13. TAXES

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

	Year Ended December 31,
	2011			2010		2009
Current:
Federal tax (benefit)	$	—		$	—	$	—
State tax		19			73		85
Foreign tax		(128	)		323		(101	)
Total		(109	)		396		(16	)
Deferred:
Federal and state tax (benefit)		—			—		—
Foreign tax (benefit)		—			—		—
Total		—			—		—
Income tax expense (benefit)	$	(109	)	$	396	$	(16	)

U.S. and foreign components of income (loss) before income taxes are presented below (in thousands):

	Year Ended December 31,
	2011			2010			2009
U.S. income (loss)	$	(46,387	)	$	(90,865	)	$	(69,490	)
Foreign income (loss)		(8,646	)		(6,206	)		(5,449	)
Total income (loss) before income taxes	$	(55,033	)	$	(97,071	)	$	(74,939	)

As of December 31, 2011, the Company had cumulative U.S. and foreign net operating loss carry-forwards for income tax reporting purposes of approximately $549.1 million and $202.9 million, respectively. As of December 31, 2010, the Company had cumulative U.S. and foreign net operating loss carry-forwards for income tax reporting purposes of approximately $393.7 million and $65.3 million, respectively. The increase in foreign operating losses from 2010 to 2011 relates primarily to the recognition of pre-acquisition losses of the Company’s Brazilian subsidiary not previous recognized in the accounts. The net operating loss carry-forwards expire on various dates beginning in 2012 and ending in 2031. An amount of the net operating loss carryforwards do not expire which are some of the foreign carryforwards.

The Company has not provided for United States income taxes and foreign withholding taxes on approximately $7.7 million of undistributed earnings from certain foreign subsidiaries indefinitely invested outside the United States. Should the Company decide to repatriate these foreign earnings, the Company would have to adjust the income tax provision in the period in which management believes the Company would repatriate the earnings.

The components of net deferred income tax assets were as follows (in thousands):

	December 31,
	2011			2010
Federal and foreign net operating loss and credit carry-forwards	$	268,962		$	173,338
Property and equipment and other long term		27,131			34
Accruals and reserves		7,519			9,229
Deferred tax assets before valuation allowance		303,612			182,601
Valuation allowance		(303,612	)		(182,601	)
Net deferred income tax assets	$	—		$	—

The change in the valuation allowance during 2011 and 2010 was $121.0 million and $34.2 million, respectively.

The actual provision for income taxes differs from the statutory U.S. federal income tax rate as follows (in thousands):

	Year Ended December 31,
	2011			2010			2009
Provision at U.S. statutory rate of 35%	$	(19,262	)	$	(33,975	)	$	(26,227	)
State income taxes, net of federal benefit		(2,764	)		(5,378	)		(4,086	)
Change in valuation allowance		121,010			34,205			25,776
Effect of foreign income tax at various rates		929			691			594
Permanent differences		909			(231	)		579
Change in unrecognized tax benefit		(72,040	)		602			562
Recognition of pre-acquisition losses in Brazil		(32,702	)		—			—
Other (including amounts related to prior year tax matters)		3,811			4,482			2,786
Total	$	(109	)	$	396		$	(16	)

Tax Audits

The Company operates in various U.S. and foreign tax jurisdictions. The process of determining its anticipated tax liabilities involves many calculations and estimates which are inherently complex. The Company believes that it has complied in all material respects with its obligations to pay taxes in these jurisdictions. However, its position is subject to review and possible challenge by the taxing authorities of these jurisdictions. If the applicable taxing authorities were to challenge successfully its current tax positions, or if there were changes in the manner in which the Company conduct its activities, the Company could become subject to material unanticipated tax liabilities. It may also become subject to additional tax liabilities as a result of changes in tax laws, which could in certain circumstances have a retroactive effect.

A tax authority has previously notified the Company that the Company (formerly known as Globalstar LLC), one of its subsidiaries, and its predecessor, Globalstar L.P., were under audit for the taxable periods ending December 31, 2005, December 31, 2004, and June 29, 2004, respectively. During the taxable years at issue, the Company, its predecessor, and its subsidiary were treated as partnerships for U.S. income tax purposes. In December 2009, the Internal Revenue Service ("IRS") issued Notices of Final Partnership Administrative Adjustments related to each of the taxable years at issue. The Company disagreed with the proposed adjustments, and pursued the matter through applicable IRS and judicial procedures as appropriate.

In February 2012, a Closing Agreement was reached with respect to this matter. The position reached in the Closing Agreement had no impact on the cost basis of the assets of the Company or the Company’s net operating loss position. In addition, there is no impact for the Company on deductions in future years. In previous years, the potential outcome of this audit was considered and the gross deferred tax asset before valuation allowance adjusted to a tax position that was thought to be more likely than not to be sustained. The impact of this Closing Agreement has been considered in the Company’s analysis at December 31, 2011 and the adjustment to the tax position in previous years was reversed.

During 2010, the Company received notification from the IRS that the Company's 2007, 2008 and 2009 returns were selected for examination. Agreement was reached with the IRS in December 2010 resulting in a Section 482 adjustment for transfer pricing in 2007 and a decrease of $11.4 million in the Company's net operating loss carry forward. This decrease was reflected in the deferred income tax asset booked at December 31, 2010. The 2008 and 2009 reviews were finalized in March 2011 resulting in a decrease of $0.5 million in the Company’s net operating loss carry forward.

In June 2011, an agreement was reached with the IRS for an adjustment for interest income and expense on the Section 482 transfer pricing adjustments discussed above. The agreement resulted in a reduction in the Company’s net operating loss carried forward of $1.7 million for 2007, 2008 and 2009. This decrease was reflected as a reduction of the deferred tax asset (which, as noted above, is fully reserved).

In January 2012, the Company’s Canadian subsidiary was notified that its income tax returns for the years ended October 31, 2008 and 2009 had been selected for audit. The Company’s Canadian subsidiary is in the process of collecting the information required by the Canada Revenue Agency.

Except for the audits noted above, neither the Company nor any of its subsidiaries are currently under audit by the IRS or by any state jurisdiction in the United States. The Company's corporate U.S. tax returns for 2008 and subsequent years remain subject to examination by tax authorities. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.

Through a prior foreign acquisition the Company acquired a tax liability for which the Company has been indemnified by the previous owners. As of December 31, 2011 and 2010, the Company had recorded a tax liability of $2.2 million and $9.9 million, respectively, to the foreign tax authorities with an offsetting tax receivable from the previous owners.

In the Company's international tax jurisdictions, numerous tax years remain subject to examination by tax authorities, including tax returns for 2003 and subsequent years in most of the Company's international tax jurisdictions.

A rollforward of the Company's unrecognized tax benefits is as follows (in thousands):

Gross unrecognized tax benefits at January 1, 2011	$	79,809
Gross increases based on tax positions related to current year		460
Gross decreases based on tax positions related to prior years		(419	)
Reductions to unrecognized tax benefits related to prior year audit settlements		(72,500	)
Gross unrecognized tax benefits at December 31, 2011	$	7,350

Gross unrecognized tax benefits at January 1, 2010	$	78,780
Gross increases based on tax positions related to current year		572
Gross increases based on tax positions related to prior years		457
Gross unrecognized tax benefits at December 31, 2010	$	79,809

The total unrecognized tax benefit of $7.4 million at December 31, 2011 includes $3.0 million which, if recognized, could potentially reduce the effective income tax rate in future periods.

In connection with the FIN 48 adjustment, at December 31, 2011 and 2010, the Company recorded interest and penalties of $1.0 million and $1.1 million, respectively.

It is anticipated that the amount of unrecognized tax benefit reflected at December 31, 2011 will not materially change in the next 12 months; any changes are not anticipated to have a significant impact on the results of operations, financial position or cash flows of the Company.