INCOME TAXES

Income tax provision was minimal for the six month period ended March 31, 2015. Tax benefits specific to the six months ended March 31, 2015 primarily include $0.5 million resulting from the reinstatement of the research and development tax credit for calendar year 2014 and the reversal of tax reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions. For the six month period ended March 31, 2015, our effective tax rates before items specific to the period were more than the U.S. statutory rate due primarily to mix of income between jurisdictions having lower statutory tax rates than the U.S.

Income tax benefit was $1.2 million for the six month period ended March 31, 2014. Tax benefits specific to the period of $1.3 million related to the re-measurement and reversal of certain income tax reserves as a result of the conclusion in March 2014 of a federal income tax audit for fiscal 2012 and a reversal of reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions. For the six month period ended March 31, 2014, our effective tax rates before items specific to the period were more than the statutory rate primarily due to reserves for unrecognized tax benefits and state income taxes in excess of domestic tax benefits.

Our effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and related statutory tax rate in each jurisdiction, and tax benefits specific to the period, such as settlements of audits. We expect that we may record other benefits or expenses in the future that are specific to a particular quarter, based on expiration of statutes of limitation, the completion of tax audits, or legislation that is enacted for both U.S. and foreign jurisdictions.

7. INCOME TAXES (CONTINUED)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):



Unrecognized tax benefits as of September 30, 2014	$	2,301
Increases related to:
Prior year income tax positions	50
Decreases related to:
Prior year income tax positions	(255		)
Settlements	(74		)
Expiration of statute of limitations	(139		)
Unrecognized tax benefits as of March 31, 2015	$	1,883

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate is $1.9 million. We expect the total amounts of unrecognized tax benefits will decrease by approximately $0.6 million over the next 12 months.

Of the $1.9 million of unrecognized tax benefits, $1.5 million is included in non-current income taxes payable and $0.4 million is included with non-current deferred tax assets on the condensed consolidated balance sheet at March 31, 2015.

We recognize interest and penalties related to income tax matters in income tax expense. During both the six month periods ended March 31, 2015 and 2014, there were insignificant amounts of interest and penalties related to income tax matters in income tax expense. Accrued interest and penalties related to unrecognized tax benefits was $0.4 million at both March 31, 2015 and September 30, 2014. Our non-current income taxes payable on our condensed consolidated balance sheet includes accrued interest and penalties in addition to the unrecognized tax benefits of $1.5 million at March 31, 2015.

At March 31, 2015, we had approximately $26.0 million of accumulated undistributed foreign earnings, for which we have not accrued additional U.S. tax. Our policy is to reinvest earnings of our foreign subsidiaries indefinitely to fund current operations and provide for future international expansion opportunities, and only to repatriate earnings to the extent that U.S. taxes have already been recorded. Although we have no current need to do so, if we change our assertion that we do not intend to repatriate additional undistributed foreign earnings for cash requirements in the United States, we would have to accrue applicable taxes. The amount of any taxes and the application of any tax credits would be determined based on the income tax laws at the time of such repatriation. Under current tax laws, we estimate the unrecognized deferred tax liability to be in the range of $0.5 million to $1.5 million.

We operate in multiple tax jurisdictions, including the U.S. and other jurisdictions outside of the U.S. Accordingly, we must determine the appropriate allocation of income to each of these jurisdictions. This determination requires us to make several estimates and assumptions. Tax audits associated with the allocation of this income, and other complex issues, may require an extended period of time to resolve and may result in adjustments to our income tax balances in those years that are material to our consolidated balance sheet and results of operations. We are no longer subject to income tax examination for tax years prior to fiscal 2013, except for certain refund claims applicable to fiscal 2009, in the case of U.S. federal tax authorities and prior to fiscal 2009 for non-U.S. income tax authorities. For state taxing authorities, most notably in California and Texas, we are no longer subject to income tax examination for tax years generally before fiscal 2010, and for Minnesota for tax years prior to fiscal 2013.