14. Income Taxes

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

	Year Ended December 31,
	2014			2013			2012
Income tax (benefit) expense from continuing operations:
Current taxes
Federal taxes	$	(8,790	)	$	(17,711	)	$	57
State taxes		93			140			640
Foreign taxes		330			-			506
Current taxes	$	(8,367	)	$	(17,571	)	$	1,203
Deferred taxes
Federal taxes	$	(1,319	)	$	-		$	(376	)
State taxes		(3,181	)		-			537
Foreign taxes		(64	)		-			(28	)
Deferred taxes	$	(4,564	)	$	-		$	133
Income tax (benefit) expense	$	(12,931	)	$	(17,571	)	$	1,336

Actua Corporation, GovDelivery, MSDSonline (beginning March 30, 2012, the date of acquisition) and FolioDynamix (beginning November 3, 2014, the date of acquisition) file a consolidated federal income tax return. InvestorForce (through January 29, 2013 the date of disposition) and Procurian (through December 4, 2013, the date of disposition) were previously included in Actua’s consolidated federal income tax return. Actua recorded consolidated current income tax expense in continuing operations of $0.4 million, $0.1 million and $0.1 million for the years ended December 31, 2014, 2013 and 2012, respectively, related to state and foreign taxes. The current federal income tax benefit of $8.8 million and $17.7 million recognized in 2014 and 2013, respectively, is offset by $8.9 million and $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, as there was income in both continuing operations and discontinued operations in that year. Additionally, Procurian recognized $1.3 million of current federal income tax expense in 2014, which is included in discontinued operations. Amounts for 2012 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 is included in the line item “Income (loss) from discontinued operations, including gain on sale, net of tax” on Actua’s Consolidated Statements of Operations for that year.

As of December 31, 2014, in light of MSDSonline’s consistent recent history of profitability, current-year results and its estimates of projected future profitability, management believes that it is more likely than not that the benefit of the majority of its state net deferred tax assets will be realized and therefore a reduction of the valuation allowance against its state net deferred tax asset is appropriate. Accordingly the Company recognized a deferred tax benefit of $3.1 million related to the reduction of the valuation allowance in 2014. Additionally, Bolt recorded a foreign deferred tax asset of $0.1 million for the year ended December 31, 2014. For the rest of the Company’s 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; therefore, Actua maintained a full valuation allowance against those net deferred tax assets.

As a result of a change in ownership under Internal Revenue Code Section 382 that occurred in 2004, Actua’s net operating loss (NOL) 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. Actua did not use the limitation amount 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 amount available for 2014 was not used. The total amount available in future years for these carryforwards at December 31, 2014 was $145.2 million. These losses expire in varying amounts between 2018 and 2023.

Additionally, as of December 31, 2014, Actua consolidated group had $117.0 million of NOL carryforwards that are not subject to the Section 382 annual limitation. These net operating losses expire between 2018 and 2034. Of the $117.0 million of NOL carryforwards, approximately $24.4 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 Actua beginning in 2010. At the time of acquisition, GovDelivery had approximately $2.8 million of NOL carryforwards. Actua’s acquisition of GovDelivery constituted a change in ownership under Internal Revenue Code Section 382. As a result, these NOL carryforwards are limited to approximately $1.0 million per year, plus any recognized built-in gains. As of December 31, 2014, all of these NOLs are available and included in the $117.0 million of NOLs that are not subject to the Internal Revenue Code Section 382 limitations noted above.

MSDSonline joined in Actua’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, $14.8 million is currently available and included in the $117.0 million of NOLs that are not subject to the Section 382 limitations noted above.

FolioDynamix joined in Actua’s consolidated federal tax return beginning on November 4 2014 (when it was acquired). FolioDynamix had NOLs totaling approximately $35.5 million when it was acquired. These NOLs expire in varying amounts between 2027 and 2033. Approximately $8.9 million of these NOLs are subject to Internal Revenue Code Section 382 limitations from ownership changes FolioDynamix experienced prior to its acquisition by Actua. The acquisition of FolioDynamix constituted a change in ownership under Internal Revenue Code Section 382. The annual limitation on the utilization of FolioDynamix’s NOLs equals approximately $5.9 million plus recognized built-in gains. All of these NOLs are expected to be available prior to their expiration, of which, $3.3 million is currently available and included in the $117.0 million of NOLs that are not subject to the Internal Revenue Code Section 382 limitations noted above.

The purchase price allocation for the acquisition of FolioDynamix identified approximately $46.6 million of non-goodwill intangible assets. The associated deferred tax liability exceeded FolioDynamix’s other net deferred tax assets by approximately $1.6 million, which resulted in an increase to goodwill. The Company released the valuation allowance on a portion of Actua’s consolidated federal NOLs that will be available to offset the federal portion of the future taxable income associated with this deferred tax liability. The $1.3 million deferred federal tax benefit is recorded in continuing operations in Actua’s Consolidated Statements of Operations for the year ending December 31, 2014. The remaining $0.3 million of deferred tax liability related to state taxes is recorded on Actua’s Consolidated Balance Sheets at December 31, 2014.

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

	As of December 31,
	2014			2013
	(in thousands)
Deferred tax assets:
Net operating loss and capital loss carryforward - 382 limited	$	68,210		$	74,220
Net operating loss carryforward - not 382 limited		40,925			34,774
State net operating loss carryforward, net		3,114			-
Capital loss carryforward - not 382 limited		35,982			23,106
Company basis difference		17,978			25,176
Reserves and accruals		2,045			291
Equity-based compensation expense		8,926			5,369
AMT and other credits		81			-
Other, net		1,174			1,302
Total deferred tax assets		178,435			164,238
Valuation allowance		(151,389	)		(150,408	)
Deferred tax asset		27,046			13,830
Deferred tax liabilities:
Intangible assets		24,132			(13,830	)
Total deferred tax liabilities		24,132			(13,830	)
Total net deferred tax assets	$	2,914		$	-

Actua’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Actua had no material accrual for interest or penalties on Actua’s Consolidated Balance Sheets at December 31, 2014, 2013 or 2012. Interest and penalty of $0.1 million is included in income tax expense included in discontinued operations for the year ended December 31, 2014. There was no interest and/or penalties in Actua’s Consolidated Statements of Operations for the year ended December 31, 2013.

Tax years 2010 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,
	2014				2013				2012
Tax expense (benefit) at statutory rate		35.0		%		35.0		%		35.0		%
Foreign and state taxes		10.4		%		(2.3	)	%		4.6		%
Non-deductible expenses and other		(4.8	)	%		0.6		%		0.1		%
Valuation allowance		-				-				(24.4	)	%
Prior period adjustment		-				-				(3.6	)
Acquisition of MSDSonline		-				-				(6.3	)
		40.6		%		33.3		%		5.4		%