64,372	)	$	(100,252	)

The components of the provision for income taxes and the income to which it relates for the years ended December 31, 2015, 2014 and 2013, were as follows (dollars in thousands):



	Year Ended December 31,
	2015			2014			2013
Income (loss) from continuing operations before income taxes:
Domestic	$	43,044		$	(7,938	)	$	47,475
Foreign	—			(408		)	(3,490		)
Income (loss) from continuing operations before income taxes	43,044			(8,346		)	43,985
Current provision (benefit):
Federal	$	19,741		$	(12,823	)	$	(20,908	)
Foreign	—			531			(752		)
State and local	118			1,291			2,098
Total current provision (benefit) for income taxes	19,859			(11,001		)	(19,562		)
Deferred (benefit) provision:
Federal	$	(4,524	)	$	12,962		$	3,740
State and local	143			80			317
Total deferred (benefit) provision for income taxes	(4,381		)	13,042			4,057
Total provision (benefit) for income taxes	$	15,478		$	2,041		$	(15,505	)

For the year ended December 31, 2015, the Company recorded income tax expense of $15.5 million on a pre-tax income of $43.0 million, compared to income tax expense of $2.0 million on a pre-tax loss of $8.3 million for the year ended December 31, 2014. Despite incurring a pre-tax loss, income tax expense was recorded in 2014 primarily as a result of the tax impact of the write-off of non-deductible goodwill associated with the sale of the Company’s Mexico-based pawn operations and an additional valuation allowance associated with the 2014 losses in Mexico. An income tax benefit was recorded in 2013 primarily due to the recognition of a $33.2 million tax benefit in 2013 associated with the Creazione Deduction (as defined and explained below), as well as the release of reserves established for unrecognized tax benefits associated with the Company’s Mexico operations.

In January 2013, the Company’s Mexico-based pawn operations that were owned by Creazione Estilo, S.A. de C.V., a Mexican sociedad anónima de capital variable (“Creazione”), and operated under the name Prenda Fácil were sold by Creazione to another wholly-owned subsidiary of the Company, CA Empeños Mexico, S. de R.L. de C.V. (“Empeños”), and began operating exclusively under the name “Cash America casa de empeño.” As of December 31, 2013, Creazione’s assets had been liquidated and it had entered into formal liquidation proceedings. In connection with the liquidation of Creazione, the Company included a deduction on its 2013 federal income tax return for its tax basis in the stock of Creazione and recognized an income tax benefit of $33.2 million as a result of the deduction (the “Creazione Deduction”). The Company believes that it met the requirements for this deduction and that it should be treated as an ordinary loss, which reduced the Company’s cash taxes paid in 2013. The Company obtained a private letter ruling from the Internal Revenue Service with respect to one of the various factors that it considered in making this determination.

Income tax expense included in the Company’s income (loss) from continuing and discontinued operations, respectively, is as follows (dollars in thousands):



	Year Ended December 31,
	2015		2014		2013
Continuing operations	$	15,478	$	2,041	$	(15,505	)
Discontinued operations	—		62,933		46,259
Total	$	15,478	$	64,974	$	30,754

A reconciliation of income taxes for continuing operations with amounts computed at the statutory federal rate is as follows (dollars in thousands):



	Year Ended December 31,
	2015			2014			2013
Tax provision (benefit) computed at the federal statutory income tax rate	$	15,063		$	(2,922	)	$	15,396
State and local income taxes, net of federal tax benefits	(973		)	818			1,883
Nondeductible lobbying	111			639			553
Foreign tax difference	(1		)	216			(221		)
Investment in subsidiaries ^(a)	—			—			(23,907		)
Valuation allowance	1,142			(11,266		)	(8,915		)
Non-recoverable foreign net deferred tax assets	—			12,042			—
Non-deductible goodwill	—			2,232			—
Tax effect of Regulatory Penalty^(b)	—			—			895
Change in reserve for uncertain tax benefits, net	—			—			(1,021		)
Other	136			282			(168		)
Total provision (benefit)	$	15,478		$	2,041		$	(15,505	)
Effective tax rate	36.0		%	(24.5		)%	(35.3		)%


^(a)	Relates to the Creazione Deduction for the year ended December 31, 2013.


^(b)	Represents the tax effect of the $2.5 million penalty paid to the CFPB, which is nondeductible for tax purposes, in connection with the Regulatory Penalty. See Note 13.

As of December 31, 2013, the Company had net operating losses totaling $58.6 million related to its Mexico subsidiary, Creazione. Mexico allows a ten-year carryforward period, and, if unutilized, these net operating losses will expire in varying amounts beginning in 2018. Due to the Company’s withdrawal of operations in Mexico and the liquidation of Creazione, these net operating losses are expected to expire unutilized. As a result, in 2014, the Company wrote off Creazione’s remaining net deferred tax assets and the associated valuation allowance against those deferred tax assets.

The Company had a valuation allowance of $1.1 million as of December 31, 2015, which was recorded in 2015 and related to the deferred assets associated with certain state net operating losses. In 2014, the Company, in connection with its anticipated liquidation of Creazione, released a $12.5 million valuation allowance related to the deferred tax assets at Creazione and also released a $1.3 million valuation allowance in connection with the sale of Empeños. In 2013, the Company released a $9.3 million valuation allowance related to the deferred tax asset associated with the Company’s excess tax basis over its basis for financial reporting purposes in the stock of Creazione and recorded an additional $1.3 million valuation allowance related to deferred tax assets at Empeños. See Note 1 for additional information on the Company’s evaluation of the recoverability of its deferred tax assets and establishment of related valuation allowances.

The aggregate change in the balance of the unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013 is summarized below (dollars in thousands):



	2015		2014		2013
Balance as of January 1,	$	—	$	—	$	1,021
Decrease due to lapse of statute of limitations	—		—		(1,021		)
Balance as of December 31,	$	—	$	—	$	—

During 2013, the statute of limitations expired related to the Mexico tax returns of Creazione for periods before it was acquired by the Company (pre-2008). As a result, the Company released reserves established for unrecognized tax benefits of $1.0 million and the related accrued interest and penalties of $1.9 million. Consistent with the Company’s accounting policy, the release of the $1.0 million was recorded in the tax provision. The release of the $1.9 million of reserves related to interest and penalties was recorded through a reduction of interest and administrative expenses.

As of December 31, 2015, the Company’s 2011 through 2014 tax years were open to examination by the Internal Revenue Service and major state taxing jurisdictions, and the 2010 through 2014 tax years of the Company’s former Mexican subsidiaries were open to examination by the Mexican taxing authorities.