INCOME TAXES

The components of income tax benefit for the years ended March 31 are as follow:



$ in thousands	2012			2011		2010
Federal income tax expense (benefit):
Current	$	(1,067	)	$	751	$	920
Deferred	(1,080		)	14,106		(4,147		)
Valuation allowance	1,080			—		—
	(1,067		)	14,857		(3,227		)

State and local income tax expense (benefit):
Current	106			170		401
Deferred	(1,755		)	691		(40		)
Valuation allowance	1,755			—		—
	106			861		361

Total income tax expense (benefit)	$	(961	)	$	15,718	$	(2,866	)

The following is a reconciliation of the expected Federal income tax rate to the consolidated effective tax rate for the years ended March 31:



$ in thousands	2012					2011					2010
	Amount			Percent		Amount			Percent		Amount			Percent
Statutory Federal income tax expense (benefit)	$	(8,285	)	34	%	$	(8,095	)	34	%	$	(1,322	)	34	%
State and local income taxes, net of Federal tax benefit	(1,541		)	6.3	%	(293		)	1.2	%	240			(6.2	)%
New markets tax credit	—			—	%	—			—	%	(2,295		)	59	%
General business credit	(32		)	0.1	%	(32		)	0.1	%	(32		)	0.9	%
Tax Gain on Sale of NMTC	—			—	%	4,905			(20.6	)%	—			—	%
Valuation Allowance	2,835			(11.6	)%	18,870			(79.3	)%	—			—	%
Write off DTA due to Section 382 limitation	6,089			(25.0	)%	—			—	%	—			—	%
Other	(27		)	0.1	%	363			(1.5	)%	543			(14	)%
Total income tax expense (benefit)	(961		)	3.9	%	15,718			(66.0	)%	(2,866		)	73.7	%

Carver Federal's operating results includes a $1.0 million tax benefit for the fiscal year ended March 31, 2012. For the fiscal year ended March 31, 2011, the total income tax expense of $15.7 million includes a $18.9 million valuation reserve taken on the Bank's deferred tax assets. For the year ended March 31, 2010, the total income tax benefit of $2.9 million included a $0.5 million tax receivable deemed no longer collectible.

Tax effects of existing temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are included in other assets at March 31 are as follows:



$ in thousands	2012			2011
Deferred Tax Assets:
Allowance for loan losses	$	7,215		$	7,253
Deferred loan costs, net	469			601
Non-accrual loan interest	2,911			2,556
Purchase accounting adjustment	170			186
Net operating loss carry forward	6,572			121
New markets tax credit	1,879			6,867
Depreciation	561			511
Minimum pension liability	110			110
Market value adjustment on HFS loans	1,608			893
Unrealized loss on available-for-sale securities	—			1
Other	570			216
Total Deferred Tax Assets	22,065			19,315
Deferred Tax Liabilities:
Income from affiliate	361			445
Unrealized gain on available-for-sale securities	139			—
Total Deferred Tax Liabilities	500			445

Valuation Allowance	$	(21,565	)	$	(18,870	)

Net Deferred Tax Assets	$	—		$	—

On June 29, 2011, the Company raised $55 million of equity. The capital raise triggered a change in control under Section 382 of the Internal Revenue Code. Generally, Section 382 limits the utilization of an entity's net operating loss carry forwards, general business credits, and recognized built-in losses upon a change in ownership. The Company expects to be subject to an annual limitation of approximately $0.9 million. Due to the Section 382 limitation, some portion of the DTA may not be recoverable and the company has not yet determined the potential tax attributes that may be subject to limitation under Section 382. The Company has a net deferred tax asset (“DTA”) of approximately $27.7 million. Based on management's calculations the Section 382 limitation has resulted in a reduction of the deferred tax asset of $6.1 million. A full valuation allowance for the remaining net deferred tax asset of $21.6 million has been recorded.

At March 31, 2012, the Company had net operating carryforwards for federal purposes of approximately $16.0 million, for state purposes of approximately $28.9 million and for city purposes of approximately $23.8 million which are available to offset future federal, state and city income and which expire over varying periods from March 2028 through March 2032.

The Company has no uncertain tax positions. The Company and its subsidiaries are subject to federal, New York State and New York City income taxation. The Company is no longer subject to examination by taxing authorities for years before March 31, 2006. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination; with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.