16.

Income Taxes

Total income tax (benefit) expense was allocated as follows:


	Year Ended December 31,
	2011			2010			2009
	(in thousands)
Income tax (benefit) expense from continuing operations:

Current taxes
Federal taxes	$	(464	)	$	(919	)	$	(10,455	)
State taxes		329			72			(9	)
Foreign taxes		164			310			(175	)

Current taxes	$	29		$	(537	)	$	(10,639	)

Deferred taxes
Federal taxes	$	56		$	807		$	(28,702	)
State taxes		(4,372	)		(15	)		65
Foreign taxes		—			(1	)		(234	)

Deferred taxes	$	(4,316	)	$	791		$	(28,871	)


Income tax (benefit) expense	$	(4,287	)	$	254		$	(39,510	)

ICG Group, Inc., InvestorForce, GovDelivery and Procurian file a consolidated federal income tax return. ICG recorded a consolidated income tax benefit of $4.3 million during the year ended December 31, 2011. This benefit is comprised of $4.5 million of net deferred tax benefit related to the release of certain valuation allowances at Procurian (discussed below) and $0.2 million of tax benefit related to interest received on an income tax refund, partially offset by state and foreign tax expense from operations at Procurian.

Consolidated income tax expense of $0.3 million recorded during the year ended December 31, 2010 relates to income tax expense at Procurian of $6.3 million (a portion of which represents income tax expense before Procurian became a member of ICG's consolidated U.S. tax return group on July 1, 2010, as discussed below). This expense was partially offset by an income tax benefit of $0.7 million for interest received on a portion of the federal tax refund ICG received during the 2010 period, an income tax benefit of $0.4 million for a provision to return adjustment, an income tax benefit of $0.1 million for a net operating loss carryback claim related to InvestorForce and an income tax benefit of $4.8 million, which represents the effect of Procurian joining ICG's consolidated federal income tax return beginning in July 2010.

ICG recorded a consolidated income tax benefit of $39.5 million during the year ended December 31, 2009, which included an income tax benefit of $28.9 million related to the reduction of a portion of Procurian's valuation allowance (discussed below) and an income tax benefit of $10.6 million, which represents amounts carried back to 2005 as a result of legislation allowing extended net operating loss carrybacks, as well as the results of the Internal Revenue Service examination of ICG's federal income tax returns for the years 2005, 2006 and 2007.

During 2009, the Internal Revenue Service completed its audit of ICG's federal income tax returns for the years 2005 through 2007. As a result of this audit, ICG was entitled to a refund in the amount of $4.7 million, which ICG received during the year ended December 31, 2011. In November 2009, the Worker, Homeownership and Business Assistance Act of 2009, which expanded the ability of businesses to carry back net operating losses, was enacted. This legislation allowed ICG to carry back its net operating loss from 2008 or 2009 to 2005, when ICG paid federal income taxes. ICG carried back its net operating loss, excluding the net operating loss attributable to InvestorForce, from 2009 and was entitled to a refund of $6.3 million. ICG received this refund during the year ended December 31, 2011.

As a result of a change in ownership under Internal Revenue Code Section 382 that occurred in 2004, ICG's net operating loss carryforwards and capital loss carryforwards are subject to an annual limitation. The annual limitation on the utilization of these carryforwards is approximately $14.5 million. This annual limitation can be carried forward if it is not used. ICG did not use the limitation in 2009; therefore, the amount available for 2010 was $29 million, all of which was used in 2010. ICG did not use the limitation in 2011; accordingly, this amount can be carried forward to future periods. The total amount available for these carryforwards at December 31, 2011 was $174.3 million. These losses expire in varying amounts between 2012 and 2023.

Additionally, at December 31, 2011, ICG consolidated had $52.3 million of net operating loss carryforwards that are not subject to the Section 382 annual limitation. These net operating losses expire between 2026 and 2029.

GovDelivery joined in filing a consolidated federal income tax return with ICG and InvestorForce beginning in 2010. As of December 31, 2011, GovDelivery had approximately $2.8 million of net operating loss carryforwards. ICG's acquisition of GovDelivery in 2009 constituted a change in ownership under Internal Revenue Code Section 382. As a result, GovDelivery's net operating losses are limited to approximately $1.0 million per year, plus any recognized built-in gains. GovDelivery's net deferred tax liability after acquisition accounting of $4.8 million reduced ICG's valuation allowance.

Procurian filed its own consolidated federal income tax return, separate from ICG, through July 1, 2010. Due to Procurian's prior equity transactions, it experienced a change in ownership under Internal Revenue Code Section 382 in 2003. As a result, Procurian's net operating loss carryforwards are subject to an annual limitation of $3.1 million per year. Approximately $68.8 million of net operating loss carryforwards are expected to be available between December 31, 2011 and December 31, 2022. The amount available at December 31, 2011 is $34.3 million.

As of December 31, 2009, in light of Procurian's recent history of profitability, current-year results and estimates of projected future profitability, management believed that it was more likely than not that the benefit of the majority of its net deferred tax assets will be realized and, therefore, a reduction of the valuation allowance against its net deferred tax asset was appropriate. Accordingly, ICG recognized a deferred tax benefit of $28.7 million related to the reduction of the valuation allowance in 2009.

As of December 31, 2011, management believed that it was more likely than not that the benefit of certain of its state net operating loss deferred tax assets attributable to Procurian will be realized and, therefore, a reduction of the valuation allowance against these deferred tax assets was appropriate. Accordingly, ICG recognized a deferred tax benefit of $4.5 million during the year ended December 31, 2011 related to the reduction of these valuation allowances.

Effective July 1, 2010, Procurian is included in ICG's consolidated federal income tax return as a result of the transactions described in Note 4, "Consolidated Core Companies." Accordingly, Procurian's carryforward period for its net operating losses expires in 2022 instead of 2023. This eliminated $2.6 million of net operating loss carryforward.

Due to the inclusion of Procurian in ICG's consolidated federal income tax return, subsequent to July 1, 2010 operating losses of other members of the consolidated group offset a portion of Procurian's taxable income. The benefit of those losses, which amounted to $6.7 million and $4.8 million during the years ended December 31, 2011 and 2010, respectively, reduced the deferred tax expense in ICG's Consolidated Statements of Operations in those years.

Inclusion of Procurian in ICG's consolidated federal income tax return did not affect management's assessment of the need for a valuation allowance for only a portion of ICG's deferred tax assets. A valuation allowance has been provided for ICG's net deferred tax assets as ICG believes, after evaluating all positive and negative evidence, both historical and prospective, that it is more likely than not that these benefits will not be realized.

ICG's net deferred tax asset (liability) consists of the following:


	As of December 31,
	2011			2010
	(in thousands)
Deferred tax assets:

Net operating loss and capital loss carryforward – 382 limited	$	85,306		$	108,791
Net operating loss carryforward – not 382 limited		31,236			10,902
State net operating loss carryforward, net		4,719			—
Capital loss carryforward – not 382 limited		5,039			—
Company basis difference		65,482			80,916
Reserves and accruals		3,175			6,540
Equity-based compensation expense		7,450			6,188
AMT and other credits		582			590
Other, net		2,684			800

Total deferred tax assets		205,673			214,727
Valuation allowance		(168,355	)		(181,704	)

Deferred tax asset		37,318			33,023


Deferred tax liabilities:

Intangible assets		(4,765	)		(5,220	)

Total deferred tax liabilities		(4,765	)		(5,220	)

Total net deferred tax assets	$	32,553		$	27,803

In connection with the decrease in the valuation allowance, Procurian evaluated its exposure under the provisions of current guidance relating to accounting for uncertainty in income taxes and, as a result, recorded a liability for unrecognized income tax expenses of $0.3 million at December 31, 2009. The unrecognized tax expenses relate to Procurian's treatment of accrued bonuses, the treatment of an alternative minimum tax foreign tax credit, and unfiled state tax returns. This expense was reversed in 2010 when the uncertainty was resolved.

ICG's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. ICG had no material accrual for interest or penalties on ICG's Consolidated Balance Sheets at December 31, 2011 or 2010. ICG recognized an income tax benefit related to $0.2 million and $0.7 million of interest received in conjunction with the aforementioned refunds, which is included in ICG's Consolidated Statements of Operations for the years ended December 31, 2011 and 2010. There were no interest and/or penalties in ICG's Consolidated Statements of Operations for the year ended December 31, 2009.

Tax years 2007 and forward are subject to examination for federal tax purposes. Tax years 1996 through 2004 are subject to examination for federal tax purposes to the extent of net operating losses used in future years.

The effective tax rate differs from the federal statutory rate as follows


	Year Ended December 31,
	2011			2010			2009
Tax expense (benefit) at statutory rate		35.0	%		35.0	%		(35.0	)%
IRS audit adjustment and interest		(0.9	)%		(1.4	)%		(43.4	)%
Foreign and state taxes		2.1	%		0.8	%		(3.2	)%
Non-deductible expenses and other		3.7	%		(1.8	)%		(2.9	)%
Valuation allowance		(57.8	)%		(55.1	)%		(275.3	)%
Consolidation of Procurian		—			74.7	%		—
Reduction in deferred tax liability		—			(51.7	)%		—

		(17.9	)%		0.5	%		(359.8	)%