

9.	Income Taxes

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. Significant components of the net deferred tax assets and net deferred tax liabilities as reflected on the Consolidated Balance Sheets are as follows:



	December 31,
	2013			2012
	(in thousands)
Deferred tax liabilities:
Prepaid assets	$	(5,084	)	$	(6,929	)
Depreciation	(8,937		)	(8,580		)
Software development costs	(2,739		)	(3,104		)
Total deferred tax liabilities	(16,760		)	(18,613		)

Deferred tax assets:
Accrued incentive compensation	3,909			4,896
Net operating loss carryforward	1,773			2,057
Workers’ compensation accruals	5,568			5,079
Accrued rent	1,008			1,033
Stock-based compensation	3,742			3,114
Intangibles	837			227
Minority investment impairment	991			—
Other	412			418
Total deferred tax assets	18,240			16,824
Valuation allowance	(991		)	—
Total net deferred tax assets	17,249			16,824

Net deferred tax assets (liabilities)	$	489		$	(1,789	)

Net current deferred tax assets	$	8,185		$	7,211
Net noncurrent deferred tax liabilities	(7,696		)	(9,000		)
	$	489		$	(1,789	)

The components of income tax expense are as follows:



	Year ended December 31,
	2013			2012			2011
	(in thousands)
Current income tax expense:
Federal	$	20,476		$	29,280		$	16,816
State	3,512			4,351			3,535
Total current income tax expense	23,988			33,631			20,351
Deferred income tax (benefit) expense:
Federal	(2,258		)	(5,363		)	47
State	(30		)	(380		)	(93		)
Total deferred income tax benefit	(2,288		)	(5,743		)	(46		)
Total income tax expense	$	21,700		$	27,888		$	20,305

As a result of nonqualified stock option exercises, disqualifying dispositions of certain employee incentive stock options and vesting of restricted stock awards, we had a net income tax benefit of $1.3 million in 2013, $1.8 million in 2012 and $1.7 million in 2011. The income tax benefit is reported as a component of additional paid-in capital.

The reconciliation of income tax expense computed at U.S. federal statutory tax rates to the reported income tax expense from continuing operations is as follows:



	Year ended December 31,
	2013			2012			2011
	(in thousands)
Expected income tax expense at 35%	$	18,806		$	23,901		$	17,770
State income taxes, net of federal benefit	2,286			2,497			2,249
Nondeductible expenses	1,993			1,663			904
Section 199 benefits	(2,531		)	—			—
Expense Management non-cash impairment	797			—			—
Valuation allowance related to TRE impairment	938			—			—
Research and development credit	(534		)	—			(558		)
Other, net	(55		)	(173		)	(60		)
Reported total income tax expense	$	21,700		$	27,888		$	20,305

We have developed customer facing software that is included as a component of the Workforce Optimization solution. In addition, several ABUs market both software products and software as a service offerings. Prior to 2013, we were not certain that these software offerings met the IRS “Qualified Production Activities Deduction” requirements. As a result, no such tax deduction was taken on the annual tax returns filed with the IRS. However, in 2013, we engaged tax specialists to conduct a study of our various software offerings to assess the qualifications with IRS guidelines. Based on this study, we concluded certain of our software offerings met the IRS requirements, resulting in plans to amend previously filed open year tax returns. Accordingly, in 2013 we recognized $2.0 million in tax benefits for the years 2009 to 2012, and $530,000 in tax benefits for the 2013 tax year.

At December 31, 2013, we have net operating loss carryforwards totaling approximately $4.8 million that expire from 2022 to 2030 related to our acquisition of ExpensAble.

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2013, 2012 and 2011, we made no provisions for interest or penalties related to uncertain tax positions. The tax years 2010 through 2012 remain open to examination by the Internal Revenue Service of the United States.