14. INCOME TAXES

The sources of income before income taxes are as follows (shown in thousands):



	For the Year Ended
	December 31,
	2012		2011		2010

United States	$	84,220	$	71,059	$	56,573
Other		(4,865)		(332)		(15,380)
Total income before income tax expense	$	79,355	$	70,727	$	41,193

Income tax expense (benefit) consists of the following (shown in thousands):



	For the Year Ended
	December 31,
	2012		2011		2010
Federal:
Current	$	18,667	$	13,697	$	10,160
Deferred		9,136		9,788		6,423
Total		27,803		23,485		16,583
State:
Current		4,349		3,323		2,386
Deferred		2,331		2,498		1,639
Total		6,680		5,821		4,025
Foreign:
Current		(953)		1,340		817
Deferred		(344)		(1,049)		(4,289)
Total		(1,297)		291		(3,472)
Total federal, state and foreign income tax expense	$	33,186	$	29,597	$	17,136

Income tax expense differs from the amounts estimated by applying the statutory income tax rates to income before income taxes as follows:



	For the Year Ended
	December 31,
	2012		2011		2010
Federal tax expense at the statutory rate	35.0	%	35.0	%	35.0	%
State tax expense at the statutory rate, net of federal tax benefits	5.8		5.4		6.8
Foreign taxes	0.6		0.1		2.9
Effect of non-deductible meals and entertainment expense	0.7		0.7		1.4
Deemed liquidation of certain foreign entities	-		-		(3.8)
Effect of other transactions, net	(0.3)		0.6		(0.7)
Effective income tax rate	41.8	%	41.8	%	41.6	%

Deferred income taxes result from temporary differences between years in the recognition of certain expense items for income tax and financial reporting purposes. The source and income tax effects of these differences (shown in thousands) are as follows:




	December 31,
	2012		2011
Deferred tax assets (liabilities) attributable to:
Allowance for uncollectible receivables	$	5,744	$	5,845
Deferred revenue		2,464		982
Accrued compensation		5,677		4,822
Accrued office consolidation costs		383		371
Interest rate derivatives		208		197
Depreciation and amortization		-		804
Share-based compensation		5,468		4,447
Forgivable loans		3,692		3,553
Foreign net operating losses		603		1,835
Other		305		140
Deferred tax assets		24,544		22,996

Acquisition costs — domestic acquisitions		(67,654)		(56,037)
Acquisition costs — foreign acquisitions		(2,147)		(2,565)
Prepaid expenses		(1,528)		(1,129)
Depreciation and amortization		(3,017)		-
Deferred tax liabilities		(74,346)		(59,731)
Net deferred tax liabilities	$	(49,802)	$	(36,735)

When appropriate, we evaluate the need for a valuation allowance to reduce deferred tax assets. The evaluation of the need for a valuation allowance requires management judgment and could impact our effective tax rate. At December 31, 2012 and 2011, we had valuation allowances of $1.1 million and $1.2 million, respectively, related to certain foreign operating loss carry forwards. Management has determined that it is more likely than not, due to the uncertainty, that sufficient future taxable income will not be available to realize those deferred tax assets, therefore management recognizes a full valuation allowance for those deferred tax assets in the financial statements.

We do not provide for U.S. federal income and foreign withholding taxes on the portion of undistributed earnings of foreign subsidiaries that are intended to be permanently reinvested. The cumulative amount of such undistributed earnings totaled approximately $24.7 million at December 31, 2012. These earnings would become taxable in the United States upon the sale or liquidation of these foreign subsidiaries or upon the remittance of dividends. It is not practicable to estimate the amount of the deferred tax liability on such earnings.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Amount
	(In thousands)
Balance at January 1, 2012	$	100
Additions based on tax positions of prior years		265
Reductions based on tax positions of prior years		(40)
Settlements		(42)
Balance at December 31, 2012	$	283

At December 31, 2012, our accrual for tax positions for which the ultimate deductibility is uncertain was not material. We believe that only a specific resolution of the matters with the taxing authorities or the expiration of the statute of limitations would provide sufficient evidence for management to conclude that the deductibility is more likely than not sustainable.

We are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. We have substantially concluded all U.S. federal income tax matters for years through 2008. Substantially all material state and local and foreign income tax matters have been concluded for years through 2008.