10.

INCOME TAXES:

The components of income (loss) from continuing operations before income taxes were as follows (in thousands):


	Year Ended December 31,
	2016			2015			2014
Income (loss) from continuing operations before income taxes:
Domestic	$	349,959		$	244,955		$	263,357
Foreign		(42,273	)		(16,280	)		163,242

Total	$	307,686		$	228,675		$	426,599

The components of the provision for income taxes for continuing operations were as follows (in thousands):


	Year Ended December 31,
	2016			2015			2014
Current:
Federal	$	106,316		$	85,830		$	67,430
State		11,549			9,783			8,693
Foreign		5,076			21,262			39,978

Total current tax provision		122,941			116,875			116,101

Deferred:
Federal		(264	)		(5,247	)		11,507
State		(923	)		917			2,232
Foreign		(14,508	)		(15,073	)		9,167

Total deferred tax provision (benefit)		(15,695	)		(19,403	)		22,906

Total provision for income taxes from continuing operations	$	107,246		$	97,472		$	139,007

The actual income tax provision differed from the income tax provision computed by applying the U.S. federal statutory corporate rate to income from continuing operations before provision for income taxes as follows (in thousands):


	Year Ended December 31,
	2016			2015			2014
Provision at the statutory rate	$	107,690		$	80,036		$	149,697
Increases (decreases) resulting from —
State taxes		6,479			7,241			7,890
Foreign taxes		1,860			1,239			(13,059	)
Contingency reserves, net		(13,540	)		4,438			(650	)
Production activity deduction		(8,586	)		(6,871	)		(6,033	)
Employee per diems, meals and entertainment		8,764			8,727			9,817
Taxes on unincorporated joint ventures		(656	)		(3,838	)		(6,429	)
Asset impairments		1,909			7,047			—
Other		3,326			(547	)		(2,226	)

Total provision for income taxes from continuing operations	$	107,246		$	97,472		$	139,007

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):


	December 31,
	2016			2015
Deferred income tax liabilities:
Property and equipment	$	(214,902	)	$	(189,793	)
Goodwill		(83,097	)		(69,059	)
Other intangibles		(33,566	)		(36,565	)
Other book/tax accounting method differences		(41,241	)		(61,095	)

Total deferred income tax liabilities		(372,806	)		(356,512	)

Deferred income tax assets:
Accruals and reserves		21,681			25,070
Accrued insurance		79,630			75,591
Stock and incentive compensation and pension withdrawal liabilities		58,744			52,009
Net operating loss carryforwards		37,362			27,255
Other		7,546			10,894

Subtotal		204,963			190,819
Valuation allowance		(14,991	)		(16,141	)

Total deferred income tax assets		189,972			174,678

Total net deferred income tax liabilities	$	(182,834	)	$	(181,834	)

The net deferred income tax assets and liabilities were comprised of the following (in thousands):


	December 31,
	2016			2015
Deferred income taxes:
Assets	$	10,000		$	4,657
Liabilities		(192,834	)		(186,491	)

Total net deferred income tax liabilities	$	(182,834	)	$	(181,834	)

The valuation allowance for deferred income tax assets at December 31, 2016, 2015 and 2014 was $15.0 million, $16.1 million and $13.0 million, respectively. These valuation allowances relate to foreign net operating loss carryforwards, state net operating loss carryforwards and foreign tax credit carryforwards. The net change in the total valuation allowance for each of the years ended December 31, 2016, 2015 and 2014 was a decrease of $1.1 million, an increase of $3.1 million and a decrease of $0.3 million, respectively. The valuation allowance was established primarily as a result of uncertainty in Quanta’s outlook as to future taxable income in particular tax jurisdictions. Quanta believes it is more likely than not that it will realize the benefit of its deferred tax assets net of existing valuation allowances.

At December 31, 2016, Quanta had state and foreign net operating loss carryforwards, the tax effect of which was approximately $40.2 million. These carryforwards will expire as follows: 2017, $0.7 million; 2018, $0.4 million; 2019, $0.8 million; 2020, $0.5 million; 2021, $0.5 million and $37.3 million thereafter. A valuation allowance of $12.6 million has been recorded against certain foreign and state net operating loss carryforwards.

Through December 31, 2016, Quanta has not provided U.S. income taxes on approximately $298.8 million of unremitted foreign earnings. If Quanta was to repatriate cash that is indefinitely reinvested outside the U.S., it could be subject to additional U.S income and foreign withholding taxes. Because of the number and variability of assumptions required, it is not practicable to determine the amount of any additional U.S. tax liability that may result if Quanta decides to no longer indefinitely reinvest foreign earnings outside the U.S. If Quanta’s intentions or U.S. tax laws change in the future, there may be a significant negative impact on the provision for income taxes and cash flows as a result of recording an incremental tax liability in the period such change occurs.

A reconciliation of unrecognized tax benefit balances is as follows (in thousands):


	December 31,
	2016			2015			2014
Balance at beginning of year	$	54,541		$	50,668		$	48,306
Additions based on tax positions related to the current year		4,227			5,340			9,133
Additions for tax positions of prior years		2,048			292			2,438
Reductions for tax positions of prior years		(1,948	)		(132	)		—
Reductions for audit settlements		(180	)		(1,345	)		—
Reductions resulting from a lapse of the applicable statute of limitations periods		(23,448	)		(282	)		(9,209	)

Balance at end of year	$	35,240		$	54,541		$	50,668

For the year ended December 31, 2016, the $23.4 million reduction was primarily due to the expiration of certain federal and state statute of limitations periods for the 2010 through 2012 tax years. For the year ended December 31, 2015, the $0.3 million reduction was primarily due to the expiration of certain federal and state statute of limitations periods for the 2004 tax year. For the year ended December 31, 2014, the $9.2 million reduction was primarily due to the expiration of certain federal and state statute of limitations periods for the 2010 tax year.

The balances of unrecognized tax benefits, the amount of related interest and penalties and what Quanta believes to be the range of reasonably possible changes in the next 12 months are as follows (in thousands):


	December 31,
	2016		2015		2014
Unrecognized tax benefits	$	35,240	$	54,541	$	50,668
Portion that, if recognized, would reduce tax expense and effective tax rate		33,128		48,312		42,952
Accrued interest on unrecognized tax benefits		5,539		8,750		6,304
Accrued penalties on unrecognized tax benefits		650		673		697
Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months	$	0 to $12,332	$	0 to $27,485	$	0 to $10,221
Portion that, if recognized, would reduce tax expense and effective tax rate	$	0 to $10,983	$	0 to $24,009	$	0 to $8,484

Quanta classifies interest and penalties within the provision for income taxes. Quanta recognized interest income of $3.2 million, interest expense of $2.4 million and interest expense of $0.5 million in the provision for income taxes for the years ended December 31, 2016, 2015 and 2014, respectively.

Although the IRS completed its examination related to tax years 2010, 2011 and 2012 during 2016, certain subsidiaries remain under examination by various U.S. state, Canadian and other foreign tax authorities for multiple periods. Quanta’s Canadian subsidiaries remain open to examination by the Canada Revenue Agency for tax years 2010 through 2014 as these statute of limitations periods have not yet expired. Quanta does not consider any state in which it does business to be a major tax jurisdiction.