Note 16. Income Taxes

Earnings before income taxes from continuing operations consist of the following:

	Year Ended December 31,
(in thousands)	2016		2015		2014
Foreign	$	33,611	$	35,571	$	33,349
United States		31,118		2,364		7,938
Income from continuing operations before income taxes	$	64,729	$	37,935	$	41,287

Significant components of the income tax provision from continuing operations are as follows:

	Year Ended December 31,
(in thousands)	2016			2015			2014
Current:
United States:
Federal	$	3,685		$	(876	)	$	—
State		1,716			1,558			16
Foreign		8,177			9,342			9,824
Total current		13,578			10,024			9,840
Deferred:
United States:
Federal		8,427			1,854			(9,486	)
State		(598	)		(164	)		(125	)
Foreign		(157	)		(1,221	)		(120	)
Total deferred		7,672			469			(9,731	)
Income tax expense	$	21,250		$	10,493		$	109

The Company is subject to income tax in jurisdictions in which it operates. A reconciliation of the statutory federal income tax rate to the effective tax rate of the Company for the years 2014 – 2016 is as follows:

	Year Ended December 31,
(in thousands)	2016					2015					2014
Computed income tax expense at statutory federal income tax rate of 35%	$	22,655		35.0	%	$	13,277		35.0	%	$	14,450		35.0	%
State income taxes, net of federal provision		292		0.5	%		1,713		4.5	%		227		0.5	%
Foreign tax rate differentials		(882	)	(1.4	)%		(1,181	)	(3.1	)%		(1,262	)	(3.1	)%
U.S. tax on foreign earnings (net of foreign tax credits)		(373	)	(0.6	)%		(948	)	(2.5	)%		(2,168	)	(5.3	)%
Change in valuation allowance		1,230		1.9	%		(944	)	(2.5	)%		(11,650	)	(28.2	)%
Proceeds from life insurance		—		—			—		—			(133	)	(0.3	)%
Return to provision and other adjustments		(2,406	)	(3.7	)%		(1,557	)	(4.1	)%		(1,401	)	(3.4	)%
Other, net		734		1.1	%		133		0.4	%		2,046		5.0	%
Income tax expense	$	21,250		32.8	%	$	10,493		27.7	%	$	109		0.2	%

The components of deferred income tax assets and liabilities included in the consolidated balance sheets are as follows:

	December 31,
(in thousands)	2016			2015
Deferred tax assets:
Tax credit carryforwards	$	11,380		$	19,529
Pension, compensation, and other employee benefits		22,868			23,212
Provisions for losses		10,235			11,119
Net operating loss carryforward		5,023			4,310
State income taxes		3,790			2,944
Other deferred income tax assets		5,020			3,456
Total deferred tax assets		58,316			64,570
Valuation allowance		(3,998	)		(2,837	)
Foreign deferred tax assets included above		(1,972	)		(2,460	)
Net deferred tax assets		52,346			59,273
Deferred tax liabilities:
Property and equipment		(3,299	)		(3,510	)
Deferred tax related to life insurance		(5,642	)		(5,316	)
Goodwill and other intangible assets		(4,535	)		(4,038	)
Other deferred income tax liabilities		(557	)		(1,115	)
Total deferred tax liabilities		(14,033	)		(13,979	)
Foreign deferred tax liabilities included above		2,852			3,471
United States net deferred tax assets	$	41,165		$	48,765

The Company uses significant judgment in forming conclusions regarding the recoverability of its deferred tax assets and evaluates all available positive and negative evidence to determine if it is more-likely-than-not that the deferred tax assets will be realized. To the extent recovery does not appear likely, a valuation allowance must be recorded. As of December 31, 2016 and 2015, Viad had gross deferred tax assets of $58.3 million and $64.6 million, respectively. These deferred tax assets reflect the expected future tax benefits to be realized upon reversal of deductible temporary differences, and the utilization of net operating loss and tax credit carryforwards.

As of December 31, 2016, the Company has foreign tax credit carryforwards of $2.3 million, of which $2.2 million are U.S. foreign tax credits and $0.1 million are United Kingdom foreign tax credits. The U.S. foreign tax credits are subject to a 10-year carryforward period. Of the $2.2 million, less than $0.1 million will expire in 2021, $0.3 million will expire in 2022, and $1.9 million will expire in 2023. The United Kingdom foreign tax credits may be carried forward indefinitely. As of December 31, 2016, Viad had tax credit carryforwards related to alternative minimum tax of $9.1 million that may be carried forward indefinitely.

As of December 31, 2016 and 2015, Viad had gross state and foreign net operating loss carryforwards of $63.0 million and $56.0 million, respectively, for which the Company had deferred tax assets of $5.0 million and $4.3 million, respectively. The state and foreign net operating loss carryforwards expire on various dates from 2017 through 2035. During 2016, the Company increased its valuation allowance related to state and foreign net operating loss carryforwards by $1.2 million and during 2015, decreased it by $0.8 million. As of December 31, 2016 and 2015, Viad had a valuation allowance of $4.0 million and $2.8 million related to state and foreign net operating loss carryforwards, respectively.

While management believes that the deferred tax assets, net of existing valuation allowances will be utilized in future periods, there are inherent uncertainties regarding the ultimate realization of these assets. It is possible that the relative weight of positive and negative evidence regarding the realization of deferred tax assets may change, which could result in a material increase or decrease in the Company’s valuation allowance. Such a change could result in a material increase or decrease to income tax expense in the period the assessment was made.

Viad has not recorded deferred taxes on certain historical unremitted earnings of its subsidiaries located in Canada, the United Kingdom, and the Netherlands as management intends to reinvest those earnings in operations outside of the United States. As of December 31, 2016, the incremental unrecognized tax liability (net of estimated foreign tax credits) related to those undistributed earnings was approximately $6.8 million. To the extent that circumstances change and it becomes apparent that some or all of those undistributed earnings will be remitted to the U.S., Viad would accrue income taxes attributable to such remittance.

Viad exercises judgment in determining the income tax provision for positions taken on prior returns when the ultimate tax determination is uncertain. Viad classifies liabilities associated with uncertain tax positions as non-current liabilities in its consolidated balance sheets unless they are expected to be paid within the next year. As of December 31, 2016 and 2015, the Company had liabilities associated with uncertain tax positions (including interest and penalties) of $2.7 million and $1.5 million, respectively. Of this amount, $1.2 million was classified as short-term liabilities, as they are expected to be released within the next twelve months and the remainder was classified as non-current liabilities.

During 2016, the Company recognized a net increase of $1.3 million in the liability for continuing operations uncertain tax positions and $0.1 million in accrued interest and penalties related to continuing operations positions. Uncertain tax positions are classified as a component of income tax expense and the impact of the change in uncertain tax positions was less than $0.1 million as of December 31, 2016. The Company expects $0.2 million of the continuing operations uncertain tax positions to be resolved or settled during 2017.

The Company had accrued liabilities for uncertain tax positions for discontinued operations of $0.6 million and accrued interest and penalties of $0.4 million and $0.5 million as of December 31, 2016 and 2015, respectively. The decrease in interest accrued was due to the change in the interest rate applied. Future tax resolutions or settlements that may occur related to these uncertain tax positions would be recorded through discontinued operations (net of tax, if applicable). The Company expects $1.0 million of the discontinued operations uncertain tax positions to be resolved or settled within the next twelve months.

A reconciliation of the liabilities associated with uncertain tax positions (excluding interest and penalties) is as follows:

(in thousands)	Continuing Operations			Discontinued Operations		Total
Balance at December 31, 2013	$	736		$	636	$	1,372
Additions for tax positions taken in prior years		1,019			—		1,019
Reductions for lapse of applicable statutes		(472	)		—		(472	)
Balance at December 31, 2014		1,283			636		1,919
Additions for tax positions taken in prior years		43			—		43
Reductions for tax positions taken in prior years		(666	)		—		(666	)
Reductions for lapse of applicable statutes		(353	)		—		(353	)
Balance at December 31, 2015		307			636		943
Additions for tax positions taken in prior years		1,295			—		1,295
Reductions for lapse of applicable statutes		(43	)		—		(43	)
Balance at December 31, 2016	$	1,559		$	636	$	2,195

On December 7, 2016, the U.S. Treasury and the Internal Revenue Service issued final and temporary regulations under Internal Revenue Code §987 to address the tax impact of foreign currency translation gains or losses arising from foreign branch operations that operate in a currency other than the U.S. dollar. The Company evaluated the impact of the regulations under the “Fresh Start Transition Method” described in the regulations. The resulting increase to the deferred tax asset was recorded as a benefit to income tax expense.

Viad is subject to regular and recurring audits by taxing authorities in jurisdictions in which the Company currently operates or has operated in the past. This includes the United States, Canada, the United Kingdom, Germany, and the Netherlands.

Viad’s 2013 through 2016 U.S. federal tax years and various state tax years from 2012 through 2016 remain subject to income tax examinations by tax authorities. The 2006, 2008, and 2010 federal tax years remain subject to adjustment to the extent of federal net operating loss carryback claims, which will expire in 2017. Tax years 2011 through 2016 remain subject to examination by various foreign taxing jurisdictions.

During 2016, 2015, and 2014, cash paid for income taxes was $14.1 million, $10.1 million, and $8.4 million, respectively.