15.INCOME TAXES

The domestic and foreign components of the Company’s income (loss) before provision for income taxes are as follows:

	Year Ended December 31,
	2015		2014		2013
Domestic*	$	859,039	$	711,917	$	596,899
Foreign*	32,509		33,871		(33,005)

Income before provision for income taxes	$	891,548	$	745,788	$	563,894

*After intercompany royalties, management fees and interest charges from the Company’s domestic to foreign entities of $29.2 million, $34.9 million and $25.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Components of the provision for income taxes are as follows:

	Year Ended December 31,
	2015		2014		2013
Current:
Federal	$	548,018	$	228,348	$	191,596
State	88,671		36,633		36,662
Foreign	10,634		7,467		4,052

	647,323		272,448		232,310

Deferred:
Federal	(255,422)		(8,473)		(7,441)
State	(40,446)		(442)		(1,443)
Foreign	(5,420)		3,476		(9,694)

	(301,288)		(5,439)		(18,578)

Valuation allowance	(1,220)		(4,406)		11,501

	$	344,815	$	262,603	$	225,233

The differences in the total provision for income taxes that would result from applying the 35% federal statutory rate to income before provision for income taxes and the reported provision for income taxes are as follows:

	Year Ended December 31,
	2015		2014		2013
U.S. Federal tax expense at statutory rates	$	312,042	$	261,025	$	197,363
State income taxes, net of federal tax benefit	31,046		23,859		22,640
Permanent differences	8,488		4,816		936
Domestic production deduction	-		(20,607)		(16,039)
Other	(127)		(1,267)		266
Foreign rate differential	(5,414)		(817)		8,566
Valuation allowance	(1,220)		(4,406)		11,501

	$	344,815	$	262,603	$	225,233

Major components of the Company’s deferred tax assets (liabilities) at December 31 are as follows:

	2015		2014
Deferred Tax Assets:
Reserve for sales returns	$	242	$	289
Reserve for doubtful accounts	18		36
Reserve for inventory obsolescence	1,126		3,030
Reserve for marketing development fund	10,118		9,118
Capitalization of inventory costs	1,927		2,527
State franchise tax - current	15,143		12,358
Accrued compensation	1,584		-
Accrued other liabilities	1,565		3,503
Deferred revenue	152,777		47,319
Stock-based compensation	24,488		25,268
Securities impairment	289		288
Foreign net operating loss carryforward	26,624		17,256
Prepaid supplies	6,065		4,195
Distribution rights	120,798		-
Termination payments	81,896		-
Capital loss carryforward	370		-
Gain on intercompany transfer	7,809		8,347

Total gross deferred tax assets	$	452,839	$	133,534


Deferred Tax Liabilities:
Amortization of trademarks	$	(12,078)	$	(11,923)
Intangibles	(134,021)		-
State franchise tax - deferred	(18,359)		(4,198)
Other deferred tax liabilities	(2,337)		(327)
Depreciation	(7,543)		(5,022)

Total gross deferred tax liabilities	(174,338)		(21,470)


Valuation Allowance	(17,191)		(17,683)


Net deferred tax assets	$	261,310	$	94,381

During the years ended December 31, 2015, 2014 and 2013, the Company established full valuation allowances against certain deferred tax assets, resulting from cumulative net operating losses incurred by certain foreign subsidiaries of the Company. The effect of the valuation allowances and the subsequent related impact on the Company’s overall tax rate was to (decrease) increase the Company’s provision for income taxes by ($0.5) million, ($4.4) million and $10.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. At December 31, 2015, the Company had net operating loss carryforwards of approximately $129.1 million. Of this amount, $112.3 million may be carried forward indefinitely. The remaining $16.9 million will begin to expire in 2017.

The following is a roll-forward of the Company’s total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31, 2015, 2014 and 2013:

	Gross Unrealized Tax Benefits
Balance at January 1, 2013	$	926
Additions for tax positions related to the current year	-
Additions for tax positions related to the prior year	9
Decreases for tax positions related to prior years	-

Balance at December 31, 2013	$	935

Additions for tax positions related to the current year	-
Additions for tax positions related to the prior year	-
Decreases for tax positions related to prior years	-

Balance at December 31, 2014	$	935

Additions for tax positions related to the current year	-
Additions for tax positions related to the prior year	-
Decreases for tax positions related to prior years	(464		)

Balance at December 31, 2015	$	471

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s consolidated financial statements. As of December 31, 2015, the Company had accrued approximately $0.2 million in interest and penalties related to unrecognized tax benefits. If the Company were to prevail on all uncertain tax positions it would not have a significant impact on the Company’s effective tax rate.

It is expected that the amount of unrecognized tax benefit change within the next 12 months will not be significant.

The Company is subject to U.S. federal income tax as well as to income tax in multiple state and foreign jurisdictions.

On August 7, 2015, the Internal Revenue Service (the “IRS”) began its examination of the Company’s U.S. federal income tax returns for the years ended December 31, 2012 and 2013.

The Company is in various stages of examination with certain states and certain foreign jurisdictions. The 2012, 2013 and 2014 U.S. federal income tax returns are subject to examination by the IRS. State income tax returns are subject to examination for the 2011 through 2014 tax years.