Income Taxes

Income tax provision (benefit) applicable to continuing operations consists of the following:



	Year ended December 31,
(in thousands)	2016			2015			2014
Current:
Federal	$	(702	)	$	(3,237	)	$	32,600
State and local	199			(762		)	5,677
Foreign	1,385			1,224			1,409
	$	882		$	(2,775	)	$	39,686

Deferred:
Federal	$	3,523		$	1,756		$	19,741
State and local	1,696			519			1,830
Foreign	810			258			244
	$	6,029		$	2,533		$	21,815

Total:
Federal	$	2,821		$	(1,481	)	$	52,341
State and local	1,895			(243		)	7,507
Foreign	2,195			1,482			1,653
	$	6,911		$	(242	)	$	61,501

Income (loss) before income taxes from continuing operations consists of the following:



	Year ended December 31,
(in thousands)	2016		2015			2014
U.S.	$	11,526	$	(18,867	)	$	174,262
Foreign	9,855		7,303			9,884
	$	21,381	$	(11,564	)	$	184,146

A reconciliation from the statutory U.S. federal tax rate to the effective tax rate follows:



	Year ended December 31,
	2016		2015		2014
Statutory U.S. federal tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in rate resulting from:
Effect of noncontrolling interest	(4.7	)	5.3		(2.5	)
State and local income taxes, net of related federal taxes	5.8		1.4		2.7
Income taxes on foreign earnings	(1.3	)	9.4		(0.4	)
Change in pre-acquisition tax liability and other costs	—		3.5		—
Tax associated with accrued and unpaid dividends	3.2		(13.6	)	—
Goodwill impairment	—		(35.6	)	—
Nondeductible compensation	2.0		(5.0	)	0.2
Federal income tax credits	(7.3	)	—		—
Other, net	(0.4	)	1.7		(1.6	)
Effective tax rate	32.3	%	2.1	%	33.4	%

Net income tax refunds of $(10.6) million were received in 2016 and net income taxes of $4.9 million and $36.8 million were paid in 2015 and 2014, respectively.

Significant components of the Company's deferred tax liabilities and assets are as follows:



	December 31,
(in thousands)	2016			2015
Deferred tax liabilities:
Property, plant and equipment and Rail Group assets leased to others	$	(179,250	)	$	(170,588	)
Equity method investments	(45,244		)	(45,673		)
Other	(22,286		)	(22,261		)
	(246,780		)	(238,522		)
Deferred tax assets:
Employee benefits	25,403			27,160
Accounts and notes receivable	2,964			2,611
Inventory	9,979			11,918
Federal income tax credits	7,150			—
Net operating loss carryforwards	3,322			4,542
Other	16,224			13,583
Total deferred tax assets	65,042			59,814
Valuation allowance	(310		)	(593		)
	64,732			59,221
Net deferred tax liabilities	$	(182,048	)	$	(179,301	)

On December 31, 2016, the Company had $4.0 million, $66.9 million and $0.1 million of U.S. Federal, state and non-U.S. net operating loss carryforwards that begin to expire in 2034, 2017 and 2035, respectively. The Company also has $6.0 million of general business credits that expire after 2036 and $1.1 million of foreign tax credits that begin to expire after 2025.

During 2016, the Company entered into agreements with several unrelated third-parties to fund qualified railroad track maintenance expenditures. In return, railroad track miles were assigned to the Company which enabled the Company to claim railroad track maintenance credits pursuant to section 45G of the Internal Revenue Code of 1986. $2.6 million of tax benefit was realized as a result of the agreements for the year ended December 31, 2016, resulting in a $0.8 million current tax provision benefit. $6.0 million of credits have been deferred to future periods which, upon realization, will result in a $1.8 million current tax provision benefit. The railroad track maintenance credits are general business credits included in federal income tax credits above.

The Company or one of its subsidiaries files income tax returns in the U.S., various foreign jurisdictions and various state and local jurisdictions. The Company is no longer subject to examinations by foreign jurisdictions for years before 2011 and is no longer subject to examinations by U.S. tax authorities for years before 2013. During 2016, the Internal Revenue Service completed an examination of the Company’s U.S. income tax returns for years 2011 and 2012. The Company is no longer subject to examination by state tax authorities in most states for tax years before 2013.

A reconciliation of the January 1, 2014 to December 31, 2016 amount of unrecognized tax benefits is as follows:



(in thousands)
Balance at January 1, 2014	$	1,110
Additions based on tax positions related to the current year	125
Additions based on tax positions related to prior years	384
Reductions as a result of a lapse in statute of limitations	(132		)
Balance at December 31, 2014	1,487

Additions based on tax positions related to the current year	55
Additions based on tax positions related to prior years	691
Reductions based on tax positions related to prior years	(518		)
Reductions as a result of a lapse in statute of limitations	(284		)
Balance at December 31, 2015	1,431

Additions based on tax positions related to the current year	113
Additions based on tax positions related to prior years	—
Reductions based on tax positions related to prior years	(40		)
Reductions as a result of a lapse in statute of limitations	(52		)
Balance at December 31, 2016	$	1,452

The Company anticipates a $1.1 million decrease in the reserve during the next 12 months due to the settling of state tax appeals and a lapse in statute of limitations. Dependent upon the lapse in statute and the outcome of the state tax appeals, the total liability for unrecognized tax benefits as of December 31, 2016 could impact the effective tax rate.

The Company has elected to classify interest and penalties as interest expense and penalty expense, respectively, rather than as income tax expense. The Company has $0.4 million accrued for the payment of interest and penalties at December 31, 2016. The net interest and penalties expense for 2016 is $0.2 million, due to increased uncertain tax positions. The Company had $0.6 million accrued for the payment of interest and penalties at December 31, 2015. The net interest and penalties expense for 2015 was $0.1 million.