Income Taxes

For financial reporting purposes, loss from continuing operations before provision for income taxes includes the following (in thousands):



Year ended December 31:	2016			2015			2014
United States	$	(8,499	)	$	(3,308	)	$	(7,993	)
Foreign	(2,816		)	(629		)	(4,672		)
Loss from continuing operations before provision for income taxes	$	(11,315	)	$	(3,937	)	$	(12,665	)

The provision (benefit) for income taxes consists of the following (in thousands):



Year ended December 31:	2016		2015		2014
Current:
State	$	4	$	49	$	(89	)
Foreign	318		144		68
Total current	322		193		(21		)
Deferred:
Foreign	—		2,678		1,894
Total deferred	—		2,678		1,894
Provision for income taxes	$	322	$	2,871	$	1,873

The income tax provision differs from the amount computed by applying the federal statutory income tax rate as follows:



Year ended December 31:	2016		2015		2014
Income tax provision, at statutory federal rate	34	%	34	%	34	%
State and local income taxes, net of federal income taxes effect	3		4		3
Permanent differences	(1	)	(4	)	(1	)
Foreign taxes at rates different than domestic rates	(2	)	(1	)	(3	)
Expired capital loss carryforwards	—		(880	)	—
Change in tax rates	(12	)	—		—
Change in valuation allowance	(23	)	775		(47	)
Other adjustments	(2	)	(1	)	(1	)
Effective tax rate	(3	)%	(73	)%	(15	)%

The components of deferred income taxes consist of the following (in thousands):



December 31:	2016			2015
Deferred tax assets:
Net operating losses	$	92,176		$	91,893
Allowance for doubtful accounts	118			365
Inventory reserve	2,413			3,161
Accrued liabilities	2,397			2,794
Other	4,162			4,697
Total deferred tax assets	101,266			102,910
Valuation allowance	(100,810		)	(102,747		)
Net deferred tax assets	456			163

Deferred tax liabilities:
Depreciation and amortization	(456		)	(163		)
Total deferred tax liabilities	(456		)	(163		)
Total deferred income taxes	$	—		$	—

MRV records valuation allowances against deferred income tax assets, when necessary. Realization of deferred income tax assets, such as net operating loss ("NOL") carryforwards and income tax credits, is dependent on future taxable earnings and is therefore uncertain. At least quarterly, the Company assesses the likelihood that the deferred income tax asset balance will be recovered from future taxable income. To the extent management believes that recovery is unlikely, the Company establishes a valuation allowance against the deferred income tax asset, which increases income tax expense in the period such determination is made. During the year ended December 31, 2016, the Company recorded a net decrease to the valuation allowance totaling $2.0 million against deferred income tax assets primarily as a result of domestic and foreign net operating losses and changes in temporary differences.

The change in the valuation allowance is as follows (in millions):



December 31:	2016			2015			2014
Balance at beginning of period	$	(103	)	$	(139	)	$	(133	)
(Increase) decrease in valuation allowance	2			36			(6		)
Balance at end of period	$	(101	)	$	(103	)	$	(139	)

As of December 31, 2016, MRV had federal, state, and foreign NOL carryforwards available of $183.3 million, $112.0 million and $100.8 million, respectively. For the year ended December 31, 2016, federal NOL carryforwards increased by $0.8 million, state net operating loss carryforwards increased by $14.9 million, and foreign NOL carryforwards increased by $3.4 million. For federal and state income tax purposes, the NOLs are available to offset future taxable income, begin expiring in 2017 and are available through 2036. Certain foreign NOL carryforwards and tax credits are available indefinitely. Under the Internal Revenue Code, if a corporation undergoes an "ownership change," the corporation's ability to use its pre-change NOLs, capital loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. An ownership change is generally defined as a greater than 50% change in its equity ownership by value over a three-year period. We may experience an ownership change in the future as a result of subsequent shifts in our stock ownership. If we were to trigger an ownership change in the future, our ability to use any NOLs and capital loss carryforwards existing at that time could be limited. As of December 31, 2016, the federal, state and foreign NOLs had a full valuation allowance.

MRV has not recorded U.S. income tax expense for foreign earnings that it has declared as indefinitely reinvested offshore, thus reducing its overall income tax expense. At December 31, 2016, MRV had approximately $4.2 million of accumulated but undistributed earnings at certain foreign entities. The amount of earnings designated as indefinitely reinvested offshore is based upon our expectations of the future cash needs of the Company's foreign and domestic entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be repatriated. In the event actual cash needs of the Company's U.S. entities exceed current expectations or the actual cash needs of the Company's foreign entities are less than expected, the Company may need to repatriate foreign earnings that have been designated as indefinitely reinvested offshore. This would result in recording additional U.S. income tax expense. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

During the year ended December 31, 2016, the Company reported a loss of $11.3 million from continuing operations before provision for income taxes. The Company recognized income tax expense of $1.3 million and $2.4 million for the years ended December 31, 2015 and 2014, respectively, with respect to its discontinued operations.

The Company or one of its subsidiaries files income tax returns in the US federal jurisdiction, and various state and foreign jurisdictions. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):



December 31:	2016			2015			2014
Balance at beginning of period	$	(81	)	$	(100	)	$	(134	)
Reductions related to prior year positions	43			19			34
Balance at end of period	$	(38	)	$	(81	)	$	(100	)

Substantially all of the uncertain tax benefits as of December 31, 2016, if recognized, would affect the effective tax rate. The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. The tax years 2002-2016 remain open to examination by the major taxing jurisdictions to which the Company is subject. Management does not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.