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Income Taxes | 12 Months Ended
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Dec. 31, 2015
Income Tax Disclosure [Abstract] |
Income Taxes | 14. Income Taxes The provision for (benefit from) income taxes consisted of the following (in thousands):
| Years Ended December 31,
| 2015 |  | 2014 |  | 2013
Current tax provision (benefit): |  |  |  |  |  |  |  |
U.S. federal | $ | 556 |  |  | $ | 23 |  |  | $ | (310 | )
State | 1,415 |  |  | (654 | ) |  | 938 |
Total current | 1,971 |  |  | (631 | ) |  | 628 |
Deferred tax provision (benefit): |  |  |  |  |  |  |  |
U.S. federal | 48,450 |  |  | (23,786 | ) |  | (18,397 | )
State | 2,768 |  |  | (3,649 | ) |  | (71 | )
Total deferred | 51,218 |  |  | (27,435 | ) |  | (18,468 | )
Provision for (benefit from) income taxes | $ | 53,189 |  |  | $ | (28,066 | ) |  | $ | (17,840 | )
The provision for (benefit from) income taxes for 2015, 2014 and 2013 resulted in effective tax rates on continuing operations of (50.1)%, 62.1% and 85.4%, respectively. The reasons for the differences between these effective tax rates and the U.S. statutory rate of 35% are as follows (in thousands):
| Years Ended December 31,
| 2015 |  | 2014 |  | 2013
Income taxes at U.S. federal statutory rate of 35% | $ | (37,165 | ) |  | $ | (15,813 | ) |  | $ | (7,311 | )
Net state income taxes | 2,383 |  |  | (5,253 | ) |  | 937 |
Noncontrolling interest | (2,904 | ) |  | (11,166 | ) |  | (12,685 | )
Unrecognized tax benefits | 698 |  |  | 4,063 |  |  | 416 |
Valuation allowances and write off of tax attributes | 88,088 |  |  | — |  |  | — |
Other | 2,089 |  |  | 103 |  |  | 803 |
Provision for (benefit from) income taxes | $ | 53,189 |  |  | $ | (28,066 | ) |  | $ | (17,840 | )
Deferred income tax balances are the direct effect of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the taxes are actually paid or recovered. The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities are as follows (in thousands):
| December 31,
| 2015 |  | 2014
Deferred tax assets: |  |  |  |  |
Net operating loss carryforwards | $ | 8,028 |  |  | $ | 37,668 |
Inventory | 3,642 |  |  | 4,405 |
Alternative minimum tax credit carryforwards | 1,496 |  |  | 5,685 |
Accrued liabilities | 11,466 |  |  | 7,894 |
Other | 4,913 |  |  | — |
Subtotal | 29,545 |  |  | 55,652 |
Valuation allowances | (633 | ) |  | (633 | )
Total deferred tax assets | 28,912 |  |  | 55,019 |
Deferred tax liabilities: |  |  |  |  |
Property, plant and equipment | (53,495 | ) |  | (126,670 | )
Basis difference in the Partnership | (148,421 | ) |  | (136,438 | )
Other | (5,562 | ) |  | (10,583 | )
Total deferred tax liabilities | (207,478 | ) |  | (273,691 | )
Net deferred tax liabilities | $ | (178,566 | ) |  | $ | (218,672 | )
Tax balances are presented in the accompanying consolidated balance sheets as deferred income taxes. Pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, utilization of loss carryforwards and alternative minimum tax credits, are subject to annual limitations due to any ownership changes of 5% owners. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The Hanover/Universal merger in 2007 resulted in such an ownership change but the Spin-off did not result in such an ownership change for Archrock. Our ability to utilize loss carryforwards and credit carryforwards against future U.S. federal taxable income and future U.S. federal income tax may be limited in the future if we have another 50% or more ownership change in our 5% shareholders. The limitations may cause us to pay U.S. federal income taxes earlier; however, we do not currently expect that any loss carryforwards or credit carryforwards will expire as a result of any 382 or 383 limitations. On September 13, 2013, the U.S. Treasury Department and the IRS issued final regulations that address costs incurred in acquiring, producing, or improving tangible property (the “tangible property regulations”). The tangible property regulations are generally effective for tax years beginning on or after January 1, 2014. The tangible property regulations required us to make tax accounting method changes and file election statements with our U.S. federal tax return for our tax year beginning on January 1, 2014; however, these new requirements did not have a material impact on our consolidated financial statements. At December 31, 2015, we had U.S. federal and state net operating loss (“NOL”) carryforwards of approximately $22.0 million and $6.7 million, respectively, included in our NOL deferred tax asset that are available to offset future taxable income. If not used, the federal and state carryforwards will begin to expire in 2025 and 2020, respectively. Alternative minimum tax credit carryforwards of $1.5 million are available to offset future payments of U.S. federal income tax and may be carried forward indefinitely under current U.S. tax law. Employee share-based compensation attributable to the exercise of stock options and vesting of restricted stock is deductible by us for tax purposes. For post-2005 tax years, to the extent these tax deductions exceed the previously accrued deferred tax benefit for these items the additional tax benefit is not recognized under GAAP until the deduction reduces current taxes payable. For pre-2006 tax years, (prior to the adoption of ASC 718, formerly known as FAS 123R), the additional tax benefit is included in our NOL deferred tax asset with a corresponding valuation allowance negating the benefit. At December 31, 2015, the post-2005 tax benefit not included in our NOL deferred tax asset is $581,000 and the pre-2006 tax benefit included in our NOL deferred tax asset with an offsetting valuation allowance is $633,000. We record valuation allowances when it is more likely than not that some portion or all of our deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions in the future. If we do not meet our expectations with respect to taxable income, we may not realize the full benefit from our deferred tax assets which would require us to record a valuation allowance in our tax provision in future years. At the time of the Spin-off we had recorded $144.3 million in foreign tax credit deferred tax assets. These deferred tax assets related to foreign tax credits that can be used to reduce our income taxes payable in the current and future years. They will expire if they are not used within the 10-year carryforward period. As a result of the Spin-off it is projected that these Foreign tax credits/deductions allocated to Exterran Corporation will expire unused because Exterran Corporation will not generate sufficient taxable income and foreign source taxable income after the Spin-off to utilize these credits. Therefore, in the fourth quarter, we wrote off foreign tax credits for the years 2005-2010 in the amount of $48.2 million and set up a valuation allowance for the years 2011-2015 of $37.8 million for a total impact to Archrock’s fourth quarter tax provision of $86.0 million. The credits and offsetting valuation allowance were allocated to Exterran Corporation for their use in future tax returns. A reconciliation of the beginning and ending amount of unrecognized tax benefits (including discontinued operations) is shown below (in thousands):
| Years Ended December 31,
| 2015 |  | 2014 |  | 2013
Beginning balance | $ | 14,595 |  |  | $ | 11,259 |  |  | $ | 9,597 |
Additions based on tax positions related to current year | 845 |  |  | 954 |  |  | 365 |
Additions based on tax positions related to prior years | 3,648 |  |  | 2,597 |  |  | 1,710 |
Reductions based on settlement with government authority | — |  |  | — |  |  | — |
Reductions based on lapse of statute of limitations | — |  |  | (215 | ) |  | (97 | )
Reductions based on tax positions related to prior years | (592 | ) |  | — |  |  | (316 | )
Reductions based on tax positions transferred to Exterran Corp. | (6,498 | ) |  | $ | — |  |  | $ | — |
Ending balance | $ | 11,998 |  |  | $ | 14,595 |  |  | $ | 11,259 |
We had $12.0 million, $14.6 million and $11.3 million of unrecognized tax benefits at December 31, 2015, 2014 and 2013, respectively, which if recognized, would affect the effective tax rate (except for amounts that would be reflected in income from discontinued operations, net of tax). We also have recorded $0.2 million, $3.3 million and $3.4 million of potential interest expense and penalties related to unrecognized tax benefits associated with uncertain tax positions (including discontinued operations) as of December 31, 2015, 2014 and 2013, respectively. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as reductions in income tax expense. Subject to the provisions of the tax matters agreement between Exterran Corporation and us, both parties agreed to indemnify the primary obligor of any return for tax periods beginning before and ending before or after the Spin-off (including any ongoing or future amendments and audits for these returns) for the portion of the tax liability (including interest and penalties) that relates to their respective operations reported in the filing. As of December 31, 2015, we have recorded a $5.7 million indemnification asset (including penalties and interest) related to unrecognized tax benefits. We and our subsidiaries file consolidated and separate income tax returns in the U.S. federal jurisdiction and in numerous state jurisdictions. We are subject to U.S. federal income tax examinations for tax years beginning from 1997 onward and, early in the second quarter of 2011, the Internal Revenue Service (“IRS”) commenced an examination of our U.S. federal income tax returns for the tax years 2006, 2008 and 2009. In October 2012, the IRS completed its examination and issued Revenue Agent’s Reports (“RARs”) that reflected an aggregate over-assessment of $0.9 million. All of the adjustments proposed in the RARs were agreed, except for the disallowance of our telephone excise tax refund (“TETR”) claims of $0.5 million related to the 2006 tax year, for which we filed protests with the Appeals Division of the IRS. We settled with the IRS Appeals Division in December 2013 for more than 90% of our TETR claims and received refunds in the first quarter of 2014. The $0.9 million over-assessment was approved for refund by the Joint Committee on Taxation and was received in the third quarter of 2014. We do not expect any tax adjustments from later tax years that would have a material impact on our conaolidated financial position or consolidated results of operations. State income tax returns are generally subject to examination for a period of three to five years after filing the returns. However, the state impact of any U.S. federal audit adjustments and amendments remains subject to examination by various states for up to one year after formal notification to the states. As of December 31, 2015, we did not have any state audits underway that we believe would have a material impact on our consolidated financial position or consolidated results of operations. We do not believe any of our unrecognized tax benefits will be reduced before the year ended December 31, 2016 due to the settlement of audits and the expiration of statutes of limitations. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of these matters may result in liabilities which could materially differ from these estimates.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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