NOTE 9—INCOME TAXES

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

	Years Ended December 31,

	2012			2011
Current income tax provision (benefit):
Federal	$	(1,358	)	$	3
State		(33	)		(218	)

Current income tax provision (benefit)		(1,391	)		(215	)

Deferred income tax provision (benefit):
Federal		147			(9,766	)
State		(239	)		(1,785	)

Deferred income tax benefit		(92	)		(11,551	)

Income tax provision (benefit)	$	(1,483	)	$	(11,766	)

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, 2012 and 2011 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,

	2012			2011
Deferred tax assets:
Provision for accrued expenses	$	11,681		$	15,886
Net operating loss carryforwards		28,404			31,842
Goodwill		1,829			14,405
Intangible and other assets		811			4,222
Other		7,727			2,377

Total deferred tax assets		50,452			68,732
Less valuation allowance		(54,961	)		(68,138	)

Net deferred tax assets		(4,509	)		594

Deferred tax liabilities:
Other		(169	)		(5,364	)

Total deferred tax liabilities		(169	)		(5,364	)

Net deferred tax liability	$	(4,678	)	$	(4,770	)

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

	December 31,

	2012			2011
Deferred tax assets	$	16		$	—
Deferred tax liabilities		(4,694	)		(4,770	)

Net deferred taxes	$	(4,678	)	$	(4,770	)

At December 31, 2012 and 2011, we had pre-tax consolidated federal net operating losses ("NOLs") of $23.9 million and $50.9 million, respectively. The 2012 carryforward amount excludes $1.4 million of windfall tax benefits, which will be recorded to additional paid in capital when realized. In addition, we had separate state NOLs of approximately $297 million at December 31, 2012 that will expire at various times between 2014 and 2032.

During 2012, the valuation allowance decreased by $13.2 million, primarily due to utilization of net operating losses. At December 31, 2012, we had a valuation allowance of $55.0 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 loss from continuing operations before income taxes is shown as follows (in thousands):

	Years Ended December 31,

	2012			2011
Income tax benefit at the federal statutory rate of 35%	$	(1,306	)	$	(21,517	)
State income taxes, net of effect of federal tax benefit		(177	)		(5,231	)
Non-deductible non-cash compensation expense		—			101
Change in valuation allowance		—			14,724
Other, net		—			157

Income tax benefit	$	(1,483	)	$	(11,766	)

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

	Years Ended December 31,

	2012			2011
Balance, beginning of the period	$	3		$	66
Additions based on tax positions related to the current year		—			—
Deductions based on tax positions related to the current year		—			—
Reductions for tax positions of prior years		—			—
Lapse of statute of limitations		(3	)		(63	)

Balance, end of the period	$	—		$	3

As of December 31, 2012 and 2011, unrecognized tax benefits, including interest, were $0.0 million and $0.01 million, respectively. In 2012, unrecognized tax benefits decreased due to lapse of statute of limitations.

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, 2012 and 2011 is $0.0 million and $0.01 million for interest on unrecognized tax benefits. At December 31, 2012 and 2011, we accrued $0.0 million and $0.01 million, respectively, for the payment of interest. There are no significant accruals for penalties.

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 Company was indemnified by our previous owner for any federal and/or combined state income tax liabilities resulting from years prior to the spin-off in 2008. 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 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.