14.

Income Taxes

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


	Year Ended December 31,
	2012			2011			2010
	(in thousands)
Income tax (benefit) expense from continuing operations:

Current taxes
Federal taxes	$	57		$	(464	)	$	(811	)
State taxes		640			329			72
Foreign taxes		506			164			310

Current taxes	$	1,203		$	29		$	(429	)


Deferred taxes
Federal taxes	$	(376	)	$	56		$	807
State taxes		537			(4,372	)		(15	)
Foreign taxes		(28	)		—			(1	)

Deferred taxes	$	133		$	(4,316	)	$	791


Income tax (benefit) expense	$	1,336		$	(4,287	)	$	362

ICG Group, Inc., InvestorForce, GovDelivery, Procurian and MSDSonline file a consolidated federal income tax return. ICG recorded a consolidated income tax expense of $1.3 million during the year ended December 31, 2012. This expense is comprised of $1.2 million of current tax expense, primarily state and foreign taxes for Procurian and MSDSonline, and net deferred tax expense of $0.1 million. The income tax expense for 2012 also includes a benefit of $0.8 million related to the result of reconciliation of tax depreciation expense on fixed assets, which relates to periods prior to Procurian being a consolidating member of our consolidated tax return. ICG has determined that this amount is immaterial to all applicable periods, which encompasses the years of 2009 to 2012.

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.

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 and only a partial amount in 2012; accordingly, approximately $26 million can be carried forward to future periods. The total amount available for these carryforwards at December 31, 2011 was $159.7 million. These losses expire in varying amounts between 2012 and 2023.

Additionally, at December 31, 2012, ICG consolidated had $70 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. Of these losses, approximately $20.1 million is allocable to InvestorForce and, to the extent not used in 2013, will no longer be available to ICG due to the sale of InvestorForce to MSCI (see Note 4).

GovDelivery joined in filing a consolidated federal income tax return with ICG and InvestorForce beginning in 2010. At the time of acquisition, GovDelivery had approximately $2.8 million of net operating loss carryforwards. ICG’s acquisition of GovDelivery constituted a change in ownership under Internal Revenue Code Section 382. As a result, these net operating losses are limited to approximately $1.0 million per year, plus any recognized built-in gains. At December 31, 2012, all of these NOLs are available. 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, 2012 and December 31, 2022. The amount available at December 31, 2012 is $37.3 million.

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.

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.

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 $8.3 million, $6.7 million and $4.8 million during the years ended December 31, 2012, 2011 and 2010, respectively, reduced the current and deferred tax expense in ICG’s Consolidated Statements of Operations in those years.

MSDSonline joined in the consolidated federal tax return effective when it was acquired on March 30, 2012. MSDSonline had NOLs totaling approximately $50.9 million when it was acquired. These NOLs expire in varying amounts between 2019 and 2031. The acquisition of MSDSonline constituted a change in ownership under Internal Revenue Code Section 382. The annual limitation on the utilization of MSDSonline’s NOLs equals approximately $1.7 million plus recognized built-in gains. Approximately $47.4 million of NOLs are expected to be available as a result of this limitation.

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 deferred tax assets other than Procurian’s. A valuation allowance has been provided for the net deferred tax assets other than Procurian’s as the Company 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,
	2012			2011
	(in thousands)
Deferred tax assets:

Net operating loss and capital loss carryforward – 382 limited	$	97,760		$	85,306
Net operating loss carryforward – not 382 limited		35,811			31,236
State net operating loss carryforward, net		4,345			4,719
Capital loss carryforward – not 382 limited		44,806			5,039
Company basis difference		18,958			65,482
Reserves and accruals		5,563			3,175
Equity-based compensation expense		9,196			7,450
AMT and other credits		582			582
Other, net		1,348			2,684

Total deferred tax assets		218,369			205,673
Valuation allowance		(162,283	)		(168,355	)

Deferred tax asset		56,086			37,318


Deferred tax liabilities:

Intangible assets		(25,968	)		(4,765	)

Total deferred tax liabilities		(25,968	)		(4,765	)


Total net deferred tax assets	$	30,118		$	32,553

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, 2012, 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, respectively. There were no interest and/or penalties in ICG’s Consolidated Statements of Operations for the year ended December 31, 2012.

Tax years 2007 and forward are subject to examination for federal tax purposes. Tax years 1997 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,
	2012			2011			2010
Tax expense (benefit) at statutory rate		35.0	%		35.0	%		35.0	%
IRS audit adjustment and interest		—			(0.9	)%		(1.4	)%
Foreign and state taxes		4.6	%		2.1	%		0.8	%
Non-deductible expenses and other		0.1	%		3.7	%		(1.8	)%
Valuation allowance		(24.4	)%		(57.8	)%		(55.1	)%
Consolidation of Procurian		—			—			74.7	%
Reduction in deferred tax liability		—			—			(51.7	)%
Prior period adjustment		(3.6	)%		—			—
Acquisition of MSDSonline		(6.3	)%		—			—

		5.4	%		(17.9	)%		0.5	%