Income Taxes

Federated files a consolidated federal income tax return. Financial statement tax expense is determined under the liability method.

Income tax provision consisted of the following expense/(benefit) components for the years ended December 31:



in thousands	2015		2014		2013
Current:
Federal	$	76,902	$	63,266	$	66,408
State	6,567		4,574		6,849
Foreign	188		76		190
Total Current	83,657		67,916		73,447
Deferred:
Federal	17,317		20,497		18,220
State	1,753		916		1,347
Foreign	193		201		(354		)
Total Deferred	19,263		21,614		19,213
Total	$	102,920	$	89,530	$	92,660

The federal net tax effects of timing differences exceeding 5% of the respective year's pretax income at the statutory federal income tax rate included in Income tax provision on the Consolidated Statements of Income were as follows: $(20.6) million, $(21.0) million and $(19.3) million related to intangible assets in 2015, 2014 and 2013, respectively.

The reconciliation between the statutory income tax rate and the effective tax rate consisted of the following for the years ended December 31:



	2015		2014		2013
Expected federal statutory income tax rate	35.0	%	35.0	%	35.0	%
Increase/(decrease):
State and local income taxes, net of federal benefit	1.8		1.1		2.2
Other	0.9		1.3		(1.0	)
Effective tax rate (excluding noncontrolling interests)	37.7		37.4		36.2
Income attributable to noncontrolling interests	(0.3	)	0.0		(0.4	)
Effective tax rate per Consolidated Statements of Income	37.4	%	37.4	%	35.8	%

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities consisted of the following at December 31:



in thousands	2015			2014
Deferred Tax Assets
Tax net operating loss carryforwards	$	18,109		$	17,620
Compensation related	13,130			13,499
Other	6,920			5,206
Total deferred tax assets	38,159			36,325
Valuation allowance	(17,791		)	(17,224		)
Total deferred tax asset, net of valuation allowance	$	20,368		$	19,101
Deferred Tax Liabilities
Intangible assets	$	155,212		$	134,841
Property and equipment	7,882			8,319
Deferred sales commissions	5,270			6,499
State taxes	8,248			6,463
Other	714			1,604
Total gross deferred tax liability	$	177,326		$	157,726
Net deferred tax liability	$	156,958		$	138,625

At December 31, 2015, Federated had deferred tax assets related to state and foreign tax net operating loss carryforwards in certain taxing jurisdictions in the aggregate of $18.1 million, of which the state net operating losses will expire through 2035. The foreign net operating losses have no expiration period. A valuation allowance has been recognized for $15.6 million (or 99%) of the deferred tax asset for state tax net operating losses, and for $2.2 million (or 92%) of the deferred tax asset for foreign tax net operating losses. The valuation allowances were recorded due to management's belief that it is more likely than not that Federated will not realize the full benefit of these net operating losses. Federated's remaining deferred tax assets as of December 31, 2015 primarily related to compensation-related expenses that have been recognized for book purposes but are not yet deductible for tax purposes. Management believes that it is more likely than not that Federated will receive the full benefit of these deferred tax assets due to the expectation that Federated will generate taxable income well in excess of these amounts in the years they become deductible.

At December 31, 2014, Federated had deferred tax assets related to state and foreign tax net operating loss carryforwards in certain taxing jurisdictions in the aggregate of $17.6 million, of which the state net operating losses will expire through 2034. The foreign net operating losses have no expiration period. A valuation allowance has been recognized for $15.6 million (or 99%) of the deferred tax asset for state tax net operating losses, and for $1.6 million (or 88%) of the deferred tax asset for foreign tax net operating losses. The valuation allowances were recorded due to management's belief that it is more likely than not that Federated will not realize the full benefit of these net operating losses.

Federated and its subsidiaries file annual income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and in certain foreign jurisdictions. Based upon its review of these filings, there were no material unrecognized tax benefits as of December 31, 2015 or 2014. Therefore, there were no material changes during 2015, and no reasonable possibility of a significant increase or decrease in unrecognized tax benefits within the next twelve months.