Entity information:
5.
Income Taxes
 
 
Income before income taxes is summarized as follows (in thousands):
 
   
Year Ended December 31,
  
   
2016
    
2015
  
Domestic
   $
(183
)
   $
517
  
Foreign
    
2,380
      
2,777
  
Total:
   $
2,197
     $
3,294
  
 
The income tax benefit is summarized as follows (in thousands):
 
   
Year Ended December 31,
  
   
2016
    
2015
  
Current:
                
Federal
   $
48
     $
2
  
Foreign
    
810
      
949
  
State
    
9
      
76
  
                 
Deferred expense (benefit):
                
Federal
    
(435
)
    
(192
 )
Foreign
    
60
      
(65
 )
State
    
(51
)
    
49
  
Net expense
   $
441
     $
819
  
 
The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows (dollars in thousands):
 
   
Year Ended December 31,
  
   
2016
    
Rate
    
2015
    
Rate
  
Provision for income taxes at federal statutory rate
   $
747
      
34.0
 %   $
1,120
      
34.0
 %
State income taxes, net of federal benefit
    
(45
)
 		    
(2.1
 %)    
30
      
0.9
 %
Permanent differences
    
68
      
3.1
 %    
28
      
0.8
 %
Federal Research and Development Credit
    
(89
 )    
(4.0
 %)    
(192
 )    
(5.8
 %)
Return to provision (benefit)
    
-
      
-
      
(51
 )    
(1.5
 %)
Foreign tax rate differential (benefit)
    
(242
)
    
(11.0
 %)    
(60
 )    
(1.8
 %)
Other (benefit)
    
2
      
0.1
 %    
(56
 )    
(1.7
 %)
Net expense
   $
441
      
20.1
 %   $
819
      
24.9
 %
 
Deferred taxes consist of the following (in thousands):
  
December 31,
  
   
2016
    
2015
  
Deferred tax assets:
                
Net operating loss carry forwards
  
$
3,116
     $
2,929
  
Federal Research and Development Credit
    
281
      
192
  
Deferred revenue
    
419
      
165
  
Allowance for doubtful accounts and other receivable
    
49
      
78
  
Share-based compensation expense
    
763
      
769
  
Foreign subsidiaries
    
471
      
529
  
Depreciation
    
529
      
479
  
Other
    
38
      
38
  
Federal Alternative Minimum Tax
    
116
      
116
  
Total deferred tax assets
    
5,782
      
5,295
  
                 
Deferred tax liabilities:
                
Goodwill
    
307
      
307
  
Capitalized software development costs
    
781
      
723
  
Total deferred tax liabilities
    
1,088
      
1,030
  
Net deferred taxes
  
$
4,694
     $
4,265
  
 
At
December
31,
2016,
and
December
31,
2015,
the Company has Federal and State NOL carryforwards of
$8.2
million and
$7.7
million, respectively, which if unused will expire in years
2018
through
2036.
 
Approximately
$1.9
million of the NOLs were incurred prior to the acquisition of PIA Merchandising Services, Inc. in
1999.
The acquisition resulted in a change of ownership under Internal Revenue Code ("IRC") section
382
and placed a limit on the amount of pre-acquisition NOLs that
may
be used each year to reduce taxable income. The annual limitation is
$657,500.
 
The Company does not provide currently for U.S. income taxes on the undistributed earnings of its profitable foreign subsidiaries (which are approximately
$3.1
million as of
December
31,
2016),
since, at the present time, management expects any earnings to be reinvested in the foreign subsidiaries and not distributed. Upon distribution of those permanently reinvested earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes, which could potentially be offset by foreign tax credits. Distribution of those earnings can also subject the Company to related withholding taxes payable to various non-U.S. jurisdictions. The Company
may,
however, receive distributions from its foreign subsidiaries, for which the Company would limit to only the current year earnings, thereby preserving the assertion that the non-current earnings are to be reinvested permanently. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculations.
 
 
A reconciliation of the beginning and ending amount of uncertain tax position reserves is as follows (in thousands):
 
   
Year Ended December 31,
  
   
2016
 
 
2015
  
Beginning balance
  
$
116
     $
113
  
Additions for tax provisions of prior years
    
–
      
3
  
Ending balance
  
$
116
     $
116
  
 
Interest and penalties that the tax law requires to be paid on the underpayment of taxes should be accrued on the difference between the amount claimed or expected to be claimed on the return and the tax benefit recognized in the financial statements. The Company's policy is to record this interest and penalties as additional tax expense.
 
Details of the Company's tax reserves at
December
31,
2016,
are outlined in the table below (in thousands):
 
   
Taxes
    
Interest
    
Penalty
    
Total Tax
Liability
  
Domestic
                                
State
   $
116
     $
40
     $
8
     $
164
  
Federal
    
–
      
–
      
–
      
–
  
International
    
–
      
–
      
–
      
–
  
Total reserve
   $
116
     $
40
     $
8
     $
164
  
 
In management's view, the Company's tax reserves at
December
31,
2016,
for potential domestic state tax liabilities were sufficient. The Company has evaluated the tax liabilities of its international subsidiaries and does not believe a reserve is necessary at this time.
 
SPAR and its subsidiaries file numerous consolidated, combined and separate company income tax returns in the U.S. Federal jurisdiction and in many U.S. states and foreign jurisdictions. With few exceptions, SPAR is subject to U.S. Federal, state and local income tax examinations for the years
2013
through the present. However, tax authorities have the ability to review years prior to the position taken by the Company to the extent that SPAR utilized tax attributes carried forward from those prior years.