Income Taxes

The provision (benefit) for income taxes for the years ended December 31, 2011, 2010 and 2009 was as follows:



	Year Ended December 31,
	2011		2010			2009
	(In millions)
Provision (benefit) for income taxes:
Current
Federal	$	13.2	$	6.2		$	28.8
State and foreign	2.8		(0.6		)	4.2
	16.0		5.6			33.0
Deferred
Federal	11.4		(12.8		)	(21.4		)
State	2.4		(2.1		)	(6.4		)
	13.8		(14.9		)	(27.8		)
Provision (benefit) for income taxes	$	29.8	$	(9.3	)	$	5.2

The provision (benefit) for income taxes differs from the expected federal income tax rates as follows:



	2011		2010		2009
Statutory federal income tax rate	35.0	%	(35.0	)%	35.0	%
State and other taxes, net of federal tax benefit	3.7		(0.4	)	5.8
Change in unrecognized tax benefits	(4.0	)	(28.1	)	(9.7	)
Change in valuation allowance	1.7		(1.5	)	7.5
State adjustments including audits and settlements	0.2		(0.6	)	4.5
Compensation related tax credits, net of deduction offsets	(4.9	)	(46.0	)	(14.9	)
Changes in tax rates and state tax laws	(3.9	)	—		(6.5	)
Kansas High Performance Incentive Program credits	0.5		—		(7.3	)
Goodwill intangibles adjustment	—		27.0		—
Non-deductible preferred stock issuance costs	—		8.5		—
Other	0.1		(0.8	)	(0.3	)
Effective tax rate	28.4	%	(76.9	)%	14.1	%

Net deferred tax assets (liabilities) consisted of the following components:



	2011			2010
	(In millions)
Differences in capitalization and depreciation and amortization of reacquired franchises and equipment	$	4.9		$	4.9
Differences in acquisition financing costs	1.9			1.9
Employee compensation	14.2			17.1
Deferred gain on sale of assets	2.0			2.0
Book/tax difference in revenue recognition	18.1			16.6
Michigan business tax	—			9.5
Kansas High Performance Incentive Program credits	—			3.2
Other	35.9			37.6
Deferred tax assets	77.0			92.8
Valuation allowance	(2.9		)	(9.6		)
Total deferred tax assets after valuation allowance	74.1			83.2
Differences between financial and tax accounting in the recognition of franchise and equipment sales	(59.4		)	(63.4		)
Differences in capitalization and depreciation (1)	(322.2		)	(325.6		)
Differences in acquisition financing costs	(9.3		)	(0.5		)
Book/tax difference in revenue recognition	(19.8		)	(22.6		)
Differences between book and tax basis of property and equipment	(9.8		)	(8.9		)
Other	(16.8		)	(13.6		)
Deferred tax liabilities	(437.3		)	(434.6		)
Net deferred tax (liabilities)	$	(363.2	)	$	(351.4	)
Net deferred tax asset (liability)—current	$	21.0		$	27.0
Valuation allowance—current	(0.4		)	(2.7		)
Net deferred tax asset (liability)—current	20.6			24.3
Net deferred tax asset (liability)—non current	(381.3		)	(368.8		)
Valuation allowance—non current	(2.5		)	(6.9		)
Net deferred tax asset (liability)—non current	(383.8		)	(375.7		)
Net deferred tax (liabilities)	$	(363.2	)	$	(351.4	)

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(1)	Primarily related to the Applebee's acquisition.

The Company and its subsidiaries file federal income tax returns and income tax returns in various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state or non-United States tax examinations by tax authorities for years before 2007. Applebee's is currently under audit by the United States Internal Revenue Service for the period ended November 29, 2007. The Internal Revenue Service commenced examination of the Company's U.S. federal income tax return for the tax years 2008 to 2010 in the first quarter of 2012. The examination is anticipated to be completed by the first quarter of 2013.

At December 31, 2011, the Company had a liability for unrecognized tax benefit including potential interest and penalties, net of related tax benefit, totaling $8.9 million, of which approximately $2.0 million is expected to be paid within one year. For the remaining liability, due to the uncertainties related to these tax matters, the Company is unable to make a reasonably reliable estimate when a cash settlement with a taxing authority will occur.

The total unrecognized tax benefit as of December 31, 2011 and 2010 was $8.2 million and $12.8 million, respectively, excluding interest, penalties and related income tax benefits. The decrease of $4.6 million is primarily related to settlements with taxing authorities resulting in a decrease in unrecognized tax benefits related to prior year positions. The entire $8.2 million will be included in the Company's effective income tax rate if recognized.

The Company estimates the unrecognized tax benefits may decrease over the upcoming 12 months by an amount up to $2.8 million related to settlements with taxing authorities and the lapse of the statute of limitations. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	(in millions)
Unrecognized tax benefit as of December 31, 2009	$	11.0
Change as a result of prior year tax positions	7.7
Change as a result of current year tax positions	—
Decreases relating to settlements with taxing authorities	(5.6		)
Decreases as a result of a lapse of the statute of limitations	(0.3		)
Unrecognized tax benefit as of December 31, 2010	12.8
Change as a result of prior year tax positions	(3.3		)
Change as a result of current year tax positions	—
Decreases relating to settlements with taxing authorities	(0.8		)
Decreases as a result of a lapse of the statute of limitations	(0.5		)
Unrecognized tax benefit as of December 31, 2011	$	8.2

As of December 31, 2011, the accrued interest and penalties were $3.0 million and $0.3 million, respectively, excluding any related income tax benefits. As of December 31, 2010, the accrued interest and penalties were $8.9 million and $0.5 million, respectively, excluding any related income tax benefits. The decrease of $5.9 million of accrued interest is primarily related to the release of liabilities for unrecognized tax benefits surrounding gift card income deferral as a result of the issuance of new guidance by the U.S. Internal Revenue Service, partially offset by the accrual of interest on the remaining liability for unrecognized tax benefits during the twelve months ended December 31, 2011. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as a component of income tax expense which is recognized in the Consolidated Statements of Operations.

The Company has various state net operating loss carryovers representing $3.4 million of state taxes. The net operating loss carryovers will expire, if unused, during the period from 2012 through 2030.

For the years ended December 31, 2011 and 2010, the Company had a total valuation allowance in the amounts of $2.9 million and $9.6 million, respectively. Of the total $2.9 million in 2011, $1.2 million is related to the Massachusetts enacted legislation requiring unitary businesses to file combined reports and $1.7 million is related to various state net operating loss carryovers for DineEquity, Inc. and International House of Pancakes, LLC and Subsidiaries.