INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES

INCOME TAXES

NOTE 9—INCOME TAXES

        The components of the income tax provision (benefit) are as follows (in thousands):

	Years Ended December 31,
	2011			2010
Current income tax provision (benefit):
Federal	$	3		$	6
State		(218	)		(4	)
Current income tax provision (benefit)		(215	)		2
Deferred income tax benefit:
Federal		(9,766	)		(6,765	)
State		(1,785	)		(178	)
Deferred income tax benefit		(11,551	)		(6,943	)
Income tax benefit	$	(11,766	)	$	(6,941	)

        The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010 are presented below (in thousands). The valuation allowance is related to items for which it is more likely than not that the tax benefit will not be realized.

	December 31,
	2011			2010
Deferred tax assets:
Provision for accrued expenses	$	15,886		$	10,487
Net operating loss carryforwards		31,842			21,636
Goodwill		14,405			14,879
Intangible and other assets		4,222			4,843
Other		2,377			3,170
Total deferred tax assets		68,732			55,015
Less valuation allowance		(68,138	)		(52,285	)
Net deferred tax assets		594			2,730
Deferred tax liabilities:
Intangible and other assets		—			(15,182	)
Other		(5,364	)		(3,868	)
Total deferred tax liabilities		(5,364	)		(19,050	)
Net deferred tax liability	$	(4,770	)	$	(16,320	)

        Deferred income taxes are presented in the accompanying consolidated balance sheets as follows (in thousands):

	December 31,
	2011			2010
Deferred tax assets	$	—		$	—
Deferred tax liabilities		(4,770	)		(16,320	)
Net deferred taxes	$	(4,770	)	$	(16,320	)

        At December 31, 2011 and 2010, we had pre-tax consolidated federal net operating losses ("NOLs") of $50.9 million and $27.4 million, respectively. In addition, we had separate state NOLs of approximately $308 million at December 31, 2011 that will expire at various times between 2012 and 2031.

        During 2011, the valuation allowance increased by $15.8 million, primarily due to increased net operating losses resulting in deferred tax assets requiring a valuation allowance. At December 31, 2011, we had a valuation allowance of $68.1 million related to the portion of tax operating loss carryforwards and other deferred tax assets for which it is more likely than not that the tax benefit will not be realized.

        A reconciliation of total income tax provision to the amounts computed by applying the statutory federal income tax rate to earnings from continuing operations before income taxes and minority interest is shown as follows (in thousands):

	Years Ended December 31,
	2011			2010
Income tax benefit at the federal statutory rate of 35%	$	(21,517	)	$	(11,741	)
State income taxes, net of effect of federal tax benefit		(5,231	)		(1,093	)
Non-deductible non-cash compensation expense		101			245
Change in valuation allowance		14,724			5,324
Other, net		157			324
Income tax benefit	$	(11,766	)	$	(6,941	)

        A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest, is as follows (in thousands):

	Years Ended December 31,
	2011			2010
Balance, beginning of the period	$	66		$	991
Additions based on tax positions related to the current year		—			—
Deductions based on tax positions related to the current year		—			(599	)
Reductions for tax positions of prior years		—			—
Lapse of statute of limitations		(63	)		(326	)
Balance, end of the period	$	3		$	66

        As of December 31, 2011 and 2010, unrecognized tax benefits, including interest, were $0.01 million and $0.09 million, respectively. In 2011, unrecognized tax benefits decreased due to lapse of statute of limitations. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $0.01 million.

        We recognize interest and, if applicable, penalties related to unrecognized tax benefits in income tax expense. Included in income tax expense for each of the years ended December 31, 2011 and 2010 is $0.01 million for interest on unrecognized tax benefits. At both December 31, 2011 and 2010, we have accrued $0.01 million for the payment of interest, respectively. There are no material accruals for penalties.

        We believe that it is reasonably possible that our unrecognized tax benefits could decrease by $0.01 million within twelve months of the current reporting. This amount may be recognized in the next twelve months due to the expiration of the statute of limitations which could impact the effective tax rate.

        We are subject to audits by federal, state and local authorities in the area of income tax. These audits include questioning the timing and the amount of deductions and the allocation of income among various tax jurisdictions. Income taxes payable include amounts considered sufficient to pay assessments that may result from examination of prior year returns; however, any amounts paid upon resolution of issues raised may differ from the amount provided. Differences between the reserves for tax contingencies and the amounts owed by us are recorded in the period they become known.

        The Internal Revenue Service has substantially completed its review of IAC/InterActiveCorp's tax returns for the years ended December 31, 2001 through 2006. The settlement has not yet been submitted to the Joint Committee of Taxation for approval. The IRS began its review of the IAC/InterActiveCorp and Tree federal tax returns for the years ended December 31, 2007 through 2009 in July 2011. The statute of limitations for the years 2001 through 2008 has been extended to December 31, 2012. Various state and local jurisdictions are also currently under examination, the most significant of which are California, New York and New York City for various tax years beginning with 2005.

        The North Carolina Department of Revenue conducted an examination of our North Carolina corporate income and franchise tax returns for the years ended December 31, 2006 through 2008, and issued final audit reports to us in 2011. We have evaluated this matter as a potential loss contingency, and have determined that it is reasonably possible that a loss could be incurred. The range of a possible loss is estimated to be $-0- to $3.6 million. No reserve has been established for this matter as we have determined that the likelihood of a loss is not probable.