12. The effective tax rate for income from continuing operations in the first six months of 2013 was 32.6% compared to 31.1% in the first six months of 2012. The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing operations for the six months ended June 30, 2013 and 2012 are as follows:


	Percent of Income
	Before Income Taxes
SixMonths Ended June 30	2013		2012
Income taxexpense at federal statutory rate	35.0		35.0
State taxes, net of federal income taxbenefit	2.2		1.0
Valuation allowance for foreign operating loss carry-forwards	1.4		(.4	)
Valuation allowance for capital loss carry-forwards	1.2		6.1
Unremitted earnings from foreign operations	.7		1.1
Non-deductible expenses	.6		.2
Income taxcontingency accruals/reversals	.6		-
Foreign rate differences	(.2	)	(3.6	)
Changes in estimates related to prior year taxprovision	(.4	)	-
Domestic production activities deduction	(1.3	)	(.3	)
Research and development taxcredit	(1.6	)	-
Foreign taxincentives	(5.6	)	(7.4	)
Other	-		(.6	)
Effective income taxrate for income from continuing operations	32.6		31.1

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 $1.6 million (5 cents per share) in the first six months of 2013 and 2012, respectively.

Income taxes for the first six months of 2012 include the recognition of an additional valuation allowance of $1.3 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 Internal Revenue Service 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.