Income Taxes

Prior to the initial public offering, the Predecessor was a corporation included in its parent's consolidated tax return. As such, the Predecessor was subject to both federal and state income taxes and recorded deferred income taxes for the differences between the book and tax bases of its assets and liabilities, which are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Effective with the closing of the Partnership's initial public offering, it is no longer a taxable entity for federal income tax purposes. While most states do not impose an entity level tax on partnership income, the Partnership is subject to entity level tax in both Tennessee and Texas. As a result, the Partnership must record deferred income taxes for the differences between book and tax bases of its assets and liabilities based on those current states enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Subsequent to the initial public offering, the Partnership had total tax expense of $0.1 million. The majority of the change in deferred tax assets and liabilities relates to the Predecessor's conversion from a corporation to a partnership and no longer being subject to federal income tax. The conversion from a taxable corporation to a passthrough resulted in a one-time tax benefit of $18.5 million.

Significant components of our deferred tax assets and liabilities, reported separately in the accompanying combined financial statements, as of December 31, 2012 and 2011, are as follows (in thousands):



	December 31,
	2012			2011
Current Deferred Taxes:
Accrued reserves	$	1		$	60
Tank and pipeline inspection liabilities	2			113
Contingent liabilities	11			632
Valuation allowance	—			(72		)
Total current deferred tax assets	14			733

Non-Current Deferred Taxes:
Depreciation and amortization	(36		)	(17,011		)
Net operating loss carryforwards	—			626
Stock-based compensation	—			237
Asset retirement obligations	1			280
ASC 815 derivatives	—			(6		)
Deferred revenue	—			343
Tank and pipeline inspection liabilities	6			1,145
Contingent liabilities	13			1,684
State bonus depreciation	—			129
Other	(1		)	(11		)
Valuation allowance	—			(6,914		)
Total non-current deferred tax liabilities	(17		)	(19,498		)
Total net deferred tax liabilities	$	(3	)	$	(18,765	)

The difference between the actual income tax expense and the tax expense computed by applying the statutory federal income tax rate to income before income taxes is attributable to the following (in thousands):



	Year Ended December 31,
	2012			2011			2010
Provision for federal income taxes at statutory rate	$	4,047		$	6,304		$	5,316
State income taxes, net of federal tax provision	(58		)	255			32
Valuation allowance	193			(1,145		)	—
Permanent differences	300			15			(218		)
Conversion to partnership	(18,534		)	—			—
Other items	28			(66		)	(28		)
Income tax (benefit) expense	$	(14,024	)	$	5,363		$	5,102

Income tax expense is as follows (in thousands):



	Year Ended December 31,
	2012			2011			2010
Current	$	4,738		$	9,691		$	4,844
Deferred	(18,762		)	(4,328		)	258
	$	(14,024	)	$	5,363		$	5,102

Deferred income tax expense above is reflective of the changes in deferred tax assets and liabilities during the current period.

We recognize accrued interest and penalties related to unrecognized tax benefits as an adjustment to the current provision for income taxes. There are no uncertain tax positions recorded as of December 31, 2012 or 2011 and there were no interest or penalties recognized related to uncertain tax positions for the years ended December 31, 2012, 2011 or 2010. We have examined uncertain tax positions for any material changes in the next 12 months and none are expected.