Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

13. Income Taxes

We file a consolidated U.S. income tax return and tax returns in various state and local jurisdictions. Certain of our subsidiaries also file income tax returns in Canada. The Internal Revenue Service has initiated a review of our consolidated federal income tax return for the period ended December 31, 2009. Our amended return filings in California and New York are under review by each of the respective states. During the three months ended March 31, 2011, we filed a formal request for redetermination with the State of Texas as a result of the state's denial of our amended returns and refund requests for report years 2005, 2006 and 2007. During the three months ended September 30, 2011, the State of Texas completed their review of our amended return filings with no changes. In addition, we are appealing Pennsylvania's assessment to our 2007 and 2008 tax return filings. All of our other significant taxing jurisdictions are closed for years prior to 2006.

The total liability for uncertain tax positions recorded in our consolidated balance sheet in accrued liabilities – other, as of September 30, 2011 and December 31, 2010, was $0.8 million and $1.0 million, respectively.

Interest and penalties, if any, related to tax positions taken in our tax returns are recorded in interest expense and general and administrative expenses, respectively, in our consolidated statement of operations.  As of both September 30, 2011 and December 31, 2010, accrued interest and penalties related to tax positions taken on our tax returns are approximately $0.1 million.

As of December 31, 2010, management determined that the ultimate realization of deferred tax assets for U.S. federal and state income tax purposes was not considered more likely than not, primarily due to limited taxable income in the federal carry back period, anticipated insufficient future taxable income and cumulative U.S. book losses incurred in recent years. As a result of cumulative U.S. book losses incurred in recent years and uncertainty as to the extent and timing of profitability in future periods, we recorded a full valuation allowance of $28.4 million against our net U.S. deferred tax assets, excluding deferred tax liabilities related to indefinite-lived assets, during the fourth quarter of 2010. As a result of the acquisition of DealerTrack Processing Solutions, on January 31, 2011, we evaluated the combined enterprises past and expected future results, including the impact of the future reversal of the acquired deferred tax liabilities, and determined that the future reversal of the acquired deferred tax liabilities would provide sufficient taxable income to support realization of certain of our deferred tax assets, and thereby we reduced the valuation allowance by approximately $24.5 million during the three months ended March 31, 2011. As a result of the gain on the sale of ALG on October 1, 2011, and the expected establishment of deferred tax liabilities on the transaction along with the expected future reversal of deferred tax liabilities, we will be evaluating a need for a full valuation allowance on our net deferred tax assets for the quarter ended December 31, 2011. For the quarter ended December 31, 2011, we expect to reverse a portion of the remaining valuation allowance on our net U.S deferred tax assets of approximately $6.1 million.