INCOME TAXES

As a REIT, we generally are not subject to federal and state corporate income taxes on income of the REIT that we distribute to our shareholders. We are, however, subject to corporate taxes on built-in gains (the excess of fair market value over tax basis on January 1, 2006) on sales of real property held by the REIT during the first ten years following the REIT conversion. The sale of standing timber is not subject to built-in gains tax. The Small Business Jobs Act of 2010 modified the built-in gains provisions to exempt sales of real properties in 2011, if five years of the recognition period had elapsed before January 1, 2011. The American Taxpayer Relief Act of 2012 extended the reduced five-year holding period for sales occurring in 2012 and 2013. Accordingly, the built-in gains tax does not apply to sales of real property that occurred in 2011, 2012 and 2013.

We conduct certain activities through taxable REIT subsidiaries (TRS), which are subject to corporate-level federal and state income taxes. These activities are principally comprised of our wood products manufacturing operations and certain real estate investments held for development and resale.

We reflect accrued interest related to tax obligations, as well as penalties, in our provision for income taxes. For the years ended December 31, 2013, 2012 and 2011, we recognized insignificant amounts related to interest and penalties in our tax provision. At December 31, 2013 and 2012, we had no accrued interest related to tax obligations and insignificant accrued interest receivable with respect to open tax refunds.

The income tax provision consists of the following for the years ended December 31:



(Dollars in thousands)	2013			2012		2011
Current	$	16,352		$	292	$	(73	)
Deferred	(2,754		)	8,197		4,990
Net operating loss carryforwards	287			8,320		(772		)
Income tax provision	$	13,885		$	16,809	$	4,145

The income tax provision differs from the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes due to the following for the years ended December 31:



(Dollars in thousands)	2013			2012			2011
U.S. federal statutory income tax	$	29,563		$	20,791		$	15,544
REIT income not subject to federal income tax	(13,918		)	(5,241		)	(11,739		)
Change in valuation allowance	(683		)	—			897
State income taxes, net of federal income tax	942			1,615			54
Domestic production activities deduction	(1,579		)	—			—
All other items	(440		)	(356		)	(611		)
Income tax provision	$	13,885		$	16,809		$	4,145
Effective tax rate	16.4		%	28.3		%	9.3		%

The tax effects of significant temporary differences creating deferred tax assets and liabilities at December 31 were:



(Dollars in thousands)	2013			2012
Deferred tax assets:
Pensions	$	16,807		$	38,986
Postretirement employee benefits	18,464			20,293
Nondeductible accruals	2,405			3,841
Inventories	2,636			3,126
Incentive compensation	2,807			2,843
Tax credits	2,135			2,678
Employee benefits	1,586			1,795
Net operating loss carryforwards	1,056			1,346
Other	200			124
Total deferred tax assets	48,096			75,032
Valuation allowance	(2,184		)	(2,867		)
Deferred tax assets, net of valuation allowance	45,912			72,165
Deferred tax liabilities:
Timber and timberlands	(5,871		)	(6,006		)
Property, plant and equipment	(10,741		)	(12,360		)
Total deferred tax liabilities	(16,612		)	(18,366		)
Net deferred tax assets	$	29,300		$	53,799

Net deferred tax assets and liabilities consist of:



(Dollars in thousands)	2013		2012
Current deferred tax assets	$	7,724	$	10,507
Noncurrent deferred tax assets	21,576		43,292
Net deferred tax assets	$	29,300	$	53,799

With the exception of the valuation allowances discussed below, we believe it is more likely than not that we will have sufficient future taxable income to realize our deferred tax assets.

Our valuation allowance on deferred taxes was $2.2 million at the end of 2013; which related to state net operating loss and tax credit carryforwards. The valuation allowance decreased $0.7 million in 2013 due to the change in actual use and expected future use of state net operating loss carryforwards and state credits.

We have state net operating loss carryforwards of $24.0 million at December 31, 2013 which expire from 2014 through 2031. We have state investment tax credits of $3.2 million at December 31, 2013 which expire from 2016 through 2027.

The following table summarizes the tax years subject to examination by major taxing jurisdictions:



Jurisdiction	Years
Federal	2008	-	2013
Arkansas	2010	-	2013
Michigan	2009	-	2013
Minnesota	2009	-	2013
Idaho	2010	-	2013

During the fourth quarter of 2013 the IRS closed our federal income tax exams for 2009. As of December 31, 2013 our 2008 TRS federal income tax return is under exam. We do not expect the outcome of the exam to have a material effect on our Consolidated Financial Statements.

As of December 31, 2013 and December 31, 2012, we did not have any liabilities for unrecognized tax benefits. We do not currently believe there is a reasonable possibility of recording a liability for unrecognized tax benefits within the next twelve months.