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INCOME TAXES
 12 Months Ended
Dec. 31, 2011
INCOME TAXES  
INCOME TAXES

NOTE 6.  INCOME TAXES

 

Income tax provision (benefit) consists of the following:

 

 

 

Years ended December 31,

 

 

 

2011

 

2010

 

2009

 

Current provision

 

$

4,683,711

 

$

4,443,536

 

$

402,156

 

Deferred (benefit) provision

 

(1,503,638

)

(104,612

)

1,919,523

 

 

 

$

3,180,073

 

$

4,338,924

 

$

2,321,679

 

 

Income tax benefits were recognized through stockholders’ equity of $0, $4,472 and $6,673 during the years of 2011, 2010 and 2009, respectively, as compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes.

 

The difference between the Company’s provision for federal income taxes as presented in the accompanying consolidated statements of income, and the provision for income taxes computed at the statutory rate is comprised of the items shown in the following table as a percentage of pre-tax earnings.

 

 

 

Years ended December 31,

 

 

 

2011

 

2010

 

2009

 

Income tax at the statutory rate

 

35.00

%

35.00

%

35.00

%

Tax credits

 

(2.24

)%

(1.52

)%

(2.23

)%

Adjustment to base jackpot liability

 

2.09

%

0.00

%

0.00

%

Other

 

1.06

%

1.01

%

(0.37

)%

 

 

35.91

%

34.49

%

32.40

%

 

The components of the deferred income tax assets and liabilities at December 31, 2011 and 2010, as presented in the consolidated balance sheets, are as follows:

 

 

 

2011

 

2010

 

DEFERRED TAX ASSETS

 

 

 

 

 

Share based compensation

 

$

4,126,452

 

$

3,555,103

 

Compensation and benefits

 

440,268

 

506,897

 

Bad debt reserves

 

459,496

 

857,751

 

Accrued gaming liabilities

 

773,052

 

1,148,127

 

Accrued interest

 

8,937

 

8,937

 

Accrued other

 

298,631

 

384,769

 

Deferred income tax asset

 

$

6,106,836

 

$

6,461,584

 

DEFERRED TAX LIABILITIES

 

 

 

 

 

Depreciation

 

(5,537,132

)

(7,324,088

)

Prepaid expenses

 

(785,328

)

(861,613

)

Real estate taxes

 

(280,513

)

(275,658

)

Deferred income tax liability

 

$

(6,602,973

)

$

(8,461,359

)

NET DEFERRED INCOME TAX LIABILITY

 

$

(496,137

)

$

(1,999,775

)

 

The Company is required to file a federal tax return only.  As of December 31, 2011, tax years 2006 through 2010 were subject to examination by the Internal Revenue Service (the “IRS”).  During 2009, the IRS began its field examination (the “Examination”) of the Company’s 2006, 2007 and 2008 tax returns.  The issues for consideration in the Examination were temporary differences related to the appropriate recovery periods applicable to certain assets.  In 2010, the Company received the results of the Examination of its 2006 through 2008 U.S. federal income tax returns and subsequently filed an appeal of the Examination findings with the Appellate Division of the IRS.  In connection with that appeal, the Company agreed to extend the statute of limitations for its 2006, 2007 and 2008 tax returns to December 31, 2012 to allow the IRS adequate time to consider its response in the appeals process.  The company believes that it will likely reach an agreement with the IRS with respect to the Examination within the next 12 months. Upon the settlement of these issues unrecognized tax benefits could decrease by $1,501,206 to $0.

 

Accounting standards require that tax positions be assessed for recognition using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts.  The Company’s policy regarding interest and penalties associated with any uncertain tax positions is to classify such amounts as income tax expense.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (amounts in thousands):

 

 

 

2011

 

2010

 

Balance — Beginning of year

 

$

1,501,206

 

$

—

 

Additions based on tax positions of the current year

 

—

 

—

 

Additions based on tax positions of prior years

 

—

 

1,501,206

 

Reductions for settlements

 

—

 

—

 

Decreases due to lapses in statutes of limitations

 

—

 

—

 

Balance — End of year

 

$

1,501,206

 

$

1,501,206

 

 

As of December 31, 2011 and 2010, the Company recorded a liability related to uncertain tax positions of $1,501,206 all of which is recorded as a current liability.

 

For the years ending December 31, 2011 and 2010, the Company recognized accrued interest expense related to unrecognized tax benefits of $165,871 and $169,788, respectively.  At December 31, 2011, accrued interest related to unrecognized tax benefits was $335,659.  No interest or penalties were recorded for the year ending December 31, 2009.