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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2011
Income Taxes |
Income Taxes |
(12) Income Taxes Income tax expense (benefit) is comprised of the following:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2011 |  | 2010 |  | 2009 |
|  | (in thousands) |
Current |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 141,305 |  | $ | 13,434 |  | $ | 33,651 |
State |  |  | 7,972 |  |  | 1,262 |  |  | 2,866 |
Total current |  |  | 149,277 |  |  | 14,696 |  |  | 36,517 |
Deferred |  |  |  |  |  |  |  |  |  |
Federal |  |  | 40,350 |  |  | 808 |  |  | (6,613 | )
State |  |  | 19,936 |  |  | (1,721 | ) |  | (669 | )
Total deferred |  |  | 60,286 |  |  | (913 | ) |  | (7,282 | )
Total income tax expense |  | $ | 209,563 |  | $ | 13,783 |  | $ | 29,235 |
The following is a reconciliation of total income tax expense (benefit) to income tax expense (benefit) computed by applying the statutory federal income tax rate (35%) to pretax income (loss):
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2011 |  | 2010 |  | 2009 |
|  | (in thousands) |
Tax computed at federal statutory rate |  | $ | 205,843 |  | $ | 9,826 |  | $ | 34,506 |
State income taxes, net of federal tax benefit |  |  | 20,600 |  |  | 1,923 |  |  | 5,402 |
State tax incentives, net of federal tax expense |  |  | (3,174 | ) |  | (2,382 | ) |  | (3,205 | )
Domestic production activities deduction |  |  | (10,562 | ) |  | (2,025 | ) |  | (3,798 | )
Federal tax credit for production of ultra-low sulfur diesel fuel |  |  | — |  |  | — |  |  | (4,783 | )
Non-deductible share-based compensation |  |  | 2,000 |  |  | 6,747 |  |  | 1,457 |
IRS interest (income)/expense, net |  |  | 34 |  |  | (814 | ) |  | — |
Noncontrolling interest |  |  | (11,474 | ) |  | — |  |  | — |
Partnership basis adjustment |  |  | 4,174 |  |  | — |  |  | — |
Other, net |  |  | 2,122 |  |  | 508 |  |  | (344 | )
Total income tax expense |  | $ | 209,563 |  | $ | 13,783 |  | $ | 29,235 |
The Company earns Kansas High Performance Incentive Program ("HPIP") credits for qualified business facility investment within the state of Kansas. CVR recognized a net income tax benefit of approximately $3.2 million, $2.4 million and $3.2 million on a credit of approximately $4.9 million, $3.7 million and $4.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. The income tax effect of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities at December 31, 2011 and 2010 are as follows:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2011 |  | 2010 |
|  | (in thousands) |
Deferred income tax assets: |  |  |  |  |  |  |
Allowance for doubtful accounts |  | $ | 475 |  | $ | 286 |
Personnel accruals |  |  | 6,437 |  |  | 10,389 |
Inventories |  |  | 2,097 |  |  | 469 |
Unrealized derivative losses, net |  |  | — |  |  | 1,604 |
Low sulfur diesel fuel credit carry forward and other general business credit carryforward |  |  | — |  |  | 23,653 |
Accrued expenses |  |  | 101 |  |  | 199 |
State tax credit carryforward, net of federal expense |  |  | 17,682 |  |  | 29,955 |
Deferred financing |  |  | 76 |  |  | 101 |
Other |  |  | 2,695 |  |  | 3,018 |
Total gross deferred income tax assets |  |  | 29,563 |  |  | 69,674 |
Deferred income tax liabilities: |  |  |  |  |  |  |
Unrealized derivative gains, net |  |  | (31,990 | ) |  | — |
Property, plant, and equipment |  |  | (224,452 | ) |  | (323,839 | )
Investment in CVR Partners |  |  | (134,920 | ) |  | — |
Prepaid expenses |  |  | (4,945 | ) |  | (1,427 | )
Total gross deferred income tax liabilities |  |  | (396,307 | ) |  | (325,266 | )
Net deferred income tax liabilities |  | $ | (366,744 | ) | $ | (255,592 | )
At December 31, 2011, CVR has Kansas state income tax credits of approximately $27.2 million, which are available to reduce future Kansas state regular income taxes. These credits, if not used, will expire in 2024 to 2027. In assessing the realizability of deferred tax assets including credit carryforwards, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Although realization is not assured, management believes that it is more likely than not that all of the deferred tax assets will be realized and thus, no valuation allowance was provided as of December 31, 2011 and 2010. As a result of the sale of common stock of the Company's two largest shareholders through a registered public offering in February 2011, a change of ownership occurred as described in Internal Revenue Code ("IRC") Sections 382 and 383. As a result of this ownership change, it is estimated that the annual limitation for the use of general business federal tax credit carryforwards approximates $24.0 million. CVR believes that all credits subject to this limitation will be fully utilized and no valuation allowance is needed. During 2011, CVR recognized income tax benefits related to the deductibility of stock-based compensation in the amount $2.3 million, which was recorded as an increase in additional paid-in capital and a reduction of income taxes payable. CVR recognizes interest expense (income) and penalties on uncertain tax positions and income tax deficiencies (refunds) in income tax expense. CVR recognized interest expense in 2011 of approximately $0.1 million of federal and state interest expense and penalties. CVR recognized interest income in 2010 of approximately $1.3 million related to 2005 and 2006 amended returns to carryback 2007 losses. CVR recognized other immaterial amounts of state interest and penalties in 2010 and 2009 for uncertain tax positions or income tax deficiencies. At December 31, 2011, the Company's tax filings are generally open to examination in the United States for the tax years ended December 31, 2008 through December 31, 2011 and in various individual states for the tax years ended December 31, 2007 through December 31, 2011. During 2011, CVR recognized a net increase in unrecognized tax benefits of approximately $17.5 million which, if recognized, would not impact the Company's effective tax rate. No amounts for interest or penalties related to uncertain tax positions have been accrued. A reconciliation of the unrecognized tax benefits for the years ended December 31, 2011, 2010 and 2009 is as follows:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2011 |  | 2010 |  | 2009 |
|  | (in thousands) |
Balance beginning of year |  | $ | 245 |  | $ | — |  | $ | — |
Increase based on prior year tax positions |  |  | — |  |  | 245 |  |  | — |
Decrease based on prior year tax positions |  |  | — |  |  | — |  |  | — |
Increases and decrease in current year tax positions |  |  | 17,467 |  |  | — |  |  | — |
Settlements |  |  | — |  |  | — |  |  | — |
Reductions related to expirations of statute of limitations |  |  | — |  |  | — |  |  | — |
Balance end of year |  | $ | 17,712 |  | $ | 245 |  | $ | — |

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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 Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: 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 3: 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 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: 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 Reference 6: 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 7: 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 8: 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 + Details
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