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INCOME TAXES
 3 Months Ended
Mar. 31, 2012
INCOME TAXES  
INCOME TAXES

 

 

NOTE 10 — INCOME TAXES

 

Effective tax rates differ from federal statutory income tax rates primarily due to changes in the Company’s valuation allowance, permanent differences and provisions for state and local income taxes. As of March 31, 2012, the Company had no net deferred income taxes due to the full recorded valuation allowance. During the three months ended March 31, 2012, the Company recorded a provision for income taxes of $20 from continuing operations compared to a provision for income taxes of $17 from continuing operations during the three months ended March 31, 2011. The increase in the provision for income taxes during the three months ended March 31, 2012, was primarily attributable to a change in state apportionment rates that caused a modest change in the current state taxes computed based upon gross margin.

 

The Company files income tax returns in U.S. federal and state jurisdictions. As of March 2012, open tax years in federal and some state jurisdictions date back to 1996 due to the taxing authorities’ ability to adjust operating loss carryforwards. As of December 31, 2011, the Company had federal net operating loss carryforwards of $136,189 expiring in various years through 2031. The majority of the federal net operating loss carryforwards will expire in 2028, 2029, 2030 and 2031. As of December 31, 2011, the Company also had unapportioned state net operating losses in the aggregate of approximately $136,189 expiring in various years through 2031.

 

The Company does not anticipate that there will be a material change in the total amount of its unrecognized tax benefits within the next twelve months. However, the Company has also considered the effect of U.S. Internal Revenue Code (“IRC”) Section 382 on its ability to utilize existing net operating losses. Under IRC Section 382, the use of net operating loss carryforwards and other tax credit carryforwards may be limited if a change in ownership of a company occurs. If it is determined that due to transactions involving the Company’s shares owned by its five percent shareholders a change of ownership has occurred under the provisions of IRC Section 382, the Company’s net operating loss carryforwards could be subject to significant limitations. Application of IRC Section 382 is complex and requires continuous evaluation and the Company’s current net operating loss carryforwards may be subject to significant future limitation.

 

As of March 31, 2012, the Company has $426 of unrecognized tax benefits, all of which would have a favorable impact on income tax expense. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense. The Company has accrued interest and penalties of $140 as of March 31, 2012. As of December 31, 2011, the Company had unrecognized tax benefits of $417, of which, $131 represented accrued interest and penalties.  The change in unrecognized tax benefits is due to the additional accrual of interest for the period ended March 31, 2012 of $9, compared to $9 for the period ended March 31, 2011.