7. Income Taxes

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


	2014		2013		2012
United States	$	50,385	$	41,809	$	37,970
Foreign (Canada)		183		147		187

Total	$	50,568	$	41,956	$	38,157

Income tax expense included in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012 was as follows (in thousands):


	2014			2013			2012
Continuing operations:
Current:
Federal	$	15,749		$	13,880		$	13,621
Foreign		47			47			47
State and local		1,782			2,311			2,779

Total		17,578			16,238			16,447
Deferred:
Federal		952			(394	)		(1,423	)
State and local		1,624			733			(660	)

Total		2,576			339			(2,083	)

Total income tax expense from continuing operations		20,154			16,577			14,364
Discontinued operations:
Operations of discontinued operations:
Current		51			3,107			4,590
Deferred		(222	)		(653	)		361

Total		(171	)		2,454			4,951
Gain on disposal of discontinued operations:
Current		34			49,973			52
Deferred		—			(776	)		—

Total		34			49,197			52

Total income tax expense from discontinued operations		(137	)		51,651			5,003

Total income tax expense	$	20,017		$	68,228		$	19,367

The provision for income taxes attributable to income from continuing operations differed from the amount obtained by applying the federal statutory income tax rate to income from continuing operations before income taxes, as follows (in thousands, except percentages):


	2014			2013			2012
Tax at statutory rate (35%)	$	17,699		$	14,684		$	13,355
State taxes (net of federal benefit)		3,361			2,020			970
Business meals and entertainment — non-deductible		667			624			674
Reserves for uncertain tax positions		(1,724	)		(531	)		(432	)
Other, net		151			(220	)		(203	)

Provision for income taxes from continuing operations	$	20,154		$	16,577		$	14,364

Effective income tax rate		39.9	%		39.5	%		37.6	%

The income tax benefits associated with the exercise of non-qualified stock options and restricted stock awards reflected in additional paid-in-capital were $0.5 million and $0.1 million for the years ended December 31, 2014 and 2013, respectively. There were none in the year ended December 31, 2012.

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2014 and 2013, were as follows (in thousands):


	2014			2013
Deferred tax assets:
Net operating loss carryforwards .	$	973		$	2,026
Allowance for doubtful accounts		3,028			2,663
Employee benefits and compensation		25,238			23,774
Lease costs		3,959			4,398
State tax credit carryforwards		1,496			2,240
Other deferred tax assets		3,175			3,581

Total gross deferred tax assets		37,869			38,682
Less: valuation allowance		(1,079	)		(926	)

Total deferred tax assets, net	$	36,790		$	37,756

Deferred tax liabilities:
Accrued interest	$	5,878		$	8,584
Client list intangible assets		4,016			3,915
Goodwill and other intangibles		22,284			17,876
Contingent purchase price liabilities		3,590			1,977
Other deferred tax liabilities		248			222

Total gross deferred tax liabilities	$	36,016		$	32,574

Net deferred tax asset	$	774		$	5,182

CBIZ has established valuation allowances for certain states’ deferred tax assets, primarily related to portions of the state net operating loss (“NOL”) carryforwards and state income tax credit carryforwards at December 31, 2014 and December 31, 2013. The net increase in the valuation allowance for the year ended December 31, 2014 of $0.2 million primarily related to a change in the valuation allowance for a state tax credit carryforward. The net decrease in the valuation allowance for the year ended December 31, 2013 of $0.2 million primarily related to changes in the valuation allowance for NOL’s.

In assessing the realizability of deferred tax assets, management considers all available positive and negative evidence, including projected future taxable income, scheduled reversal of deferred tax liabilities, historical financial operations and tax planning strategies. Based upon review of these items, management believes it is more-likely-than-not that the Company will realize the benefits of these deferred tax assets, net of the existing valuation allowances.

CBIZ and its subsidiaries file income tax returns in the United States, Canada, and most state jurisdictions. In October 2013, the Internal Revenue Service (“IRS”) completed its audit of the Company’s 2010 federal income tax return. The Company paid a nominal amount related to the settlement of the audit. CBIZ’s federal income tax returns for years ending prior to January 1, 2011 are no longer subject to examination. In February 2015, the Company was informed that the IRS will commence an audit of its 2013 federal tax return. With limited exceptions, CBIZ’s state and local income tax returns and non-U.S. income tax returns are no longer subject to tax authority examinations for years ending prior to January 1, 2010 and January 1, 2009, respectively.

The availability of NOL’s and state tax credits are reported as deferred tax assets, net of applicable valuation allowances, in the accompanying Consolidated Balance Sheets. At December 31, 2014, the Company has state net operating loss carryforwards of $29.2 million and state tax credit carryforwards of $1.6 million. The state net operating loss carryforwards expire on various dates between 2015 and 2030 and the state tax credit carryforwards expire on various dates between 2018 and 2036.

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


	2014			2013			2012
Balance at January 1	$	5,508		$	3,618		$	3,979
Additions for tax positions of the current year		1,107			2,647			212
Additions for tax positions of prior years		118			—			323
Settlements of prior year positions		(1,343	)		—			—
Lapse of statutes of limitation		(799	)		(757	)		(896	)

Balance at December 31	$	4,591		$	5,508		$	3,618

Included in the balance of unrecognized tax benefits at December 31, 2014 are $2.9 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. The Company believes it is reasonably possible that certain of these unrecognized tax benefits could change in the next twelve months. CBIZ expects reductions in the liability for unrecognized tax benefits of approximately $0.3 million within the next twelve months due to expiration of statutes of limitation. Given the number of years that are currently subject to examination, the Company is unable to estimate the range of potential adjustments to the remaining balance of unrecognized tax benefits at this time.

CBIZ recognizes interest expense, and penalties related to unrecognized tax benefits as a component of income tax expense. During 2014, the Company accrued interest expense of $0.3 million and, as of December 31, 2014, had recognized a liability for interest expense and penalties of $0.3 million and $0.3 million, respectively, relating to unrecognized tax benefits. During 2013, the Company accrued interest expense of $0.2 million and penalties of $0.2 million and, as of December 31, 2013, had recognized a liability for interest expense and penalties of $0.3 million and $0.3 million, respectively, relating to unrecognized tax benefits.