Income tax expense is as follows ():

 

		December 31,
		2017				2016				2015
Current tax expense:
Federal		$	17,008			$	16,274			$	25,852
State			3,201				2,929				3,450
Total current tax expense:			20,209				19,203				29,302
Deferred tax expense (benefit):
Federal			(19,425	)			(7,115	)			(12,571	)
State			(983	)			(253	)			(1,449	)
Total deferred tax benefit:			(20,408	)			(7,368	)			(14,020	)
Total income tax expense		$	(199	)		$	11,835			$	15,282

 

A reconciliation of the income tax expense calculated using the applicable federal statutory rate to the actual income tax expense is as follows ():

 

		December 31,
		2017				%				2016				%				2015				%
Computed at federal statutory rate		$	13,949				35.0			$	17,315				35.0			$	13,934				35.0
State and local tax expense, net of federal benefit			2,226				5.6				2,448				5.0				1,038				2.6
Net permanent deduction and credit tax benefits from prior years			-				-				(6,213	)			(12.6	)			-				-
Net permanent deduction and credit tax benefits from current year			(1,513	)			(3.8	)			(1,509	)			(3.1	)			-				-
Tax Reform - Revaluation of Deferrals			(15,130	)			(38.0	)			-				-				-				-
Acquisition adjustments			(1,003	)			(2.5	)			-				-				-				-
Acquisition costs			697				1.7				203				0.4				-				-
Other, net			575				1.5				(409	)			(0.8	)			310				0.8
Total income tax expense		$	(199	)			(0.5	)		$	11,835				23.9			$	15,282				38.4

 

The Company’s effective tax rate decreased to () for the year ended from for the year ended primarily due to the revaluation of the Company’s deferred tax balances from the federal tax rate reduction of to under the Tax Act which was signed into law on The net benefits for the Tax Act as recorded as provisional amounts as of represent the Company's best estimate using information available to the Company as of The Company anticipates U.S. regulatory agencies will issue further regulations over the next year which alter this estimate. The Company is still evaluating, among other things, the application of limitations for executive compensation related to contracts existing prior to The Company will refine its estimates to incorporate new or better information as it comes available through the filing date of its U.S. income tax returns in the quarter of

 

As a result of an analysis performed during the Company determined certain activities it performs qualify for (i) R&D Credits provided in IRC Section and (ii) the Section Deduction provided in IRC Section As a result, the Company recognized net tax benefits during the year ended of million for federal and state R&D Credits and the Section Deduction relating to tax years through

 

Deferred income taxes are recognized for the future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities. The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities are as follows (in thousands):

		December 31,
		2017				2016
Deferred tax assets:
Stock-based compensation		$	9,980			$	10,373
Goodwill and intangible assets			6,524				10,711
Allowance for doubtful accounts			3,822				4,108
Deferred rent			909				1,120
Tenant improvements			669				1,226
Estimated liability for appeals			7,775				11,596
Net operating loss carry-forwards			3,358				2,141
Tax credit carry-forwards			3,667				-
Property and equipment			256				79
Accrued expenses and other			3,615				7,811
Total deferred tax assets			40,575				49,165
Deferred tax liabilities:
Goodwill and intangible assets			48,186				52,729
Section 481(a) adjustment			7,413				14,757
Prepaid expenses			624				-
Capitalized software cost			6,341				4,396
Total deferred tax liabilities			62,564				71,882
Total net deferred tax liabilities		$	21,989			$	22,717

 

Included in Other liabilities on the Consolidated Balance Sheets, are the total amount of unrecognized tax benefits of approximately million and million as of and respectively, net of the federal benefit for state issues that, if recognized, would favorably affect the Company’s future effective tax rate. Also included in Other Liabilities on the Consolidated Balance Sheets, are accrued liabilities for interest expense and penalties related to unrecognized tax benefits of million at both and HMS includes interest expense and penalties in the provision for income taxes in the Consolidated Statements of Income. The amount of interest expense, net of federal and state income tax benefits, and penalties in the Consolidated Statements of Income for the years ended and was million, million and million, respectively. The Company believes it is reasonably possible the amount of unrecognized tax benefits decrease by million during due to the expiration of the statute of limitations in various jurisdictions.

 

A reconciliation of the beginning and ending amounts of unrecognized tax benefits are as follows :

 

		December 31,
		2017				2016
Unrecognized tax benefits at January 1		$	7,433			$	1,329
Additions for tax positions taken during prior periods			599				763
Additions for tax positions taken during current period including amended prior years			1,174				5,931
Reductions related to the expiration of statutes of limitations			(972	)			(590	)
Unrecognized tax benefits at December 31		$	8,234			$	7,433

 

The Company increased the provision for unrecognized tax benefits by million during the year ended related to tax benefits recognized associated with R&D Credits and the Section Deduction for all open tax years.

 

At HMS had federal and state pre-tax net operating loss and tax credit carryforwards of approximately million and million, respectively, which will be available to offset future taxable income. If used, these net operating loss and tax credit carryforwards will begin to expire in and respectively. The Company files income tax returns with the U.S. Federal government and various state jurisdictions. HMS is longer subject to U.S. Federal income tax examinations for years before The Company is currently under audit by the Internal Revenue Service for years and and assessments have been received. HMS operates in a number of state and local jurisdictions. Accordingly, HMS is subject to state and local income tax examinations based upon the various statutes of limitations in each jurisdiction. Previously recognized Texas refund claims are currently being examined by the state. The Company is currently being examined by the State of Illinois and has received preliminary assessments of an immaterial amount which the Company is reviewing.