Maximus, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income taxes

Income taxes

12 Months Ended

Sep. 30, 2016

The components of income before income taxes and the corresponding provision for income taxes are as follows (in thousands):



	Year ended September 30,
	2016		2015		2014
Income before income taxes:
United States	$	238,871	$	232,359	$	180,820
Foreign	47,097		27,460		46,549
Income before income taxes	$	285,968	$	259,819	$	227,369



	Year ended September 30,
	2016			2015			2014
Current provision:
Federal	$	69,025		$	74,050		$	55,656
State and local	15,595			15,332			12,003
Foreign	15,536			9,581			11,416
Total current provision	100,156			98,963			79,075
Deferred tax expense (benefit):
Federal	7,778			2,233			1,750
State and local	902			403			181
Foreign	(3,028		)	(1,829		)	967
Total deferred tax expense (benefit)	5,652			807			2,898
Provision for income taxes	$	105,808		$	99,770		$	81,973

The provision for income taxes differs from that which would have resulted from the use of the federal statutory income tax rate as follows (in thousands):



	Year ended September 30,
	2016			2015			2014
Federal income tax provision at statutory rate of 35%	$	100,089		$	90,937		$	79,579
State income taxes, net of federal benefit	10,723			9,847			7,920
Foreign taxation	(3,976		)	(2,208		)	(3,909		)
Permanent items	1,284			1,602			1,286
Tax credits	(1,592		)	(961		)	(1,623		)
Valuation allowances on net operating loss carryforwards	—			—			(962		)
Other	(720		)	553			(318		)
Provision for income taxes	$	105,808		$	99,770		$	81,973

The significant items comprising our deferred tax assets and liabilities as of September 30, 2016 and 2015 are as follows (in thousands):



	As of September 30,
	2016			2015
Net deferred tax assets/(liabilities)
Costs deductible in future periods	$	27,738		$	25,896
Deferred revenue	23,469			21,446
Stock compensation	5,085			4,600
Net operating loss carryforwards	1,291			1,356
Amortization of goodwill and intangible assets	(34,484		)	(22,061		)
Capitalized software	(10,126		)	(9,781		)
Accounts receivable - unbilled	(13,810		)	(9,598		)
Property and equipment	(5,517		)	(6,650		)
Other	(1,815		)	(696		)
	$	(8,169	)	$	4,512

Our deferred tax assets and liabilities are held in various national and international jurisdictions which do not allow right of offset. Accordingly, our presentation of deferred taxes on our consolidated balance sheet is split between jurisdictions which show a net deferred tax asset and a net deferred tax liability. Our net deferred tax position is summarized below (in thousands):



	As of September 30,
	2016			2015
Balance of tax jurisdictions with net deferred tax assets	$	8,644		$	11,058
Balance of tax jurisdictions with net deferred tax liabilities	(16,813		)	(6,546		)
Net deferred tax assets/(liabilities)	$	(8,169	)	$	4,512

At September 30, 2016, our foreign subsidiaries held approximately $218 million of cumulative earnings. We consider undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the U.S. and, accordingly, no U.S. deferred taxes have been recorded with respect to such earnings in accordance with the relevant accounting guidance for income taxes. Should the earnings be remitted as dividends, we may be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings given the various tax planning alternatives we could employ should we decide to repatriate these earnings in a tax-efficient manner.

Cash paid for income taxes during the years ended September 30, 2016, 2015, and 2014 was $108.3 million, $81.3 million and $79.4 million, respectively.

The provision for income taxes includes all provision to return adjustments included in the year recognized in the financial statements.

We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is "more-likely-than-not" that the position will be sustained upon examination. Our net unrecognized tax benefits totaled $1.1 million and $1.0 million at September 30, 2016 and 2015, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect our annual effective income tax rate was $1.1 million and $1.0 million at September 30, 2016 and 2015, respectively.

We report interest and penalties as a component of income tax expense. In the fiscal years ending September 30, 2016, 2015 and 2014, we recognized interest expense relating to unrecognized tax benefits of less than $0.1 million in each year. The net liability balance at September 30, 2016 and 2015 includes approximately $0.6 million of interest and penalties.

We recognize and present uncertain tax positions on a gross basis (i.e., without regard to likely offsets for deferred tax assets, deductions and/or credits that would result from payment of uncertain tax amounts). The reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows (in thousands):



	Year ended September 30,
	2016			2015			2014
Balance at beginning of year	$	529		$	812		$	812
Lapse of statute of limitation	—			(200		)	—
Reductions for tax positions of prior years	(81		)	(83		)	—
Balance at end of year	$	448		$	529		$	812

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are no longer subject to federal income tax examinations for years before 2013 and to state and local income tax examinations by tax authorities for years before 2011. In international jurisdictions, similar rules apply to filed income tax returns, although the tax examination limitations and requirements may vary. We are no longer subject to audit by tax authorities for foreign jurisdictions for years prior to 2011.