Note 4 - Income Taxes

The geographical sources of (loss) before income taxes were as follows (in thousands):

	Year ended September 30,
	2013	2012
United States	$ (1,848)	$ (1,396)
Outside United States	(2)	(335)
	$ (1,850)	$ (1,731)

During the fiscal years ended September 30, 2013 and 2012, the loss before income taxes was primarily a result of selling, general and administrative costs of the estate, which were higher than revenues.

The components of the income tax (benefit) were as follows (in thousands):

	Year ended September 30,
	2013	2012
Current:
United States	$ 0	$ (6)
Outside United States	(675)	(1,276)
Deferred:
United States	0	0
Outside United States	0	0
	$ (675)	$ (1,282)

The Company received no funds from the Internal Revenue Service (“IRS”) in the fiscal year ended September 30, 2013 and received approximately $7,000 from the IRS in the fiscal year ended September 30, 2012. The Company received approximately $14,000 from the provincial government of Alberta, Canada during the fiscal year ended September 30, 2013. The Company received approximately $1,357,000 from the Canada Revenue Agency (“CRA”) during the fiscal year ended September 30, 2012. The Company paid approximately $16,000 in a final settlement with the San Juan Municipality during the fiscal year ended September 30, 2012.

The reasons for the difference between the U.S. federal income tax rate and the effective income tax rate for earnings were as follows:

	Year ended September 30,
	2013	2012
U.S. federal income tax rate	34.00%	34.00%
Increase (reduction) resulting from:
Final determinations and unrecognized tax benefit activity(1)	34.27	67.16
Non-deductible CDR expenses	0.61	0.67
Unrealized gain (loss) on foreign exchange	(3.46)	2.42
Change in valuation allowance	(31.45)	(28.30)
Income (loss) from pass through entities	0.34	(2.22)
Other, net	2.20	0.31
Effective income tax rate	36.51%	74.04%

(1) Final determinations include final agreements with tax authorities.

Deferred tax assets at September 30, 2013 and 2012 were as follows (in thousands):

	2013	2012
Deferred tax assets:
Foreign loss carryforwards	$ 265	$ 269
U.S. and state NOL carryforward	111,947	111,283
AMT credit carryforwards	75,588	75,588

Gross deferred tax assets	187,800	187,140
Less: valuation allowance	(187,800)	(187,140)

Net deferred tax assets	$ 0	$ 0

The Company provides a valuation allowance for the remaining value of the deferred tax assets due to it being more likely than not that they will not be utilized in the future.

As of September 30, 2013, the company has federal net operating loss (“NOL”) carryforwards of approximately $106,988,000 expiring between years 2023 and 2033 and domestic state NOL carryforwards of approximately $4,959,000 expiring between years 2016 and 2025.

For financial reporting purposes, as of September 30, 2013, the Company has approximately $1,001,000 of foreign net operating loss carryforwards, most of which have no expiration date. The Company has recognized a valuation allowance of $265,000 to offset this deferred tax asset.

At September 30, 2013, the Company has available for U.S. federal income tax purposes the following carryforwards (in thousands):

Year scheduled to expire		Net operating loss

2023		$ 239,595
2024		37,101
2025		34,055
2031		657
2032		1,572
2033		1,693
		$ 314,673

For U.S. federal income tax purposes, the Company has $75,588,000 of alternative minimum tax (“AMT”) credit carryforwards available to reduce regular taxes in future years. AMT credit carryforwards do not have an expiration date. The Company does not believe that it is more likely than not that the Company will generate sufficient future taxable income to realize the benefit of the AMT credit carryforwards. As such, the Company has recognized a valuation allowance of $75,588,000 to offset this deferred tax asset.

The Company files income tax returns in the U.S. federal jurisdiction, the State of Illinois and a foreign jurisdiction.

As of the date of this filing, the only federal tax years open to exam are fiscal years ended September 30, 2010 through September 30, 2012.

The Company’s Canadian subsidiary, Comdisco Canada Limited (“CCL”), has completed the resolution of several tax matters with federal and provincial tax authorities in Canada. During the year ended September 30, 2013, the Company completed final negotiations with the Ontario Ministry of Finance related to its Notices of Objection and recorded a net income tax benefit of approximately $675,000. During the year ended September 30, 2012, the Company completed final negotiations with the CRA related to its federal Notices of Objection and recorded a net income tax benefit of approximately $1,279,000.

The open federal tax years for the Canadian subsidiary are tax years ended September 30, 1998, 1999, 2002 and 2009, as well as March 31, 2010 through 2013. The open tax years for the province of Ontario are tax years ended September 30, 1998, 2008 and 2009, as well as March 31, 2010 through 2013. The open tax year for the provinces of Quebec and Alberta is the tax year ended September 30, 1999.

During the fiscal year ended September 30, 2013, the Company’s Canadian subsidiary received tax refunds totaling approximately USD $14,000 from the provincial government of Alberta, Canada. During the fiscal year ended September 30, 2012, the Company’s Canadian subsidiary received tax refunds totaling approximately USD $1,357,000 from the CRA.

During the fiscal year ended September 30, 2013, the Company liquidated its Mexican subsidiary.

During the fiscal year ended September 30, 2012, the Company paid approximately $16,000 in final settlement with the San Juan Municipality and has completed withdrawal from Puerto Rico.

Uncertain Tax Positions:

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands) (excluding interest and penalties) (Note A):

	September 30,	September 30,
	2013	2012
Beginning balance	$ 1,438	$ 1,369
Decreases related to settlements of certain tax audits	0	(16)
Increases related to settlements of certain tax audits	0	0
Decreases related to prior year tax positions	0	0
Increases related to prior year tax positions	0	0
Other	(67)	85
Ending balance	$1,371	$ 1,438

Note (A): The Company previously reported its reconciliation of uncertain tax positions for the year ended September 30, 2012 as the amount of the net income tax liability including interest and penalties, which is reported in the consolidated balance sheets. During the quarter ended December 31, 2012, the Company corrected its disclosure for the year ended September 30, 2012 and reported this table as the gross income tax liability position. This change in presentation does not impact the Company’s financial position or cash flows. As of September 30, 2013, net operating losses of $1,221,000 are available to offset this liability, such that the net balance of approximately $150,000, if realized, would impact the effective tax rate.

In the next twelve months, the Company’s effective tax rate and the amount of unrecognized tax benefits could be affected positively or negatively by the resolution of any possible tax audits and the expiration of certain statutes of limitations. Based on current information, the Company believes that the range of the reasonably possible change of the unrecognized tax benefits in the next twelve months is zero to $150,000, if realized, would impact the effective tax rate.

As of September 30, 2013, accrued interest and penalties included in the income tax liability amounted to approximately $693,000. The Company recognizes accrued interest and penalties related to uncertain tax positions in the income tax provision.

As of September 30, 2013, the income tax liabilities included in the Company’s consolidated balance sheets all relate to the Company’s Canadian subsidiary and include $150,000 in net uncertain tax positions, $693,000 in interest and penalties for the uncertain tax positions and $233,000 in withholding tax liability on an anticipated liquidating dividend arising on liquidation of the Canadian subsidiary for a total of $1,076,000. For the year ended September 30, 2013, the net tax benefit of approximately $675,000 related to the Canadian entity, including interest expense and penalties in the statement of comprehensive (loss), was primarily driven by the negotiation with the Ontario Ministry of Finance on a tax refund sought by the Company in connection with Notices of Objection filed for the tax years ended September 30, 2000 and 2001. The Company received the refund check for approximately $753,000 during November 2013. For the year ended September 30, 2012, the net tax benefit of approximately $1,279,000 related to the Canadian entity, including interest expense and penalties in the statement of comprehensive (loss), was primarily driven by the negotiation with the CRA on a tax refund sought by the Company in connection with Notices of Objection filed for the tax years ended September 30, 2000 and 2001. The Company received the federal assessment and federal refund check for approximately $1,357,000 during the quarter ended September 30, 2012.