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):

	2015		2014			2013
Current provision:
Federal	$	6,065	$	6,470		$	6,048
State and foreign		136		147			225
Total current provision		6,201		6,617			6,273
Deferred provision (benefit):
Federal		58		(347	)		(552	)
State		35		(5	)		60
Total deferred provision (benefit)		93		(352	)		(492	)
Total provision	$	6,294	$	6,265		$	5,781

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):

	2015			2014			2013
Amount at statutory U.S. federal income tax rate	$	6,385		$	6,465		$	7,126
Change because of the following items:
State income taxes, net of federal benefit		67			118			278
Stock-based compensation		16			21			25
Valuation allowance change		348			120			(699	)
Tax reserve change		34			(121	)		(128	)
Federal manufacturing deduction		(268	)		(235	)		(266	)
Federal research and development credit		(74	)		(67	)		(324	)
Other		(214	)		(36	)		(231	)
Income tax provision	$	6,294		$	6,265		$	5,781

The federal research and development tax credit for fiscal 2015 and 2014 includes the benefit generated for the period from October 1, 2014 to December 31, 2014 and October 1, 2013 to December 31, 2013, respectively, prior to the expiration of the benefit in each period. 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):

	2015			2014
Depreciable assets	$	1,618		$	1,612
Deferred revenue		96			101
Accruals and reserves		145			324
Stock-based compensation		4,194			4,373
Impaired strategic investments		4,186			3,674
Unrealized gains on investments		—			(550	)
Capital loss carryforward		1,456			1,650
Other		1,276			764
Valuation allowance		(5,721	)		(4,836	)
Total deferred tax assets		7,250			7,112
Less current deferred tax assets		(546	)		(394	)
Noncurrent deferred tax assets	$	6,704		$	6,718

As of September 30, 2015 and 2014, the Company recorded a deferred tax asset valuation allowance of $5.7 million and $4.8 million, respectively. The valuation allowances are primarily related to capital loss carryforwards created by impairment losses on strategic investments and state R&D credit carryforwards. The increase in fiscal 2015 primarily relates to creation of valuation allowances associated with a loss created by the impairment of certain of the Company’s strategic investments and an increase in state research and development tax credit carry-forwards.

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, excluding interest and penalties, is as follows (in thousands):

	2015			2014			2013
Beginning of fiscal year	$	1,216		$	1,300		$	1,435
Increases in tax positions for prior years		50			43			27
Decreases in tax positions for prior years		(10	)		(1	)		(278	)
Increases in tax positions for current year		146			149			122
Lapse of the statute of limitations		(154	)		(275	)		(6	)
End of fiscal year	$	1,248		$	1,216		$	1,300

The total amount of unrecognized tax benefits excluding interest and penalties that, if recognized, would affect the effective tax rate as of September 30, 2015, 2014 and 2013, respectively, are $0.9 million, $0.9 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, 2015, 2014 and 2013, a gross balance of $0.6 million, $0.6 million and $0.7 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 a payment made associated with a timing adjustment. U.S. income tax returns for years prior to fiscal 2012 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 2005.