Note 9 – Income Taxes

The components of income (loss) from continuing operations before income taxes, categorized based on the location of the taxing authorities were as follows:


	Years Ended December 31,
(In thousands)	2014				2013				2012
United States		$	(13,326	)		$	(46,121	)		$	(177,894	)
Foreign			8,745				9,542				2,862
Loss from continuing operations		$	(4,581	)		$	(36,579	)		$	(175,032	)

The income tax provision (benefit) are as follows:

	Years Ended December 31,
(In thousands)	2014			2013			2012
Current:
Federal	$	(1,364	)	$	157		$	313
State		13			(10	)		400
Foreign		1,138			2,644			1,433
		(213	)		2,791			2,146
Deferred:
Federal		(3,625	)		(10,694	)		(43,749	)
State		—			—			(19	)
Foreign		(139	)		(687	)		(2,232	)
Valuation allowance		1,450			(1,654	)		42,197
		(2,314	)		(13,035	)		(3,803	)
Total provision (benefit)	$	(2,527	)	$	(10,244	)	$	(1,657	)

A reconciliation of the U.S. statutory tax rate to our effective tax rate is as follows:

	Years Ended December 31,
	2014		2013		2012
Statutory tax rate		(35.0)%		(35.0)%		(35.0)%
State and local income taxes		0.3%		0.0%		0.2%
Incremental foreign tax (benefit)		(15.5)%		(2.1)%		(0.1)%
Change in valuation allowance		31.7%		8.8%		23.6%
Goodwill impairment		0.0%		0.0%		12.3%
Permanent items		(29.4)%		(0.5)%		2.9%
Change in rate applied to deferred items		30.5 %		(0.1)%		0.0 %
Change in liability for unrecognized tax benefits		(40.1)%		0.2%		(0.5)%
Other items—net		2.4%		0.7%		(2.7)%
Effective tax rate		(55.1)%		(28.0)%		0.7%

Deferred income tax assets and liabilities comprised the following at December 31:

(In thousands)	December 31, 2014			December 31, 2013
Deferred tax assets:
Postretirement and postemployment benefits	$	29,250		$	23,837
Accrued liabilities, reserves and other		2,082			3,563
Debt transaction and refinancing costs		2,665			2,650
Inventories		1,621			1,628
Accrued compensation and benefits		3,251			3,331
Worker's compensation		1,279			1,599
Pension benefit		9,377			6,529
State income taxes		2,057			1,674
Tax credits		3,737			3,717
Indirect effect of unrecognized tax benefits		1,993			2,298
Loss carryforwards		101,418			95,000
Valuation allowance		(110,120	)		(99,594	)
Total deferred tax assets		48,610			46,232
Deferred tax liabilities:
Asset basis and depreciation		(13,225	)		(11,403	)
Intangible assets		(46,246	)		(48,048	)
Total deferred tax liabilities		(59,471	)		(59,451	)
Net deferred tax liability		(10,861	)		(13,219	)
Current deferred tax asset		2,687			3,806
Long-term deferred tax asset		1,289			503
Long-term deferred income tax asset (liability)—net	$	(14,837	)	$	(17,528	)

The Company has recorded a deferred tax asset reflecting a benefit of $88.0 million of federal loss carryforwards and $13.4 million of state loss carryforwards as of December 31, 2014. As a result of bankruptcy, the Company underwent an ownership change that subjects these losses to limitations pursuant to IRS Code Section 382. As a result of this limitation, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities. These deferred tax assets will expire beginning 2016 through 2034. We have deferred tax assets for additional state tax credits which will expire beginning 2017 through 2026. We also have recorded deferred tax assets for federal tax credits which will expire beginning 2029. Realization of deferred tax assets is dependent upon taxable income within the carryforward periods available under the applicable tax laws. Although realization of deferred tax assets in excess of deferred tax liabilities is not certain, management has concluded that it is more likely than not the Company will realize the full benefit of deferred tax assets in foreign jurisdictions. However, during 2013 and 2014, management has concluded that it is more likely than not that we will not realize the full benefit of our U.S. federal and state deferred tax assets due to three cumulative years of net losses and changes of management's estimate of future earnings, and recorded a valuation allowance against the amounts that are not likely to be recognized as of 2013 and 2014. For the period ended December 31, 2014, the valuation allowance increased by $10.5 million, of which $1.5 million was attributable to continuing operations, and $9.0 million was attributable to attributes that have no effect on the Company's effective rate. For the period ended December 31, 2013, the valuation allowance decreased by $1.7 million, which is attributable to $3.2 million increase from continuing operations, a $4.4 million increase from discontinued operations, and a $9.3 million decrease related to attributes that have no effect on the Company's effective tax rate.

Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and OCI. An exception is provided in ASC 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including unrealized gains from pension and post-retirement benefits recorded as a component of OCI, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. As a result, for the year ended December 31, 2013, the Company recorded a tax expense of $12.6 million in OCI related to the unrealized gains on pension and post-retirement benefits, and recorded a corresponding tax benefit of $12.6 million in continuing operations. This treatment was not applicable for the year ended December 31, 2014 due to unrealized losses in the pension and post-retirement.

No provision has been made for U.S. income taxes related to undistributed earnings of our Canadian foreign subsidiary that we intend to permanently reinvest in order to finance capital improvements and/or expand operations either through the expansion of the current operations or the purchase of new operations. At December 31, 2014, Accuride Canada had $20.7 million of cumulative retained earnings. The Company distributes earnings for the Mexican foreign subsidiary and expects to distribute earnings annually. Therefore, deferred tax liabilities are recorded for undistributed earnings and profits. For 2013 and 2014, there are no undistributed earnings of our Mexican foreign subsidiary.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits are as follows:

	Years Ended December 31,
(In thousands)	2014			2013			2012
Balance at beginning of the period	$	3,526		$	4,640		$	7,033
Additions based on tax positions related to the current year		—			5			4
Additions for tax positions of prior years		—			—			—
Reductions for tax positions of prior years		(741	)		—			(800	)
Removal of penalties and interest		—			—			—
Reductions due to lapse of statute of limitations		(160	)		(1,119	)		(1,597	)
Settlements with taxing authorities		—			—			—
Balance at end of period	$	2,625		$	3,526		$	4,640

The total amount of unrecognized tax benefits that would, if recognized, impact the effective income tax rate was approximately $2.6 million as of December 31, 2014.

We also recognize accrued interest expense and penalties related to the unrecognized tax benefits as additional tax expense, which is consistent with prior periods. The total amount of accrued interest and penalties was $3.1 million and $0.8 million respectively, as of December 31, 2014. A net decrease in interest of $0.5 million and a net decrease in penalties of $0.7 million was recognized in 2014. The total amount of accrued interest and penalties was approximately $3.6 million and $1.5 million, respectively, as of December 31, 2013.

As of December 31, 2014, we were open to examination in the U.S. federal tax jurisdiction for the 2011-2013 tax years, in Canada for the years of 2006-2013, and in Mexico for the years of 2008-2013. We were also open to examination in various state and local jurisdictions for the 2010-2013 tax years, none of which were individually material. Tax years 2007 - 2010 in the U.S. federal tax jurisdiction, and 1998-2010 in various state and local jurisdictions, remain open subject to the future utilization of net operating losses generated in those years. We believe that our accrual for tax liabilities is adequate for all open audit years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.

The Company is not currently under any U.S. federal, state or local or non-U.S. income tax examinations and therefore does not anticipate significant increases or decreases in its remaining unrecognized tax benefits within the next twelve months.