9.	Income Taxes

The Company accounts for income taxes under the asset and liability method prescribed in accounting guidance. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.

Income taxes from continuing operations in the accompanying consolidated statements of income for the fiscal years ended September 30 are as follows (in thousands):


	2014			2013			2012
Current provision:
Federal	$	6,470		$	6,048		$	6,615
State and foreign		147			225			290

Total current provision		6,617			6,273			6,905

Deferred (benefit) provision :
Federal		(347	)		(552	)		(835	)
State		(5	)		60			107

Total deferred benefit		(352	)		(492	)		(728	)

Total provision	$	6,265		$	5,781		$	6,177

The reconciliation of the difference between amounts calculated at the statutory U.S. federal tax rate of 35% for the fiscal years ended September 30 and the Company’s effective tax rate from continuing operations is as follows (in thousands):


	2014			2013			2012
Amount at statutory U.S. federal income tax rate	$	6,465		$	7,126		$	5,707
Change because of the following items:
State income taxes, net of federal benefit		118			278			236
Stock-based compensation		21			25			36
Valuation allowance change		120			(699	)		303
Tax reserve release		(121	)		(128	)		(77	)
Federal manufacturing deduction		(235	)		(266	)		(220	)
Federal research and development credit		(67	)		(324	)		—
Other		(36	)		(231	)		192

Income tax provision	$	6,265		$	5,781		$	6,177

The federal research and development credit for fiscal 2014 includes the benefit generated for the period from October 1, 2013 to December 31, 2013 prior to the expiration of the benefit. The federal research and development credit for fiscal 2013 above includes $0.2 million related to a retroactive 2012 U.S. research and development tax credit for the period from January 1, 2012 to December 31, 2012 which was recognized in fiscal 2013 as a discrete tax benefit resulting from the January 2013 signing of the American Taxpayer Relief Act of 2012.

The Company recorded an income tax benefit from discontinued operations of $0.1 million in fiscal 2014, an income tax expense of $0.5 million in fiscal 2013, an income tax expense of $1.1 million in fiscal 2012 and an income tax benefit of $0.6 million associated with the sale of discontinued operations assets in fiscal 2012.

The components of deferred income taxes consisted of the following as of September 30 and result from differences in the recognition of transactions for income tax and financial reporting purposes (in thousands):


	2014			2013
Depreciable assets	$	1,612		$	1,271
Deferred revenue		101			74
Accruals and reserves		324			353
Stock-based compensation		4,373			4,220
Impaired strategic investments		3,674			3,253
Unrealized gains on investments		(550	)		(29	)
Capital loss carryforward		1,650			1,962
Other		764			733
Valuation allowance		(4,836	)		(5,293	)

Total deferred tax assets		7,112			6,544
Less current deferred tax assets		(394	)		(506	)

Noncurrent deferred tax assets	$	6,718		$	6,038

In fiscal 2014 and 2013, the Company recorded a net reversal of deferred tax asset valuation allowances of $0.5 million and $1.2 million, respectively, related to gains on the sales of certain strategic investments as well as capital loss carrybacks partially offset by recognition of valuation allowances associated with potential capital losses created by the impairment of certain of the Company’s strategic investments. In fiscal 2012 the Company recorded a valuation allowance of $0.3 million related to deferred tax assets associated with potential capital losses created by the impairment of certain of the Company’s strategic investments.

Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes pursuant to accounting guidance. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


	2014			2013			2012
Beginning of fiscal year	$	1,300		$	1,435		$	1,564
Increases in tax positions for prior years		43			27			5
Decreases in tax positions for prior years		(1	)		(278	)		(3	)
Increases in tax positions for current year		149			122			72
Lapse of the statute of limitations		(275	)		(6	)		(203	)

End of fiscal year	$	1,216		$	1,300		$	1,435

The total amount of unrecognized tax benefits including interest and penalties that, if recognized, would affect the effective tax rate as of September 30, 2014, 2013 and 2012, respectively, are $0.9 million, $1.0 million and $1.0 million. Currently, the Company does not expect the liability for unrecognized tax benefits to change significantly in the next 12 months with the above balances classified on the consolidated balance sheets in other long-term liabilities. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. As of September 30, 2014, 2013 and 2012, a gross balance of $0.6 million, $0.7 million and $0.8 million, respectively, has been accrued related to the unrecognized tax benefits balance for interest and penalties.

The Company files income tax returns, including returns for its subsidiaries, in the U.S. federal jurisdiction and in various state jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. The Internal Revenue Service (“IRS”) commenced an examination of the Company’s U.S. income tax return for fiscal 2012 in the first quarter of fiscal 2014. The examination was completed in the fourth quarter of fiscal 2014 with an insignificant payment made associated with a timing adjustment. The IRS also commenced an examination of the U.S. income tax return for fiscal 2010 in the first quarter of fiscal 2012. The IRS completed its examination in the third quarter of fiscal 2012 and an insignificant payment was made in the fourth quarter of fiscal 2012 associated with a timing adjustment. U.S. income tax returns for years prior to fiscal 2011 are no longer subject to examination by federal tax authorities. For tax returns for state and local jurisdictions, the Company is no longer subject to examination for tax years generally before fiscal 2004.