INCOME TAXES

The components of the provision (benefit) for income taxes attributable to operations consist of the following (in thousands):



	Year Ended December 31,
	2011			2012			2013
Current:
Federal	$	22,779		$	(2,260	)	$	26,516
State	2,226			1,974			3,996
Foreign	12			55			31
Total current	25,017			(231		)	30,543
Deferred:
Federal	(14,661		)	15,512			(10,919		)
State	(2,425		)	(2,067		)	(1,849		)
Foreign	(18		)	5			28
Total deferred	(17,104		)	13,450			(12,740		)
Total provision for income taxes	$	7,913		$	13,219		$	17,803


10.	INCOME TAXES — (CONTINUED)

The components of deferred tax assets and liabilities consists of the following (in thousands):



	December 31,
	2012			2013
Deferred tax assets:
Reserve for bad debts	$	1,106		$	1,274
Accrued compensation	4,830			6,725
Stock compensation	4,946			13,381
Net operating losses	20,431			17,457
Accrued reserve and other	6,007			4,284
Unrealized loss on securities	928			786
Deferred rent	1,845			4,329
Deferred revenue	1,220			1,538
Deferred gain from sale of building	12,386			11,499
Total deferred tax assets	53,699			61,273

Deferred tax liabilities:
Prepaids	(1,433		)	(1,096		)
Depreciation	(3,676		)	(6,033		)
Intangibles	(62,915		)	(55,284		)
Total deferred tax liabilities	(68,024		)	(62,413		)

Net deferred tax liabilities, prior to valuation allowance	(14,325		)	(1,140		)
Valuation allowance	(10,490		)	(10,936		)
Net deferred tax liabilities	$	(24,815	)	$	(12,076	)

As of December 31, 2012 and 2013, a valuation allowance has been established for certain deferred tax assets due to the uncertainty of realization. The valuation allowance as of December 31, 2012 and 2013 includes an allowance for unrealized losses on ARS investments, foreign deferred tax assets and certain state net operating loss carryforwards. The valuation allowance for the deferred tax asset for unrealized losses on ARS has been recorded as an adjustment to accumulated other comprehensive loss.

The Company established the valuation allowance because it is more likely than not that a portion of the deferred tax asset for certain items will not be realized based on the weight of available evidence. A valuation allowance was established for the unrealized losses on securities as the Company has not historically generated capital gains, and it is uncertain whether the Company will generate sufficient capital gains in the future to absorb the capital losses. In 2011, the Company sold the office building located at 1331 L Street, NW, in downtown Washington, DC (the “DC Office Building") and the sale generated capital gains, but the Company does not expect to engage in similar transactions on a regular basis. The Company continues to maintain a valuation allowance as of December 31, 2013, for the unrealized losses on securities because it is uncertain as to whether the losses will be realized in a year such that the losses could be carried back to offset the gain from the Company’s sale of the DC Office Building. A valuation allowance was established for the foreign deferred tax assets due to the cumulative loss in recent years in those jurisdictions. The Company has not had sufficient taxable income historically to utilize the foreign deferred tax assets, and it is uncertain whether the Company will generate sufficient taxable income in the future to utilize the deferred tax assets. Similarly, the Company has established a valuation allowance for net operating losses in certain states where it is uncertain whether the Company will generate sufficient taxable income to utilize the net operating losses before they expire.

The Company’s change in valuation allowance was an increase of approximately $5.2 million for the year ended December 31, 2012 and an increase of approximately $446,000 for the year ended December 31, 2013. The increase for the year ended December 31, 2013 is primarily due to the increase in the valuation allowance for foreign deferred tax assets of approximately $765,000 partially offset by a decrease in the valuation allowance for deferred tax assets of approximately $319,000 primarily related to state net operating loss carryforwards.


10.	INCOME TAXES — (CONTINUED)

The Company had U.S. income before income taxes of approximately $29.1 million, $36.1 million and $53.2 million for the years ended December 31, 2011, 2012 and 2013, respectively. The Company had foreign losses of approximately $6.6 million, $13.0 million and $5.6 million for the years ended December 31, 2011, 2012 and 2013, respectively.

The Company’s provision for income taxes resulted in effective tax rates that varied from the statutory federal income tax rate as follows (in thousands):



	Year Ended December 31,
	2011			2012			2013
Expected federal income tax provision at statutory rate	$	7,899		$	8,097		$	16,638
State income taxes, net of federal benefit	(123		)	(1,360		)	885
Foreign income taxes, net effect	(961		)	(2,971		)	(724		)
Stock compensation	(143		)	(313		)	(116		)
Increase in valuation allowance	643			2,978			588
Nondeductible compensation	448			656			431
Nondeductible transaction costs	—			5,829			—
Other adjustments	150			303			101
Income tax expense, net	$	7,913		$	13,219		$	17,803

The Company’s U.K. subsidiaries with foreign losses are disregarded entities for U.S. income tax purposes. Accordingly, the losses from these disregarded entities are included in the Company’s consolidated federal income tax provision at the statutory rate. Federal income taxes attributable to income from these disregarded entities are reduced by foreign taxes paid by those disregarded entities.

The Company paid approximately $19.5 million, $2.6 million, and $6.5 million in income taxes for the years ended December 31, 2011, 2012 and 2013, respectively.

The Company has net operating loss carryforwards for international income tax purposes of approximately $31.2 million, which do not expire. The Company has federal net operating loss carryforwards of approximately $13.5 million that begin to expire in 2020, state net operating loss carryforwards with a tax value of approximately $4.9 million that begin to expire in 2020 and state income tax credit carryforwards with a tax value of approximately $1.8 million that begin to expire in 2020. The Company realized a cash benefit relating to the use of its tax loss carryforwards of approximately $12.2 million and $4.2 million in 2012 and 2013, respectively.

The following tables summarize the activity related to the Company’s unrecognized tax benefits (in thousands):



Unrecognized tax benefit as of December 31, 2010	$	1,766
Increase for current year tax positions	1,243
Increase for prior year tax positions	445
Expiration of the statute of limitation for assessment of taxes	(107		)
Unrecognized tax benefit as of December 31, 2011	3,347
Increase for current year tax positions	792
Decrease for prior year tax positions	(161		)
Expiration of the statute of limitation for assessment of taxes	(69		)
Unrecognized tax benefit as of December 31, 2012	3,909
Increase for current year tax positions	66
Increase for prior year tax positions	2,037
Expiration of the statute of limitation for assessment of taxes	(55		)
Unrecognized tax benefit as of December 31, 2013	$	5,957


10.	INCOME TAXES — (CONTINUED)

Approximately $1.6 million of the unrecognized tax benefit as of each of December 31, 2012 and 2013, would favorably affect the annual effective tax rate, if recognized in future periods. The Company recognized $39,000, $58,000 and $62,000 for interest and penalties in its consolidated statements of operations for the years ended December 31, 2011, 2012 and 2013, respectively. The Company had liabilities of $284,000, $342,000 and $404,000 for interest and penalties in its consolidated balance sheets as of December 31, 2011, 2012 and 2013, respectively. The Company does not anticipate the amount of the unrecognized tax benefits to change significantly over the next twelve months.

The Company’s federal and state income tax returns for tax years 2010 through 2012 remain open to examination. The Company’s U.K. income tax returns for tax years 2007 through 2012 remain open to examination.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. The Company is currently under Internal Revenue Service ("IRS") audit in the U.S. for tax year 2010 and its subsidiary LoopNet is under IRS audit for tax years 2009, 2010, 2011 and the four months ended April 30, 2012. While no formal assessments have been received, the Company believes it has provided adequate reserves related to all matters in the tax periods open to examination. Although the timing of income tax audit resolutions and negotiations with taxing authorities is highly uncertain, the Company does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next 12 months.