Income Taxes

The provision for income taxes is determined by applying the U.S. Federal statutory rate of 34% to income before income taxes as a result of the following:



	Years Ended December 31,
	2012			2011
U.S. Federal benefit at statutory rate	$	(12,334.1	)	$	(12,005.5	)
State and local benefit net of U.S. federal tax	(2,154.1		)	(2,177.0		)
Permanent non deductible expenses for U.S. taxes	(2,781.4		)	5,907.3
Reduction in deferred tax assets primarily related to deductibility of certain share-based compensation	—			(72.4		)
True-up of prior year net operating loss	321.6			1,367.3
Return to actual	(384.8		)	—
Foreign earnings not permanently reinvested	(1,810.3		)	1,810.3
Effect of change in deferred tax rate	525.7			2,852.1
Valuation allowance for deferred tax assets	18,441.9			2,317.9
Tax provision	$	(175.5	)	$	—

Deferred income taxes at December 31, 2012 and 2011 consist of the following:



	December 31,
	2012			2011
Deferred Tax Assets:
Accumulated net operating losses (tax effected)	$	25,727.7		$	17,816.7
Deferred revenue	23.1			212.9
Contingent accounts payable	15.2			13.8
Share-based compensation	5,466.7			3,917.4
Accumulated depreciation	348.7			—
Charitable contributions	391.8			408.2
Bad debt provision	239.7			107.3
Capital loss carryforward	6,644.5			—
Other	—			48.5
Deferred tax assets prior to tax credit carryovers	38,857.4			22,524.8

Deferred Tax Liabilities:
Accumulated depreciation	—			(155.1		)
Intangible and indefinite lived assets	(3,311.8		)	(3,303.0		)
Foreign earnings not permanently reinvested	—			(2,138.5		)
Deferred tax liabilities	(3,311.8		)	(5,596.6		)
	35,545.6			16,928.2
Valuation reserve	(39,144.7		)	(20,702.9		)
Net deferred tax liability	$	(3,599.1	)	$	(3,774.7	)

The Tax Reform Act of 1986 enacted a complex set of rules limiting the utilization of net operating loss carryforwards (“NOL”) to offset future taxable income following a corporate ownership change. The Company’s ability to utilize its NOL carryforwards is limited following a change in ownership in excess of fifty percentage points during any three-year period.

Since the year 2000, the Company has had several changes in ownership which has resulted in a limitation on the Company’s ability to apply net operating losses to future taxable income. As of December 31, 2012 the Company has lost $26.0 million or $8.8 million in tax benefits, of net operating losses applicable to Federal income taxes which expired due to these limitations and expiration of net operating loss carryforwards. At December 31, 2012, the Company had net operating loss carryforwards of approximately $69.7 million applicable to future Federal income taxes. The tax loss carryforwards are subject to annual limitations and expire at various dates through 2030. The Company has recorded a full valuation allowance against its net deferred tax asset because it is more likely than not that such deferred tax assets will not be realized.

As of December 31, 2012, management does not believe the Company has any material uncertain tax positions that would require it to measure and reflect the potential lack of sustainability of a position on audit in its financial statements. The Company will continue to evaluate its uncertain tax positions in future periods to determine if measurement and recognition in its financial statements is necessary. The Company does not believe there will be any material changes in its unrecognized tax positions over the next year.