12. The effective tax rate for continuing operations in the first quarter of 2013 was 28.3% compared to 34.8% in the first quarter of 2012. The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing operations for the three months ended March 31, 2013 and 2012 are as follows:


	Percent of Income
	Before Income Taxes
	for Continuing Operations
Three Months Ended March 31	2013		2012
Income taxexpense at federal statutory rate	35.0		35.0
State taxes, net of federal income taxbenefit	1.8		.9
Valuation allowance for foreign operating loss
carry-forwards	1.8		-
Non-deductible expenses	.6		.3
Reversal of income taxcontingency accruals and tax
settlements	.6		-
Unremitted earnings from foreign operations	.5		1.7
Valuation allowance for capital loss carry-forwards	(.3	)	7.8
Domestic Production Activity Deduction	(1.4	)	-
Foreign rate differences	(2.2	)	(2.1	)
Research and development taxcredit	(2.7	)	-
Foreign taxincentive	(5.0	)	(8.7	)
Other	(.4	)	(.1	)
Effective income taxrate for continuing operations	28.3		34.8

The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social contribution on income). Terphane's manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate levied on the operating profit of its products. These incentives produce a current effective tax rate of 15.25% for Terphane Ltda. (6.25% of income tax and 9.0% social contribution on income). The current incentives will expire at the end of 2014, but we anticipate that we will qualify for additional incentives that will extend beyond 2014. The benefit from tax incentives was $0.7 million (2 cents per share) in the first quarter of 2013 and $1.0 million (3 cents per share) in the first quarter of 2012.

Income taxes for the first quarter of 2012 include the recognition of an additional valuation allowance of $0.9 million related to expected limitations on the utilization of assumed capital losses on certain investments recognized in previous years.

Tredegar and its subsidiaries file income tax returns in the U.S., various states and jurisdictions outside the U.S. Except for refund claims and amended returns, the IRS has provided written confirmation that they do not plan to make any additional changes to our U.S. consolidated tax returns for the years prior to 2010, although the federal statute of limitations was extended for the tax years 2006-2009 through December 31, 2013. With few exceptions, Tredegar and its subsidiaries are no longer subject to state or non-U.S. income tax examinations by tax authorities for years before 2009.