Note 14. Income Taxes

Information pertaining to the Company’s income before income taxes is as follows:

 

 

Information pertaining to the Company’s provision (benefit) for income taxes is as follows:

 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

 

The Company has not provided for the United States income or the foreign withholding taxes on the $5.4 million of undistributed earnings of its subsidiaries operating outside of the United States. It is the Company’s intention to reinvest those earnings permanently. Generally, such amounts become subject to United States taxation upon remittance of dividends and under certain other circumstances. Determination of the amount of any unrecognized deferred tax liability related to investments in these foreign subsidiaries is not practicable.

The effective tax rate before income taxes varies from the current U.S. federal statutory income tax rate as follows:

 

 

As of December 31, 2015, the Company has approximately $1,234 of Texas Temporary Margin Tax Credit that may be utilized through 2026. The Company has reflected a deferred tax asset in the table above.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, including interest and penalties, is as follows:

 

 

Of the amounts reflected in the above table at December 31, 2015, the entire amount would reduce the Company’s annual effective tax rate if recognized. The Company accrued interest of $20 during 2015 and in total, as of December 31, 2015, recognized a liability for interest of $37. The Company records accrued interest related to income tax matters in the provision for income taxes in the accompanying consolidated statement of income. Included in the unrecognized tax benefits is a liability for the PM Group’s potential IRES and IRAP (Italian Income Taxes) audit adjustments for the tax years 2009 – 2013.  Depending upon the final resolution of the PM Group’s audit, the liability could be higher or lower than the amount recorded at December 31, 2015. As of December 31, 2015, we don’t anticipate a significant change in unrecognized tax benefits within 12 months of the reporting date.

The Company files income tax returns in the United States, Canada and Italy as well as various state and local tax jurisdictions with varying statutes of limitations. With few exceptions, as of December 31, 2015, we are no longer subject to U.S. federal, state or foreign examinations by tax authorities for years before 2012.

 

In connection with the acquisition, the Board of Directors of ASV, Inc. agreed a Plan of Conversion to convert ASV, Inc., a corporation into a Minnesota limited liability company. Under the plan, all of the issued and outstanding shares of ASV, Inc. were cancelled and an equal number of limited liability company membership interests were issued to the members of ASV LLC, on a one-for-one basis

In connection with the conversion, ASV, Inc. had a taxable liability of $16.2 million.  This tax liability was recorded on the opening balance sheet of ASV and paid during 2015.

Since its conversion to an LLC, ASV has been treated as a partnership for tax purposes. The Company received basis in the limited liability company equal to the fair market value basis in its share of the ASV assets. As such, the Company did not record deferred taxes in connection with the business combination and the financial reporting and tax basis in ASV were the same.