Income Taxes

The provision for income taxes is comprised of the following:



	Years Ended December 31,
	2012		2011			2010
	(In thousands)
Current
Federal	$	797,406	$	499,535		$	30,999
State	135,148		91,316			4,473
Deferred
Federal	70,671		(9,679		)	21,796
State	24,737		819			2,044
	$	1,027,962	$	581,991		$	59,312

The statutory federal income tax rate applied to pre-tax book income reconciles to income tax expense as follows:



	Years Ended December 31,
	2012			2011			2010
	(In thousands)
Tax computed at statutory rate	$	975,798		$	574,682		$	67,327
State income taxes, net of federal tax benefit	110,739			64,284			4,372
Domestic production activities deduction	(54,745		)	(32,194		)	(940		)
Noncontrolling interest in net income	(12,783		)	(14,221		)	(11,315		)
Uncertain tax positions	7,309			(12,125		)	—
Other	1,644			1,565			(132		)
	$	1,027,962		$	581,991		$	59,312

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our deferred income tax assets and liabilities as of December 31, 2012 and 2011 are as follows:



	December 31, 2012
	Assets		Liabilities			Total
	(In thousands)
Deferred income taxes
Accrued employee benefits	$	13,285	$	—		$	13,285
Accrued post-retirement benefits	—		(563		)	(563		)
Accrued environmental costs	5,096		—			5,096
Hedging instruments	23,927		—			23,927
Inventory differences	—		(181,634		)	(181,634		)
Prepayments and other	—		(5,327		)	(5,327		)
Total current	42,308		(187,524		)	(145,216		)
Properties, plants and equipment (due primarily to tax in excess of book depreciation)	—		(539,338		)	(539,338		)
Accrued post-retirement benefits	15,628		—			15,628
Accrued environmental costs	18,963		—			18,963
Hedging instruments	3,802		—			3,802
Deferred turnaround costs	—		(60,167		)	(60,167		)
Net operating loss and tax credit carryforwards	21,863		—			21,863
Investment in HEP	—		(15,915		)	(15,915		)
Debt fair value premiums	8,820		—			8,820
Contingent liabilities	2,908		—			2,908
Other	6,766		—			6,766
Total noncurrent	78,750		(615,420		)	(536,670		)
Total	$	121,058	$	(802,944	)	$	(681,886	)



	December 31, 2011
	Assets		Liabilities			Total
	(In thousands)
Deferred income taxes
Accrued employee benefits	$	22,791	$	—		$	22,791
Accrued post-retirement benefits	4,012		—			4,012
Accrued environmental costs	2,253		—			2,253
Inventory differences	—		(161,428		)	(161,428		)
Deferred turnaround costs	—		(356		)	(356		)
Prepayments and other	37,442		(80,397		)	(42,955		)
Total current	66,498		(242,181		)	(175,683		)
Properties, plants and equipment (due primarily to tax in excess of book depreciation)	—		(511,788		)	(511,788		)
Accrued post-retirement benefits	41,873		—			41,873
Accrued environmental costs	4,651		—			4,651
Deferred turnaround costs	—		(22,971		)	(22,971		)
Investment in HEP	—		(13,389		)	(13,389		)
Other	42,618		(4,715		)	37,903
Total noncurrent	89,142		(552,863		)	(463,721		)
Total	$	155,640	$	(795,044	)	$	(639,404	)

At December 31, 2012, we had a net operating loss carryforward of $46.5 million in the state of Colorado that is scheduled to be utilized in 2013 through 2029 and a Kansas income tax credit of $15.8 million that is scheduled to be utilized in 2013 through 2019. These amounts are reflected in other current and non-current deferred tax assets.

As of December 31, 2012, the total amount of unrecognized tax benefits was $12.6 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Years Ended December 31,
	2012			2011			2010
	(In thousands)
Balance at January 1	$	2,425		$	1,864		$	1,964
Additions due to merger with Frontier	—			22,577			—
Additions for tax positions of prior years	10,305			73			6
Reductions for tax positions of prior years	(89		)	(204		)	(106		)
Settlements	—			(21,679		)	—
Reductions for statute limitations	—			(206		)	—
Balance at December 31	$	12,641		$	2,425		$	1,864

At December 31, 2012, 2011 and 2010, there are $10.2 million, $2.2 million and $1.1 million, respectively, of unrecognized tax benefits that, if recognized, would affect our effective tax rate. Unrecognized tax benefits are adjusted in the period in which new information about a tax position becomes available or the final outcome differs from the amount recorded.

We recognize interest and penalties relating to liabilities for unrecognized tax benefits as an element of tax expense. We have not recorded any penalties related to our uncertain tax positions as we believe that it is more likely than not that there will not be any assessment of penalties. We expect that unrecognized tax benefits for tax positions taken with respect to 2012 and prior years will change within the next 12 months and the majority of these items will be settled with taxing authorities.

We are subject to U.S. federal income tax, Oklahoma, New Mexico, Kansas, Utah, Arizona, Colorado and Iowa income tax and to income tax of multiple other state jurisdictions. We have substantially concluded all U.S. federal, state and local income tax matters for tax years through December 31, 2005. In late 2010, the Internal Revenue Service commenced an examination of our U.S. federal tax returns for tax years ended December 31, 2006, 2007, 2008 and 2009. We anticipate that these audits will be completed in 2013.