14. Income Taxes

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

	Year Ended December 31,
	2013			2012			2011
Income tax (benefit) expense from continuing operations:
Current taxes
Federal taxes	$	(17,711	)	$	57		$	(464	)
State taxes		140			640			329
Foreign taxes		—			506			164
Current taxes	$	(17,571	)	$	1,203		$	29
Deferred taxes
Federal taxes	$	—		$	(376	)	$	56
State taxes		—			537			(4,372	)
Foreign taxes		—			(28	)		—
Deferred taxes	$	—		$	133		$	(4,316	)
Income tax (benefit) expense	$	(17,571	)	$	1,336		$	(4,287	)

ICG Group, Inc., GovDelivery, InvestorForce (through January 29, 2013, the date of disposition), MSDSonline (beginning March 30, 2012, the date of acquisition) and Procurian (through December 4, 2013, the date of disposition) file a consolidated federal income tax return. ICG recorded consolidated income tax expense of $0.1 million for the year ended December 31, 2013. A significant amount of ICG’s overall tax expense relates to Procurian which is now presented as discontinued operations. The current federal income tax benefit recognized in 2013 of $17.7 million is offset by a $17.7 million income tax expense in discontinued operations since there was a loss in continuing operations and income in discontinued operations in that same year. There was not a similar benefit in 2012 or 2011, as there was income in both continuing operations and discontinued operations in those years. There was current tax expense recognized for state income taxes. For deferred income taxes, after evaluating all the positive and negative evidence, both historical and prospective, and determining it is not more likely than not to be realized, ICG maintains a full valuation allowance against its net deferred tax assets; therefore, no deferred tax expense was recorded in 2013. Amounts for 2012 and 2011 included in the table above are not recast to reflect what is reported in discontinued operations; rather, it is noted that $1.2 million of the $1.3 million income tax expense for 2012 and $3.8 million of the $4.3 million income tax benefit for 2011 are included in the line item “Income (loss) from discontinued operations, including gain on sale, net of tax” on ICG’s Consolidated Statements of Operations for those respective years. ICG recorded a consolidated income tax expense of $1.3 million during the year ended December 31, 2012. That income tax expense 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. That benefit is comprised of $4.5 million of net deferred tax benefit related to the release of certain valuation allowances at Procurian, a tax benefit of $0.3 million for a return-to-provision adjustment for alternative minimum taxes from 2010 and a tax benefit of $0.2 million related to interest received on an income tax refund, partially offset by state and foreign tax expense from operations at Procurian.

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 $29.0 million, all of which was used in 2010. ICG did not use the limitation in 2011 or 2012; therefore, the amount available for 2013 was $43.5 million, all of which was used in 2013 to offset the capital gains realized in 2013. The total amount available in future years for these carryforwards at December 31, 2013 was $145.2 million. These losses expire in varying amounts between 2018 and 2023.

Additionally, as of December 31, 2013, ICG consolidated had $82.0 million of net operating loss carryforwards that are not subject to the Section 382 annual limitation. These net operating losses expire between 2018 and 2033. Of this amount, approximately $15.0 million is attributable to excess deductions for equity compensation, the benefit of which will be recorded to additional paid-in capital when realized.

GovDelivery joined in filing a consolidated federal income tax return with ICG 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. As of December 31, 2013, all of these NOLs are available. GovDelivery’s net deferred tax liability after acquisition accounting of $4.8 million reduced ICG’s valuation allowance.

MSDSonline joined in ICG’s consolidated federal tax return beginning on March 30, 2012 (when it was acquired). 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, of which, $9.4 million is currently available and included in the $82.0 million of NOLs that are not subject to the Section 382 limitations noted above.

ICG’s net deferred tax asset (liability) consists of the following (in thousands):

	As of December 31,
	2013			2012
	(in thousands)
Deferred tax assets:
Net operating loss and capital loss carryforward – 382 limited	$	74,220		$	97,760
Net operating loss carryforward – not 382 limited		34,774			35,811
State net operating loss carryforward, net		—			4,345
Capital loss carryforward – not 382 limited		23,106			44,806
Company basis difference		25,176			18,958
Reserves and accruals		291			5,563
Equity-based compensation expense		5,369			9,196
AMT and other credits		—			582
Other, net		1,302			1,348
Total deferred tax assets		164,238			218,369
Valuation allowance		(150,408	)		(162,283	)
Deferred tax asset		13,830			56,086
Deferred tax liabilities:
Intangible assets		(13,830	)		(25,968	)
Total deferred tax liabilities		(13,830	)		(25,968	)
Total net deferred tax assets	$	—		$	30,118

After evaluating all positive and negative evidence, both historical and prospective, and determining it is not more likely than not to be realized, ICG has recorded a full valuation allowance against its net deferred tax assets as of December 31, 2013. The net deferred tax asset as of December 31, 2012 is included in the line item “Assets of Discontinued Operations” on ICG’s Consolidated Balance Sheets.

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, 2013, 2012 or 2011. ICG recognized an income tax benefit related to $0.2 million of interest received in conjunction with the aforementioned refunds, which is included in ICG’s Consolidated Statements of Operations for the year ended December 31, 2011. There were no interest and/or penalties in ICG’s Consolidated Statements of Operations for the year ended December 31, 2012 or 2013.

Tax years 2009 and forward are subject to examination for federal tax purposes. Tax years 1998 through 2008 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,
	2013			2012			2011
Tax expense (benefit) at statutory rate		(35.0	)%		35.0	%		35.0	%
IRS audit adjustment and interest		—	%		—	%		(0.9	)%
Foreign and state taxes		(2.3	)%		4.6	%		2.1	%
Non-deductible expenses and other		0.6	%		0.1	%		3.7	%
Valuation allowance		—	%		(24.4	)%		(57.8	)%
Prior period adjustment		—	%		(3.6	)%		—	%
Acquisition of MSDSonline		—	%		(6.3	)%		—	%
		(36.7	)%		5.4	%		(17.9	)%