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Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Taxes |
9. | Income Taxes
The provision for income taxes consists of the following:
|  | Year Ended December 31, 2012 |  |  | Year Ended December 31, 2011 |  |  | Year Ended December 31, 2010 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 76,599 |  |  | $ | 45,112 |  |  | $ | 96,449 |
State |  |  | 3,066 |  |  |  | 8,004 |  |  |  | 12,468 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 13,086 |  |  |  | 21,492 |  |  |  | 6,352 |
State |  |  | 1,738 |  |  |  | 3,548 |  |  |  | 1,119 |
|  | $ | 94,489 |  |  | $ | 78,156 |  |  | $ | 116,388 |
In addition to amounts applicable to income before taxes, the following income tax benefits were recorded in shareholders’ equity:
|  | Year Ended December 31, 2012 |  |  | Year Ended December 31, 2011 |  |  | Year Ended December 31, 2010 |
Income tax benefits arising from compensation expense for tax purposes in excess of amounts recognized for financial statement purposes |  | $ | 14,319 |  |  | $ | 22,835 |  |  | $ | 63,558 |
Deferred income taxes on NVR’s consolidated balance sheets were comprised of the following:
|  | December 31, |
|  | 2012 |  |  | 2011 |
Deferred tax assets: |  |  |  |  |  |  |  |
Other accrued expenses and contract land deposit reserve |  | $ | 77,475 |  |  | $ | 83,744 |
Deferred compensation |  |  | 10,923 |  |  |  | 10,939 |
Equity-based compensation expense |  |  | 26,151 |  |  |  | 35,417 |
Inventory |  |  | 10,914 |  |  |  | 6,622 |
Unrecognized tax benefit |  |  | 22,295 |  |  |  | 25,594 |
Other |  |  | 5,606 |  |  |  | 4,228 |
Total deferred tax assets |  |  | 153,364 |  |  |  | 166,544 |
Less: deferred tax liabilities |  |  | 1,702 |  |  |  | 2,128 |
Net deferred tax position |  | $ | 151,662 |  |  | $ | 164,416 |
Deferred tax assets arise principally as a result of various accruals required for financial reporting purposes, stock option expense and deferred compensation, which are not currently deductible for tax return purposes. Management believes that the Company will have sufficient available carry-backs and future taxable income to make it more likely than not that the net deferred tax assets will be realized. Federal taxable income is estimated to be $188,362 for the year ended December 31, 2012, and was $79,056 for the year ended December 31, 2011. A reconciliation of income tax expense in the accompanying consolidated statements of income to the amount computed by applying the statutory federal income tax rate of 35% to income before taxes is as follows:
|  | Year Ended December 31, 2012 |  |  | Year Ended December 31, 2011 |  |  | Year Ended December 31, 2010 |
Income taxes computed at the federal statutory rate |  | $ | 96,277 |  |  | $ | 72,652 |  |  | $ | 112,838 |
State income taxes, net of federal income tax benefit |  |  | 3,226 |  |  |  | 7,974 |  |  |  | 7,731 |
Other, net |  |  | (5,014 | ) |  |  | (2,470 | ) |  |  | (4,181 | )
|  | $ | 94,489 |  |  | $ | 78,156 |  |  | $ | 116,388 |
The Company’s effective tax rate in 2012, 2011 and 2010 was 34.35%, 37.65% and 36.10%, respectively. During 2012, the Company reduced its provision for unrecognized tax benefits by $9,154, which reduced the 2012 effective tax rate. The reduction resulted from settlements with and an audit by certain taxing authorities during 2012 which led the Company to update its evaluation of the administrative practice in other states for similar uncertain tax positions to determine whether the positions taken in those states were effectively settled. The Company files a consolidated U.S. federal income tax return, as well as state and local tax returns in all jurisdictions where the Company maintains operations. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years prior to 2009. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | Year Ended December 31, 2012 |  |  | Year Ended December 31, 2011 |
Balance at beginning of year |  | $ | 45,049 |  |  | $ | 44,722 |
Additions based on tax positions related to the current year |  |  | 4,185 |  |  |  | 3,291 |
Reductions for tax positions of prior years |  |  | (8,928 | ) |  |  | (2,964 | )
Settlements |  |  | (62 | ) |  |  | — |
Balance at end of year |  | $ | 40,244 |  |  | $ | 45,049 |
If recognized, the total amount of unrecognized tax benefits that would affect the effective tax rate (net of the federal tax benefit) is $26,159. The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. For the year ended December 31, 2012, the Company recognized a net reversal of accrued interest on unrecognized tax benefits in the amount of $4,116. For the years ended 2011 and 2010, the Company accrued interest on unrecognized tax benefits in the amounts of $2,076 and $573, respectively. As of December 31, 2012 and 2011, the Company had a total of $20,658 and $24,797, respectively, of accrued interest on unrecognized tax benefits which are included in “Accrued expenses and other liabilities” on the accompanying consolidated balance sheets. Based on its historical experience in dealing with various taxing authorities, the Company has found that it is the administrative practice of these authorities to not seek penalties from the Company for the tax positions it has taken on its returns, related to its unrecognized tax benefits. Therefore, the Company does not accrue penalties for the positions in which it has an unrecognized tax benefit. However, if such penalties were to be accrued, they would be recorded as a component of income tax expense. The Company believes that within the next 12 months, it is reasonably possible that the unrecognized tax benefits will be reduced by approximately $4,236 due to statute expiration and effectively settled positions in various state jurisdictions. The Company is currently under audit by the states of Michigan and Pennsylvania.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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