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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | (5) Income Taxes Income before income taxes consists of the following (in thousands):
|  | Years Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Domestic |  | $ | 22,303 |  |  | $ | 11,347 |  |  | $ | 12,939 |
Foreign |  |  | 8,406 |  |  |  | 7,973 |  |  |  | 5,450 |
Total |  | $ | 30,709 |  |  | $ | 19,320 |  |  | $ | 18,389 |
The components of the income tax provision (benefit) are as follows (in thousands):
|  | Years Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 6,094 |  |  | $ | 5,103 |  |  | $ | 11,644 |
State |  |  | 2,330 |  |  |  | 1,252 |  |  |  | 2,239 |
Foreign |  |  | 2,032 |  |  |  | 1,954 |  |  |  | 1,167 |
Total current |  |  | 10,456 |  |  |  | 8,309 |  |  |  | 15,050 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 2,719 |  |  |  | (723 | ) |  |  | (6,470 | )
State |  |  | 59 |  |  |  | (232 | ) |  |  | (1,095 | )
Foreign |  |  | (176 | ) |  |  | (30 | ) |  |  | 39 |
Total deferred |  |  | 2,602 |  |  |  | (985 | ) |  |  | (7,526 | )
Income tax provision |  | $ | 13,058 |  |  | $ | 7,324 |  |  | $ | 7,524 |
A reconciliation of the federal statutory rate to Forrester’s effective tax rate is as follows:
|  | Years Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Income tax provision at federal statutory rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
Increase (decrease) in tax resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State tax provision, net of federal benefit |  |  | 5.0 |  |  |  | 4.0 |  |  |  | 4.2 |
Foreign tax rate differential |  |  | (3.9 | ) |  |  | (2.7 | ) |  |  | (3.2 | )
Stock option compensation deduction |  |  | 0.6 |  |  |  | 2.5 |  |  |  | 2.6 |
Non-deductible expenses |  |  | 1.5 |  |  |  | 1.7 |  |  |  | 1.1 |
Change in valuation allowance |  |  | 3.2 |  |  |  | (0.7 | ) |  |  | (1.0 | )
Change in tax legislation |  |  | — |  |  |  | (3.1 | ) |  |  | — |
Out-of-period adjustment |  |  | — |  |  |  | — |  |  |  | 2.5 |
Other, net |  |  | 1.1 |  |  |  | 1.2 |  |  |  | (0.3 | )
Effective tax rate |  |  | 42.5 | % |  |  | 37.9 | % |  |  | 40.9 | %
In July 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. The opinion invalidates part of a treasury regulation requiring stock-based compensation to be included in any qualified intercompany cost-sharing arrangement. The Company has reviewed this case and concluded that recording a tax benefit of $0.6 million during 2015, representing the benefit of adjusting its cost-sharing agreement for the years of 2012 through 2014, was appropriate based on the opinion in the case. This benefit is included in the change in tax legislation line in the table above. There were no significant developments in this case during 2016 and the Company will continue to monitor ongoing developments and potential impacts to its consolidated financial statements. The components of deferred income taxes are as follows (in thousands):
|  | As of December 31, |
|  | 2016 |  |  | 2015 |
Non-deductible reserves and accruals |  | $ | 8,189 |  |  | $ | 9,795 |
Net operating loss and other carryforwards |  |  | 7,560 |  |  |  | 7,862 |
Stock compensation |  |  | 5,327 |  |  |  | 5,900 |
Depreciation and amortization |  |  | 1,196 |  |  |  | 813 |
Other assets |  |  | 50 |  |  |  | 490 |
Gross deferred tax asset |  |  | 22,322 |  |  |  | 24,860 |
Less - valuation allowance |  |  | (2,193 | ) |  |  | (1,534 | )
Sub-total |  |  | 20,129 |  |  |  | 23,326 |
Depreciation and amortization |  |  | (453 | ) |  |  | — |
Goodwill amortization |  |  | (5,013 | ) |  |  | (5,097 | )
Deferred commissions |  |  | (4,928 | ) |  |  | (5,344 | )
Net deferred tax asset |  | $ | 9,735 |  |  | $ | 12,885 |
As of December 31, 2016 and 2015, long-term net deferred tax assets were $9.8 million and $13.1 million, respectively and are included in other assets in the Consolidated Balance Sheets. As of December 31, 2016 and 2015, long-term net deferred tax liabilities were $0.1 million and $0.2 million, respectively, and are included in non-current liabilities in the Consolidated Balance Sheets. The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred income tax asset. Judgment is required in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. Although realization is not assured, based upon the Company’s historical taxable income and projections of the Company’s future taxable income over the periods during which the deferred tax assets are deductible and the carryforwards expire, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances, as discussed below. As of December 31, 2016 and 2015, the Company maintained a valuation allowance of approximately $2.2 million and $1.5 million, respectively, primarily relating to U.S. capital losses from the Company’s investment in a technology-related private equity fund, and from foreign net operating loss carryforwards from an acquisition. As of December 31, 2016, the Company had U.S. federal net operating loss carryforwards of approximately $0.7 million obtained from acquired businesses. These carryforwards are limited pursuant to section 382 of the Internal Revenue Code due to changes in ownership as a result of the acquisitions. If unused, these carryforwards would expire in 2020. The Company also has foreign net operating loss carryforwards of approximately $20.4 million, which can be carried forward indefinitely. Approximately $3.5 million of the foreign net operating loss carryforwards relate to a prior acquisition, the utilization of which is subject to limitation under the tax law of the United Kingdom. As of December 31, 2016, the Company had U.S. federal and state capital loss carryforwards of $3.4 million, of which $0.4 million expires in 2018, $1.6 million expires in 2020 and $1.4 million expires in 2021. The following table provides a summary of the changes in the deferred tax valuation allowance for the years ended December 31, 2016, 2015 and 2014 (in thousands):
|  | 2016 |  |  | 2015 |  |  | 2014 |
Deferred tax valuation allowance at January 1 |  | $ | 1,534 |  |  | $ | 1,565 |  |  | $ | 2,200 |
Additions |  |  | 1,256 |  |  |  | 150 |  |  |  | 17 |
Deductions |  |  | (455 | ) |  |  | (134 | ) |  |  | (574 | )
Translation adjustments |  |  | (142 | ) |  |  | (47 | ) |  |  | (78 | )
Deferred tax valuation allowance at December 31 |  | $ | 2,193 |  |  | $ | 1,534 |  |  | $ | 1,565 |
During the years ended December 31, 2016 and 2015, the Company recognized approximately $0.1 million and $0.2 million, respectively, of net tax deficiencies from tax deductions less than book deductions resulting from employee stock option exercises. Net tax benefits were insignificant for the year ended December 31, 2014. The net tax deficiencies were recorded as a decrease to additional paid-in-capital. Excess tax benefits from share-based payments are recognized in the year that the deduction reduces the amount of cash payable for taxes. Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $27.8 million as of December 31, 2016. The Company has not provided any additional federal or state income taxes or foreign withholding taxes on the undistributed earnings as such earnings have been indefinitely reinvested in the business. Due to the various methods by which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings is not practicably determinable. The Company utilizes a two-step process for the measurement of uncertain tax positions that have been taken or are expected to be taken on a tax return. The first step is a determination of whether the tax position should be recognized in the financial statements. The second step determines the measurement of the tax position. A reconciliation of the beginning and ending amount of unrecognized tax benefits is summarized as follows for the years ended December 31, 2016, 2015 and 2014 (in thousands):
|  | 2016 |  |  | 2015 |  |  | 2014 |
Unrecognized tax benefits at January 1 |  | $ | 1,910 |  |  | $ | 2,136 |  |  | $ | 2,012 |
Additions for tax positions of prior years |  |  | — |  |  |  | 36 |  |  |  | 6 |
Reductions for tax positions of prior years |  |  | (31 | ) |  |  | — |  |  |  | — |
Additions for tax positions of current year |  |  | 75 |  |  |  | 46 |  |  |  | 121 |
Settlements |  |  | (163 | ) |  |  | (303 | ) |  |  | — |
Lapse of statute of limitations |  |  | — |  |  |  | — |  |  |  | — |
Translation adjustments |  |  | (17 | ) |  |  | (5 | ) |  |  | (3 | )
Unrecognized tax benefits at December 31 |  | $ | 1,774 |  |  | $ | 1,910 |  |  | $ | 2,136 |
As of December 31, 2016, the total amount of unrecognized tax benefits totaled approximately $1.8 million, all of which if recognized, would decrease our effective tax rate in a future period. The Company expects that $1.1 million of unrecognized tax benefits will be recognized within the next 12 months due to the closure of tax audits during 2017. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and such amounts were not significant in the years ended December 31, 2016, 2015 and 2014. At December 31, 2016, 2015 and 2014, the Company had $0.1 million, $0.2 million and $0.2 million, respectively, of accrued interest and penalties related to uncertain tax positions. The Company files income tax returns in the U.S. and in foreign jurisdictions. Generally, the Company is no longer subject to U.S., state, local and foreign income tax examinations by tax authorities in its major jurisdictions for years before 2009, except to the extent of net operating loss and tax credit carryforwards from those years. Major taxing jurisdictions include the U.S., the Netherlands, the United Kingdom, Germany and Switzerland. During 2016, the Internal Revenue Service completed the audit of the Company’s amended 2010 consolidated Federal income tax return and there were no material adjustments. As of December 31, 2016, the Company was under audit by the Internal Revenue Service for the Company’s amended 2012 consolidated Federal income tax return. This audit was completed in the first quarter of 2017 with no material adjustments.

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