INCOME TAXES

6 Months Ended

Jun. 30, 2011

INCOME TAXES

INCOME TAXES

NOTE 8—INCOME TAXES

        For the three months ended June 30, 2011 and 2010, Tree.com recorded a tax provision of $0.04 million and $0.3 million, respectively, which represents an effective tax rate of (0.4)% and (4.0)%, respectively. The tax rates are lower than the federal statutory rate of 35% primarily due to an increase in the valuation allowance on deferred tax assets.

        For the six months ended June 30, 2011 and 2010, Tree.com recorded a tax provision of $0.3 million and $0.8 million, respectively, which represents an effective tax rate of (1.0)% and (5.0)%, respectively. The tax rates are lower than the federal statutory rate of 35% primarily due to an increase in the valuation allowance on deferred tax assets.

        Tree.com's unrecognized tax benefits increased by an immaterial amount in the first six months of 2011. The increase was due to penalty and interest on uncertain tax positions in prior years. Tree.com believes that it is reasonably possible that its remaining unrecognized tax benefits could decrease by approximately $0.06 million within twelve months of the current reporting date due to the expiration of state statute of limitations. An estimate of other changes in unrecognized tax benefits cannot be made, but are not expected to be significant.

        For the six months ended June 30, 2011, Tree.com determined that its activity yielded an unusual effective tax rate; therefore, Tree.com utilized the actual year to date effective tax rate for purposes of determining year to date tax expense. This approach is consistent with the six months ended June 30, 2010.