Income Taxes

The components of the Company’s income (loss) before income taxes are as follows:



	Year Ended December 31,
	2013			2012			2011
United States	$	(11,216,037	)	$	(28,599,481	)	$	1,384,963
Foreign	1,176,574			1,704,623			2,232,123
	$	(10,039,463	)	$	(26,894,858	)	$	3,617,086

The components of the Company’s income tax expense (benefit) are as follows:



	Year Ended December 31,
	2013		2012			2011
Continuing operations:
Current
Federal	$	—	$	411,767		$	(29,716	)
State	540,266		811,760			355,142
Foreign	415,806		1,561,492			632,415
	956,072		2,785,019			957,841
Deferred
Federal	37,821,541		(4,048,064		)	444,193
State	5,133,844		(5,251,385		)	681,076
Foreign	299,091		364,541			(13,663		)
Total	43,254,476		(8,934,908		)	1,111,606
	$	44,210,548	$	(6,149,889	)	$	2,069,447
The total income tax provision is summarized as follows:
Continuing operations	$	44,210,548	$	(6,149,889	)	$	2,069,447
Discontinued operations	2,121,941		(9,496,992		)	2,063,050
	$	46,332,489	$	(15,646,881	)	$	4,132,497

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows:



	December 31,
	2013			2012
Current deferred tax assets (liabilities):
Accrued other and prepaid expenses	$	2,591,944		$	2,302,277
Accrued settlement charge	283,534			—
Allowance for doubtful accounts	649,790			808,466
Assets held for sale	—			2,826,663
Other	468,082			597,237
Gross deferred tax assets	3,993,350			6,534,643
Valuation allowance	(4,528,177		)	(551,160		)
Deferred tax assets (liabilities)	(534,827		)	5,983,483
Non-current deferred tax (liabilities) and assets:
Amortization	(1,313,863		)	4,377,573
Depreciation	(383,895		)	(1,631,495		)
Identifiable intangibles	(2,237,409		)	(2,409,238		)
Net operating loss carryforwards	32,531,221			23,616,558
Accrued professional liability	(117,842		)	293,815
Accrued workers’ compensation	675,201			768,617
Tax on unrepatriated earnings	(453,298		)	(1,860,656		)
Share-based compensation	1,610,346			2,120,269
Other	313,898			966,361
Gross deferred tax assets	30,624,359			26,241,804
Valuation allowance	(47,473,410		)	(3,481,752		)
Deferred tax (liabilities) assets	(16,849,051		)	22,760,052
Net deferred taxes	$	(17,383,878	)	$	28,743,535

Subsequent to the issuance of the Company's 2012 Annual Report on Form 10-K, the Company determined that its deferred tax assets (liabilities) as presented on its consolidated balance sheets were inappropriately classified. The Company has corrected the 2012 information on its consolidated balance sheets and in the preceding table. Management does not believe such correction is material to the previously issued consolidated financial statements.

The Company determines the need for a valuation allowance under Income Taxes topic of the FASB ASC by assessing the probability of realizing deferred tax assets, taking into consideration all available positive and negative evidence, including historical operating results, expectations of future taxable income, carryforward periods available to the Company for tax reporting purposes, the evaluation of various income tax planning strategies and other relevant factors. The Company maintains a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized based on consideration of all available evidence. Adjustments to the deferred tax valuation allowances are made to earnings in the period when such assessments are made. Significant judgment is required in making this assessment and to the extent future expectations change, the Company would have to assess the recoverability of its deferred tax assets at that time. The Company's cumulative loss position was significant negative evidence in assessing the need for a valuation allowance. As of December 31, 2013, the Company determined that it could not sustain a conclusion that it was more likely than not that it would realize any of its deferred tax assets resulting from recent losses, the difficulty of forecasting future taxable income, and other factors. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. To be considered a source of future taxable income to support realizability of a deferred tax asset, a taxable temporary difference must reverse in a period such that it would result in the realization of the deferred tax asset. Taxable temporary differences related to indefinite-lived intangibles, such as goodwill, are by their nature not predicted to reverse and therefore not considered a source of future taxable income in accordance with ASC 740. The Company had $17,383,878 of deferred tax liabilities relating to indefinite lived intangible assets that it was not able to offset against deferred tax assets. As of December 31, 2013 and 2012, the Company recorded valuation allowances of $52,001,587 and $4,032,912, respectively. The December 31, 2013 valuation allowance applied to all its deferred tax assets. The December 31, 2012 valuation allowance related to the uncertainty of the realization of a particular subsidiary’s state portion of its deferred tax asset that arose from the goodwill impairment and certain separate state net operating losses.

As of December 31, 2013 and 2012, respectively, the Company had approximately $78,120,000 and $53,844,000 of federal, state and foreign net operating loss carryforwards. The federal carryforwards expire between 2030 and 2033. The state carryforwards expire between 2013 and 2033. The majority of the foreign carryforwards are in a jurisdiction with no expiration. A valuation allowance for the net operating losses has been recorded at December 31, 2013 and 2012, to reduce the Company’s deferred tax asset to an amount that is more likely than not to be realized.

The reconciliation of income tax computed at the U. S. federal statutory rate to income tax expense (benefit) is as follows:



	Year Ended December 31,
	2013			2012			2011
Tax at U.S. statutory rate	$	(3,513,812	)	$	(9,413,200	)	$	1,266,166
State taxes, net of federal benefit	(190,656		)	(1,226,475		)	(64,608		)
Non-deductible meals and entertainment	449,780			961,933			290,280
Foreign tax expense	554,314			(221,897		)	(162,448		)
Valuation allowances	48,556,357			(43,657		)	367,068
Uncertain tax positions	(257,488		)	647,720			174,045
Deferred tax rate differential	312			150,583			(107,057		)
Deferred tax write-offs (a)	221,028			—			301,765
Audit settlements	160,026			—			(391,822		)
Tax on unrepatriated earnings	(1,464,728		)	2,004,596			—
Tax on repatriated earnings	—			519,072			—
Tax true ups and other	(304,585		)	471,436			396,058
Total income tax expense (benefit)	$	44,210,548		$	(6,149,889	)	$	2,069,447

_______________


(a)	During 2013 and 2011, the Company recorded deferred tax expense related to an overstatement of deferred tax assets for share-based payments related to prior periods of approximately $221,000 and $302,000, respectively.

The tax years of 2004, 2005, and 2008 through 2012 remain open to examination by the major taxing jurisdictions to which the Company is subject, with the exception of certain states in which the statute of limitations has been extended. In mid-July of 2013, the Company received a notice of proposed audit adjustments from the State of New York relating to the examination of its tax years ending December 31, 2006 through 2009. The settlement was for less than the amount accrued as of December 31, 2013.

As of December 31, 2011, pursuant to the subtopic of Other Considerations or Special Areas of the Income Taxes Topic in the FASB ASC, the Company did not provide for United States income taxes or foreign withholding taxes on undistributed earnings from certain non-U.S. subsidiaries (located in the United Kingdom and India that had tax rates of approximately 27% and 34%, respectively) that were expected to be permanently reinvested outside of the United States. In the fourth quarter of 2012, the Company changed its position regarding permanent reinvestment and accrued approximately $1,371,000 of U.S. tax and $633,000 of India tax on earnings of approximately $9,528,000. During the fourth quarter of 2012, the company repatriated approximately $3,268,000 of foreign earnings from its Indian subsidiary. U.S. income taxes on those repatriated earnings have been offset by its U.S. losses. The sale of the Company’s clinical trial services unit located outside the US in the UK during 2013 resulted in write-offs of the investment in those subsidiaries and offset the amount of US taxes that would need to be accrued on the India earnings to zero. India withholding taxes on a dividend of India earnings are not affected by the calculation of US taxes due and continue to be accrued.

The Company’s Indian subsidiary, Cross Country Infotech Private, Ltd is located in a software technology park and was entitled to 100% tax holiday until March 2011. The effect of the income tax holiday was a reduction to the income tax provision in 2011 of approximately $178,000.

The Company recognizes in its financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is approximately as follows:



	2013			2012
Balance at January 1	$	5,204,000		$	4,500,000
Additions based on tax positions related to the current year	496,000			852,000
Additions based on tax positions related to prior years	681,000			152,000
Reductions based on settlements of tax positions related to the prior year	(292,000		)	(30,000		)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations	(1,076,000		)	(263,000		)
Other	(27,000		)	(7,000		)
Balance at December 31	$	4,986,000		$	5,204,000

Short-term unrecognized tax benefits are included in other current liabilities on the consolidated balance sheets and were approximately $973,000 and $548,000 as of December 31, 2013 and 2012, respectively. As of December 31, 2013 and 2012, the Company had unrecognized tax benefits, which would affect the effective tax rate if recognized of approximately $4,399,000 and $4,700,000, respectively. During 2013, the Company had gross increases of $1,177,000 to its current year unrecognized tax benefits, related to federal and state tax issues. In addition, the Company had gross decreases of $1,394,000 to its unrecognized tax benefits related to settlement refunds and the closure of open tax years.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. During the years ended December 31, 2013, 2012 and 2011, the Company recognized interest and penalties of $81,000, $124,000, and $27,000, respectively. The Company had accrued approximately $1,015,000 and $886,000 for the payment of interest and penalties at December 31, 2013 and 2012, respectively.