Note 12 - Income Taxes and Deferred Tax Asset/Liability

12 Months Ended

Dec. 31, 2013

12.	Income Taxes and Deferred Tax Asset/Liability

The Company’s policy is to recognize interest related to any underpayment of taxes as interest expense, and penalties as administrative expenses. No interest or penalties have been accrued at December 31, 2013, and interest and penalties for the years ended December 31, 2012 and 2011 were not significant. The Company’s U.S. federal income tax returns for 2010 and later years are open and subject to examination by the I.R.S. In addition, the Company’s state income tax returns for 2009 and later years are open and subject to examination by the state.

Current income tax expense represents federal and state income tax paid or expected to be payable for the years shown in the statements of operations. The income tax expense (benefit) in the accompanying consolidated financial statements consists of the following (in thousands):

	Years Ended December 31,
	2013			2012			2011
Current tax expense (benefit)	$	(3,928	)	$	588		$	1,639
Deferred tax expense (benefit)		5,150			(1,167	)		(18,651	)
Total tax expense (benefit)	$	1,222		$	(579	)	$	(17,012	)

Deferred tax assets and liabilities consist of the following (in thousands):

	As of December 31,
	2013						2012
	Current			Long Term			Current		Long Term
Assets related to:
Accrued compensation and other	$	265		$	451		$	1,803	$	-
Amortization and impairment of goodwill		-			11,108			-		13,181
Accreted interest to put		-			985			-		939
Contingency on lawsuit		-			106			-		130
Noncontrolling interest		-			1,439			-		915
Deferred revenue		6,993			-			-		-
Revaluation of put/call liabilities		-			5,127			-		2,194
Net operating loss carryforwards		-			18,302			-		-
Valuation allowance for deferred tax assets		(7,258	)		(23,773	)		-		-
Liabilities related to:
Depreciation of property and equipment		-			(12,669	)		-		(13,615	)
Noncontrolling interest		-			-			-		-
Other		-			(1,076	)		-		(771	)
Net asset	$	-		$	-		$	1,803	$	2,973

The income tax provision (benefit) differs from the amount using the statutory federal income tax rate of 35% for the following reasons (amounts in thousands):

	Years Ended December 31,
	2013						2012						2011
	Amount			%			Amount			%			Amount			%
Tax expense (benefit) at the U.S. federal statutory rate	$	(24,081	)		35.0	%	$	5,997			35.0	%	$	(18,101	)		35.0	%
State tax based on income, net of refunds and federal benefits		(1,280	)		1.8			(58	)		(0.3	)		(573	)		1.1
Taxes on subsidiaries’ and joint ventures’ earnings allocated to noncontrolling interests owners		(1,375	)		2.0			(5,938	)		(34.7	)		(444	)		0.9
Tax benefits of Domestic Production Activities Deduction		-			-			(84	)		(0.5	)		(202	)		0.4
Impairment associated with goodwill that is not amortizable for tax		-			-			-			-			2,603			(5.0	)
Valuation Allowance		28,215			(41.0	)		-			-			-			-
Non-taxable interest income		(195	)		0.3			(529	)		(3.1	)		(376	)		0.7
Other permanent differences		(62	)		0.1			33			0.2			81			(0.2	)
Income tax expense (benefit)	$	1,222			(1.8	)%	$	(579	)		(3.4	)%	$	(17,012	)		32.9	%

We have federal and state income tax net operating loss (“NOL”) carryforwards of $49.1 million and $28.7 million, which will expire at various dates in the next 20 years for U.S. federal income tax and in the next 7 to 20 years for the various state jurisdictions where we operate. Such NOL carryforwards expire as follows (in thousands):

Year	Amount
2020	$	963
2028		14,141
2033		62,686
Total	$	77,790

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2013. The cumulative three-year period loss that occurred in the fourth quarter was the result of the significant write-downs recorded during the quarter which significantly increased our deferred tax assets. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. On the basis of this evaluation, as of December 31, 2013, a valuation allowance of $28.2 million has been recorded on the net deferred tax assets including federal and state net operating losses as they are not likely to be realized based on the objective negative evidence. The amount of the deferred tax asset considered realizable, however, could be adjusted if objective negative evidence or cumulative losses are no longer present and additional weight may be given to subjective evidence such as our projections for growth.

If our assumptions change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets as of December 31, 2013, will be accounted for as follows: approximately $28.4 million will be recognized as a reduction of income tax expense and $2.6 million will be recorded as an increase in equity.

As a result of certain realization requirements by GAAP, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of December 31, 2013, and December 31, 2012, that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation that are greater than the compensation recognized for financial reporting. Equity will be increased by $16,000 if and when such deferred tax assets are ultimately realized. On September 13, 2013, the U.S. Treasury Department and the I.R.S. issued final regulations that address costs incurred in acquiring, producing, or improving tangible property (the "tangible property regulations"). The tangible property regulations are generally effective for tax years beginning on or after January 1, 2014, and may be adopted in earlier years. The Company intends to adopt the tax treatment of expenditures to improve tangible property and the capitalization of inherently facilitative costs to acquire tangible property as of January 1, 2014. The tangible property regulations will require the Company to make additional tax accounting method changes as of January 1, 2014; however, management does not anticipate the impact of these changes to be material to the Company’s consolidated financial position, its results of operations, or both.

As a result of the Company’s analysis, management has determined that the Company does not have any material uncertain tax positions.

- 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+ Details