13.	Income Taxes

The Company

’s provision for income taxes consists of the following:

	Year Ended December 31,
	2016			2015			2014
Current:
Federal	$	11,717		$	13,614		$	38,161
State		2,047			1,966			1,645
Foreign		4,460			3,588			5,701
		18,224			19,168			45,507
Deferred:
Federal		41,264			31,869			42,474
State		3,029			1,387			(3,134	)
Foreign		(5,585	)		(7,326	)		(1,462	)
		38,708			25,930			37,878
Change in valuation allowance		638			138			364
Provision for income taxes	$	57,570		$	45,236		$	83,749

As of Dece

mber

31,

2016,

due to the carryforward of net operating losses, and research and development credits, the Company is open to U.S. federal and state income tax examinations for the tax years

2006

through

2015.

In addition, the Company is subject to audit by various foreign taxing jurisdictions for the tax years

2011

through

2015.

During

2015,

the Internal Revenue Service completed field work on income tax audits for the

2012

and

2013

tax years. A final audit report was issued and resulted in no change to the Company’s provision for income taxes.

Significant components of deferred tax assets and liabilities are as follows:

	December 31,
	2016			2015
Deferred tax assets:
Accrued expenses	$	22,758		$	18,982
Deferred revenue		10,645			9,389
Inventories		10,159			9,772
Pension obligations		7,512			7,684
Stock-based compensation		7,291			7,974
Operating loss and credit carryforwards		20,927			15,677
Other		2,822			2,842
Valuation allowance		(4,362	)		(1,523	)
Total deferred tax assets		77,752			70,797

Deferred tax liabilitites:
Goodwill and intangible assets		58,133			12,455
Depreciation		25,194			19,507
Debt refinancing costs		7,193			7,732
Prepaid expenses		1,173			1,241
Total deferred tax liabilities		91,693			40,935

Net deferred tax assets (liabilities)	$	(13,941	)	$	29,862

As of

December

31,

2016

and

2015,

deferred tax assets of

$3,337

and

$34,812,

and deferred tax liabilities of

$17,278

and

$4,950,

respectively, were reflected on the consolidated balance sheets.

The Company had approximately

$592,000

of tax-deductible goodwill and intangible asset amortization remaining as of

December

31,

2016

related to our acquisition by CCMP in

2006

that is expected to generate aggregate cash tax savings of approximately $

231,000

through

2021,

assuming continued profitability and a

39%

tax rate. The recognition of the tax benefit associated with these assets for tax purposes is expected to be approximately

$122,000

annually through

2020

and approximately

$102,000

2021,

which generates annual cash tax savings of approximately

$48,000

through

2020

and approximately

$40,000

2021,

assuming profitability and a

39%

tax rate.

Generac Brazil, a

cquired as part of the Ottomotores acquisition, has generated net operating losses for multiple years as part of the start-up of the business. The realizability of the deferred tax assets associated with these net operating losses is uncertain so a valuation allowance was recorded in the opening balance sheet as of

December

2012

and continued through

December

31,

2016.

In addition, the Company recorded a valuation allowance in the opening balance sheet and as of

December

31,

2016

rel

ated to the Pramac acquisition. The valuation allowance represents a reserve for deferred tax assets, including loss carryforwards, of Pramac subsidiaries, for which utilization is uncertain.

December

31,

201

the Company had state research and development credits, and state manufacturing credit carryforwards of approximately

$17,498

and

$3,736,

respectively, which expire between

2017

and

2031.

Changes in the Company

’s gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows:

	December 31,
	2016		2015
Unrecognized tax benefit, beginning of period	$	7,239	$	6,394
Increase in unrecognized tax benefit for positions taken in current period		704		845
Unrecognized tax benefit, end of period	$	7,943	$	7,239

The unrecognized tax

benefit as of

December

31,

2016

and

2015,

if recognized, would impact the effective tax rate.

Interest and penalties are recorded as a component of income tax expense.

As of

December

31,

2016,

2015

and

2014,

total interest of approximately

$272,

$174

and

$86,

respectively, and penalties of approximately

$425,

$363

and

$263,

respectively, associated with net unrecognized tax benefits are included in the Company’s consolidated balance sheets.

The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits related to continuing operations during the fiscal year ending

December

31,

2017.

The Company considers the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash

needs and the Company’s specific plans for reinvestment of those subsidiary earnings. The Company has not provided for additional U.S. income taxes on approximately

$7,551

of undistributed earnings of consolidated non-U.S. subsidiaries. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings.

A reconciliation of the statutory tax rates and the effective tax rates for t

he years ended

December

31,

2016,

2015

and

2014

are as follows:

	Year Ended December 31,
	2016			2015			2014
U.S. statutory rate		35.0	%		35.0	%		35.0	%
State taxes		4.1			4.1			3.1
Research and development credits		(1.0	)		(2.3	)		(5.0	)
Other		(1.3	)		-			(0.7	)
Effective tax rate		36.8	%		36.8	%		32.4	%