NOTE 20. Income Taxes

The components of income tax expense/(benefit) from continuing operations reflected in the Consolidated Statements of Operations are set forth below for the years ended December 31:

(In thousands)	2012			2011			2010

Federal
Current	$	(3,649	)	$	(1,494	)	$	3,209
Deferred		21,208			3,029			(10,985	)
State and local
Current		(893	)		(457	)		3,276
Deferred		7,936			1,129			(5,278	)

Total income tax expense/(benefit) from continuing operations	$	24,602		$	2,207		$	(9,778	)

A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate is set forth below for the years ended December 31:

(In thousands)	2012			2011			2010

Federal statutory rate—35%	$	(18,673	)	$	(21,657	)	$	(9,024	)
(Decrease)/increase of deferred tax asset valuation allowance		33,261			—			—
Goodwill impairment		7,383			24,172			—
Compensation		3,734			44			(565	)
Change in estimated state tax rates		(656	)		530			281
Meals and entertainment		230			222			250
Provision to return adjustments		(102	)		(1,474	)		645
State and local income taxes, net of federal income taxes		(97	)		715			(1,797	)
Uncertain tax positions		(36	)		334			(1,205	)
Gain on bargain purchase—ClearPoint acquisition		—			(816	)		—
Series B Preferred Stock dividends		—			—			1,012
Loss on extinguishment of Series B Preferred Stock		—			—			563
Other		(442	)		137			62

Total income tax expense/(benefit) from continuing operations	$	24,602		$	2,207		$	(9,778	)

The deferred tax assets and liabilities consisted of the following at December 31:

(In thousands)	2012			2011

Deferred tax assets, net
Net operating loss carryforwards	$	18,747		$	9,733
Stock-based compensation		12,061			17,259
Accrued liabilities		2,230			3,520
Investments		(863	)		(2,252	)
Uncertain tax positions		831			831
Fixed assets		(337	)		732
Intangible assets		(823	)		(645	)
Deferred revenues		92			(33	)
Other		1,323			1,621

Total net deferred tax asset before valuation allowance		33,261			30,766
Less: valuation allowance		(33,261	)		—

Total deferred tax assets, net of valuation allowance	$	—		$	30,766

Deferred tax liabilities
State effect of intangible assets	$	—			(363	)
State effect of investments		—			(890	)
Other		—			(369	)

Total deferred tax liabilities	$	—		$	(1,622	)

During the year ended December 31, 2012, the Company established a valuation allowance against its deferred tax assets. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence can be objectively verified. GAAP states that a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed against deferred tax assets. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses.

The Company entered a three-year cumulative loss position during the year ended December 31, 2012. This cumulative loss position, along with other evidence, merited the establishment of a valuation allowance against the deferred tax assets. A sustained period of profitability is required before the Company would change its judgment regarding the need for a valuation allowance against its net deferred tax assets.

At December 31, 2012, the Company had federal net operating loss carryforwards of $46 million, which expire between 2023 and 2032. These net operating loss carryforwards have been reduced by the impact of an annual limitation described in the Internal Revenue Code Section 382. In general, the Internal Revenue Code Section 382 places an annual limitation on the use of certain tax attributes such as net operating losses. The annual limitation arose as a result of an ownership change which occurred on September 21, 2007. For state and local tax purposes, the Company's net operating loss carryforwards have expiration periods between 1 and 20 years and are also subject to various apportionment factors and limitations on utilization.

The following table summarizes the activity related to the Company's unrecognized tax benefits:

(In thousands)

Balance—December 31, 2010	$	3,273
Gross increases related to current year's tax positions		278

Balance—December 31, 2011	$	3,551

Decreases related to settlements		(184	)
Decreases related to expiration of statute of limitations		(133	)
Gross increases related to current year's tax positions		285

Balance—December 31, 2012	$	3,519

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate are $2.4 million. We currently anticipate that total unrecognized tax benefits will decrease by up to $2.3 million in the next twelve months, a portion of which will affect the effective tax rate, primarily as a result of the settlement of tax examinations.

The Company recognizes interest and penalties as a component of income tax expense. During the years ended December 31, 2012, 2011 and 2010, the Company recognized $0.4 million, $0.2 million and $0.3 million, respectively, of interest expense as a component of income tax expense. The Company had approximately $0.7 million and $0.4 million for the payment of interest and penalties accrued at December 31, 2012 and 2011, respectively.

The Company is subject to U.S. federal income tax as well as income tax of multiple state and local jurisdictions. As of December 31, 2012, with few exceptions, the Company was no longer subject to U.S. federal tax or state and local income tax examinations for years before 2006. The Company began audits with the Internal Revenue Service and New York State in 2012. The Company has an ongoing audit with Massachusetts.