INCOME TAXES

Income Tax Provision

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



	Year Ended December 31,
	2013			2012
Current income tax benefit:
Federal	$	(425	)	$	(1,358	)
State	(92		)	(33		)
Current income tax benefit	(517		)	(1,391		)
Deferred income tax provision (benefit):
Federal	63			147
State	1			(239		)
Deferred income tax provision (benefit)	64			(92		)
Income tax benefit	$	(453	)	$	(1,483	)

A reconciliation of the income tax benefit 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):



	Year Ended December 31,
	2013			2012
Income tax benefit at the federal statutory rate of 35%	$	(394	)	$	(1,306	)
State income taxes, net of effect of federal tax benefit	(60		)	(177		)
Other, net	1			—
Income tax benefit	$	(453	)	$	(1,483	)

Deferred Income Taxes

The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (in thousands):



	December 31,
	2013			2012
Deferred tax assets:
Provision for accrued expenses	$	13,009		$	11,681
Net operating loss carryforwards ^(a)	26,365			28,404
Non-cash compensations expense	2,753			2,285
Goodwill	1,825			1,829
Intangible and other assets	49			811
Other	1,125			5,442
Total gross deferred tax assets	45,126			50,452
Less: valuation allowance ^(b)	(49,674		)	(54,961		)
Total deferred tax assets, net of the valuation allowance	(4,548		)	(4,509		)
Deferred tax liabilities:
Other	(194		)	(169		)
Total gross deferred tax liabilities	(194		)	(169		)
Net deferred taxes	$	(4,742	)	$	(4,678	)

(a)

At December 31, 2013 and 2012, the Company had pre-tax consolidated federal net operating losses ("NOLs") of $30.1 million and $24.2 million, respectively. The 2013 carryforward amount excludes $8.0 million of windfall tax benefits, which will be recorded to additional paid in capital when realized. The federal NOLs will expire between 2031 and 2033. In addition, the Company has separate state NOLs of approximately $300.7 million at December 31, 2013 that will expire at various times between 2014 and 2033.


(b)	The valuation allowance is related to items for which it is "more likely than not" that the tax benefit will not be realized.

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



	December 31,
	2013			2012
Deferred tax assets	$	107		$	16
Deferred tax liabilities	(4,849		)	(4,694		)
Net deferred taxes	$	(4,742	)	$	(4,678	)

Valuation Allowance

The Company had a valuation allowance recorded at December 31, 2013 and 2012 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. During 2013, the valuation allowance decreased by $5.3 million to $49.7 million.

Unrecognized Tax Benefits

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



	Year Ended December 31,
	2013		2012
Balance, beginning of the period	$	—	$	3
Additions based on tax positions of prior years	36		—
Lapse of statute of limitations	—		(3		)
Balance, end of the period	$	36	$	—

Interest and, if applicable, penalties are recognized related to unrecognized tax benefits in income tax expense. Interest and penalties on unrecognized tax benefits included in income tax expense for each of the years ended December 31, 2013 and 2012 is immaterial. There are no significant accruals for interest and penalties at December 31, 2013 and 2012.

As of December 31, 2013 and 2012, the accrual for unrecognized tax benefits, including interest, was $40,000 and $0, respectively, all of which would benefit the effective tax rate if recognized.

Tax Audits

Tree.com is 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. As of December 31, 2013, the Company is subject to a federal income tax examination for the tax years 2010 through 2012. In addition, the Company is subject to state and local tax examinations for the tax years 2009 through 2012.

The Company was indemnified by its previous owner for any federal and/or combined state income tax liabilities resulting from years prior to the spin-off in 2008. The Joint Committee of Taxation has completed its review of IAC/InterActiveCorp's tax returns and approved the audit settlement previously agreed to with the Internal Revenue Services for the years ended December 31, 2001 through 2008. The statute of limitations for the years 2001 through 2008 expires on July 1, 2014. 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 2006.