14.

INCOME TAXES

Following is an analysis of the components of the consolidated income tax provision:


	2012		2011			2010
	(In thousands)
Current —
U.S.	$	27,100	$	41,452		$	44,595
State and local		6,437		16,678			23,653

Total current provision for taxes		33,537		58,130			68,248

Deferred —
U.S.		180,997		29,895			(117,945	)
State and local		2,205		(2,548	)		(2,634	)

Total deferred provision for taxes		183,202		27,347			(120,579	)

Total provision (benefit) for taxes	$	216,739	$	85,477		$	(52,331	)

The effective tax rate varies from the U.S. Federal statutory tax rate principally due to the following:


	2012			2011			2010
	(In thousands)
Provision computed at U.S. Federal statutory rate of 35%	$	133,196		$	85,226		$	53,586
Alternative fuel mixture and cellulosic biofuel producer credits		81,695			—			(104,785	)
State and local taxes, net of federal benefit		9,135			7,504			7,694
Domestic manufacturers deduction		(7,155	)		(7,670	)		(7,540	)
Other		(132	)		417			(1,286	)

Total	$	216,739		$	85,477		$	(52,331	)

Tax expense in 2012 included $81.7 million for the reallocation of gallons from the cellulosic biofuel producer credit to the alternative fuel mixture credit claimed in the 2009 amended federal and state income tax returns filed in 2012. Tax benefits recorded in 2010 included $104.8 million for the reallocation of gallons from the alternative fuel mixture credit to the cellulosic biofuel producer credit claimed in the 2009 federal tax return, and also included a reserve for unrecognized tax benefits of $102.0 million. For further discussion regarding the alternative fuel mixture and cellulosic biofuel producer credits recorded during 2012 and 2010, see Note 15.

Deferred income tax assets and liabilities at December 31 are summarized as follows:


	December 31,
	2012			2011
	(In thousands)
Deferred tax assets:
Accrued liabilities	$	7,332		$	5,287
Employee benefits and compensation		16,002			15,100
Inventories		—			6,809
Stock options and restricted stock		8,389			8,596
Pension and postretirement benefits		65,520			60,455
Derivatives		20,381			15,072
Cellulosic biofuel tax credit carryforward		—			167,452

Total deferred tax assets	$	117,624		$	278,771

Deferred tax liabilities:
Property, plant and equipment	$	(210,486	)	$	(216,109	)
Goodwill and intangible assets		(7,267	)		(10,676	)
Inventories		(1,533	)		—
Investment in joint venture		(1,119	)		(1,121	)

Total deferred tax liabilities	$	(220,405	)	$	(227,906	)

Net deferred tax assets (liabilities)	$	(102,781	)	$	50,865

The net deferred tax assets (liabilities) at December 31 are classified in the balance sheet as follows:


	December 31,
	2012			2011
	(In thousands)
Current deferred tax assets	$	22,328		$	62,789
Non-current deferred tax liabilities		(125,109	)		(11,924	)

Net deferred tax assets (liabilities)	$	(102,781	)	$	50,865

Cash payments for both federal and state income taxes were $9.7 million, $52.7 million and $19.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The following table summarizes the changes related to PCA’s gross unrecognized tax benefits excluding interest:


	2012			2011
	(In thousands)
Balance as of January 1	$	(111,013	)	$	(112,311	)
Increases related to prior years’ tax positions		(128	)		(56	)
Increases related to current year tax positions		(1,267	)		(624	)
Settlements with taxing authorities		—			—
Expiration of the statute of limitations		1,105			1,978

Balance at December 31	$	(111,303	)	$	(111,013	)

During the third and fourth quarters of 2012, various state statutes of limitations expired. As a result of these events, the reserve for unrecognized tax benefits decreased by $1.1 million gross or $0.7 million net of the federal benefit for state taxes during the third and fourth quarters of 2012. At December 31, 2012, PCA had recorded a $111.3 million reserve for unrecognized tax benefits, excluding interest and penalties. Of the total, $107.0 million (net of the federal benefit for state taxes) would impact the effective tax rate if recognized. The increase in reserve in 2010 is attributable to alternative energy tax credits as described in Note 15.

PCA recognizes interest and penalties related to unrecognized tax benefits as part of its income tax expense. During the years ended December 31, 2012 and 2011, PCA recorded $0.3 million gross ($0.2 million net) and $0.2 million gross ($0.16 million net), respectively, in its statement of income, increasing the accrual for interest to $2.5 million gross ($1.6 million net) and $2.2 million gross ($1.4 million, net) at December 31, 2012 and 2011, respectively. Less than $0.1 million of accrual for penalties was made.

PCA and its subsidiaries are subject to U.S. federal income taxes, as well as income taxes of multiple state and city jurisdictions. A federal examination of the tax years 2002 and 2004 has been concluded. The tax years 2008 — 2012 remain open to federal examination. The tax years 2002 — 2012 remain open to state examinations. During March of 2011, the Internal Revenue Service (IRS) started an audit of PCA’s 2008 and 2009 tax years. PCA expects the reserve for unrecognized tax benefits for alternative energy tax credits related to the Filer City mill process to change significantly within the next twelve months due to the anticipated conclusion of the IRS exam. PCA estimates the change in reserve for unrecognized tax benefits to be between $0 and $105.0 million.