7. Income Taxes

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


	2015		2014		2013
United States	$	57,665	$	50,385	$	41,809
Foreign (Canada)		167		183		147

Total	$	57,832	$	50,568	$	41,956

Income tax expense included in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013 was as follows (in thousands):


	2015			2014			2013
Continuing operations:
Current:
Federal	$	18,079		$	15,749		$	13,880
Foreign		43			47			47
State and local		2,694			1,782			2,311

Total		20,816			17,578			16,238
Deferred:
Federal		1,060			952			(394	)
State and local		953			1,624			733

Total		2,013			2,576			339

Total income tax expense from continuing operations		22,829			20,154			16,577
Discontinued operations:
Operations of discontinued operations:
Current		(1,263	)		51			3,107
Deferred		68			(222	)		(653	)

Total		(1,195	)		(171	)		2,454
Gain on disposal of discontinued operations:
Current		427			34			49,973
Deferred		(344	)		—			(776	)

Total		83			34			49,197

Total income tax expense from discontinued operations		(1,112	)		(137	)		51,651

Total income tax expense	$	21,717		$	20,017		$	68,228

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):


	2015			2014			2013
Tax at statutory rate (35%)	$	20,241		$	17,699		$	14,684
State taxes (net of federal benefit)		2,899			3,361			2,020
Business meals and entertainment — non-deductible		779			667			624
Reserves for uncertain tax positions		(324	)		(1,724	)		(531	)
Net change in tax rate		(1,046	)		(214	)		(414	)
Other, net		280			365			194

Provision for income taxes from continuing operations	$	22,829		$	20,154		$	16,577

Effective income tax rate		39.5	%		39.9	%		39.5	%

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2015 and 2014, were as follows (in thousands):


	2015			2014
Deferred tax assets:
Net operating loss carryforwards .	$	952		$	973
Allowance for doubtful accounts		4,569			3,028
Employee benefits and compensation		27,984			25,238
Lease costs		3,318			3,959
State tax credit carryforwards		1,393			1,496
Other deferred tax assets		2,497			3,175

Total gross deferred tax assets		40,713			37,869
Less: valuation allowance		(1,376	)		(1,079	)

Total deferred tax assets, net	$	39,337		$	36,790

Deferred tax liabilities:
Accrued interest	$	3,847		$	5,878
Client list intangible assets		3,273			4,016
Goodwill and other intangibles		32,114			25,874
Other deferred tax liabilities		209			248

Total gross deferred tax liabilities	$	39,443		$	36,016

Net deferred tax (liability) asset	$	(106	)	$	774

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, 2015 and December 31, 2014. The net increase in the valuation allowance of $0.3 million and $0.2 million for the years ended December 31, 2015 and December 31, 2014, respectively, primarily related to changes in the valuation allowance for certain state tax credit carryforwards.

In assessing the realization 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, 2012 are no longer subject to examination. During 2015, the IRS began its audit of the Company’s 2013 and 2014 federal income tax returns. The Company anticipates the IRS will complete its audit in early 2016. During 2015, the state of Kansas completed its audit of the Company’s 2003 through 2011 state of Kansas income tax returns. The Company paid approximately $0.1 million in settlement of this audit. 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, 2011 and January 1, 2010, 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, 2015, the Company has state net operating loss carryforwards of $27.5 million and state tax credit carryforwards of $1.5 million. The state net operating loss carryforwards expire on various dates between 2016 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):


	2015			2014			2013
Balance at January 1	$	4,591		$	5,508		$	3,618
Additions for tax positions of the current year		126			1,107			2,647
Additions for tax positions of prior years		—			118			—
Settlements of prior year positions		(94	)		(1,343	)		—
Lapse of statutes of limitation		(336	)		(799	)		(757	)

Balance at December 31	$	4,287		$	4,591		$	5,508

Included in the balance of unrecognized tax benefits at December 31, 2015 are $2.8 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 2015, the Company accrued interest expense of $0.2 million and, as of December 31, 2015, had recognized a liability for interest expense and penalties of $0.3 million and $0.3 million, respectively, relating to unrecognized tax benefits. 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.