Income Taxes

After inclusion of the tax effect of the overall loss on the sale of U.S. Pipe, our net reversing deferred tax credits were insufficient to fully support our deferred tax assets, which include net operating loss carryforwards, and we concluded that a valuation allowance was necessary to reduce our U.S. net reversing deferred tax assets to zero. Accordingly, we recorded income tax expense in 2012 to establish valuation allowances related to deferred tax assets.

We reevaluate the need for a valuation allowance against the U.S. deferred tax assets each quarter, considering results to date, projections of taxable income, tax planning strategies and reversing taxable temporary differences. During the quarter ended December 31, 2012, we decreased our U.S. deferred tax valuation allowance by $4.6 million. Notwithstanding the valuation allowance, our net operating loss carryforwards remain available to offset future taxable earnings.

The components of income tax expense on continuing operations are provided below.



	Three months ended
	December 31,
	2013			2012
	(in millions)
Expense (benefit) from income (loss) before income taxes	$	0.5		$	(2.4	)
Deferred tax asset valuation allowance adjustment	—			0.8
Other discrete items	(0.2		)	—
	$	0.3		$	(1.6	)

At December 31, 2013 and September 30, 2013, the gross liabilities for unrecognized income tax benefits were $3.8 million and $3.7 million, respectively.

We recognize interest related to uncertain income tax positions as interest expense and would recognize any penalties that may be incurred as selling, general and administrative expense. At December 31, 2013 and September 30, 2013, we had $0.9 million and $0.9 million, respectively, of accrued interest liabilities related to uncertain tax positions.

Our state income tax returns are generally closed for years prior to 2006, except to the extent of our state net operating loss carryforwards. Our Canadian income tax returns are generally closed for years prior to 2006. We are currently under audit by several states at various levels of completion. We do not have any material unpaid assessments.