Income Taxes

The following table provides a reconciliation of the Company’s effective tax rate from the federal statutory tax rate for the fiscal years ended October 31, 2013, 2012 and 2011 ($ amounts in thousands).



	2013				2012				2011
	$		%*		$		%*		$		%*
Federal tax provision (benefit) at statutory rate	93,694		35.0		39,530		35.0		(10,278	)	35.0
State tax provision (benefit), net of federal benefit	11,363		4.2		4,711		4.2		(954	)	3.2
Reversal of accrual for uncertain tax positions	(5,580	)	(2.1	)	(34,167	)	(30.3	)	(52,306	)	178.1
Accrued interest on anticipated tax assessments	3,704		1.4		5,000		4.4		3,055		(10.4	)
Increase in unrecognized tax benefits			—		5,489		4.9				—
Increase in deferred tax assets, net	(4,914	)	(1.8	)			—		(25,948	)	88.4
Valuation allowance — recognized	3,232		1.2				—		43,876		(149.4	)
Valuation allowance — reversed	(4,569	)	(1.7	)	(394,718	)	(349.5	)	(25,689	)	87.5
Other	161		0.1		(49	)	—		(917	)	3.1
Income tax provision (benefit)*	97,091		36.3		(374,204	)	(331.3	)	(69,161	)	235.5



*	Due to rounding, amounts may not add.

The Company currently operates in 19 states and is subject to various state tax jurisdictions. The Company estimates its state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction and the Company’s ability to utilize certain tax-saving strategies. Based on the Company's estimate of the allocation of income or loss among the various taxing jurisdictions and changes in tax regulations and their impact on the Company’s tax strategies, the Company estimated its rate for state income taxes at 6.5%, 6.5% and 5.0% in fiscal 2013, 2012 and 2011.

The following table provides information regarding the provision (benefit) for income taxes for each of the fiscal years ended October 31, 2013, 2012 and 2011 (amounts in thousands).



	2013		2012			2011
Federal	$	93,451	$	(329,277	)	$	(21,517	)
State	3,640		(44,927		)	(47,644		)
	$	97,091	$	(374,204	)	$	(69,161	)

Current	$	23,209	$	(21,296	)	$	(43,212	)
Deferred	73,882		(352,908		)	(25,949		)
	$	97,091	$	(374,204	)	$	(69,161	)

In November 2009, the Worker, Homeownership, and Business Assistance Act of 2009 was enacted into law which allowed the Company to carry back its fiscal 2010 taxable loss against taxable income reported in fiscal 2006 and receive a federal tax refund in its second quarter of fiscal 2011 of $154.3 million. The tax losses generated in fiscal 2010 were primarily from the recognition for tax purposes of previously recognized book impairments and the recognition of stock option expenses recognized for book purposes in prior years.

The following table provides a reconciliation of the change in the unrecognized tax benefits for the years ended October 31, 2013, 2012 and 2011 (amounts in thousands).



	2013			2012			2011
Balance, beginning of year	$	80,991		$	104,669		$	160,446
Increase in benefit as a result of tax positions taken in prior years	5,699			5,000			8,168
Increase in benefit as a result of tax positions taken in current year				5,489
Decrease in benefit as a result of settlements							(17,954		)
Decrease in benefit as a result of completion of audits				(1,782		)	(33,370		)
Decrease in benefit as a result of lapse of statute of limitation	(8,585		)	(32,385		)	(12,621		)
Balance, end of year	$	78,105		$	80,991		$	104,669

The statute of limitation has expired on the Company's federal tax returns for fiscal years through 2009.

The Company’s unrecognized tax benefits are included in “Income taxes payable” on the Company’s consolidated balance sheets. If these unrecognized tax benefits reverse in the future, they would have a beneficial impact on the Company’s effective tax rate at that time. During the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will change but we are not able to provide a range of such change. The anticipated changes will be principally due to the expiration of tax statutes, settlements with taxing jurisdictions, increases due to new tax positions taken and the accrual of estimated interest and penalties.

The Company recognizes in its tax provision (benefit), potential interest and penalties. The following table provides information as to the amounts recognized in its tax provision (benefit), before reduction for applicable taxes and reversal of previously accrued interest and penalties, of potential interest and penalties in the twelve-month periods ended October 31, 2013, 2012 and 2011, and the amounts accrued for potential interest and penalties at October 31, 2013 and 2012 (amounts in thousands).



Expense recognized in statements of operations
Fiscal year
2013	$	5,699
2012	$	5,000
2011	$	4,700



Accrued at:
October 31, 2013	$	28,362
October 31, 2012	$	24,906

The amounts accrued for interest and penalties are included in “Income taxes payable” on the Company’s consolidated balance sheets.

The components of net deferred tax assets and liabilities at October 31, 2013 and 2012 are set forth below (amounts in thousands).



	2013			2012
Deferred tax assets:
Accrued expenses	$	53,992		$	56,598
Impairment charges	262,346			319,818
Inventory valuation differences	28,448			30,424
Stock-based compensation expense	48,014			44,336
Amounts related to unrecognized tax benefits	35,603			36,934
State tax, net operating loss carryforward	55,763			50,006
Federal tax net operating loss carryforward				25,170
Other	20,369			21,345
Total assets	504,535			584,631
Deferred tax liabilities:
Capitalized interest	100,514			102,713
Deferred income	7,388			7,784
Expenses taken for tax purposes not for book	29,257			36,811
Depreciation	4,548			3,994
Deferred marketing	21,089			18,229
Total liabilities	162,796			169,531
Net deferred tax assets before valuation allowances	341,739			415,100
Cumulative valuation allowance - state	(55,707		)	(57,044		)
Net deferred tax assets	$	286,032		$	358,056

As of October 31, 2012, the Company reclassed $1.1 million of deferred tax assets from accrued expenses to inventory valuation differences and $1.2 million of deferred tax liabilities from other to deferred income. These amounts were reclassified to conform to the fiscal 2013 presentation.

Since the beginning of fiscal 2007, the Company recorded significant deferred tax assets as a result of the recognition of inventory impairments and impairments of investments in and advances to unconsolidated entities. In accordance with GAAP, the Company assessed whether a valuation allowance should be established based on its determination of whether it is “more likely than not” that some portion or all of the deferred tax assets would not be realized. In fiscal 2009, the Company recorded valuation allowances against its deferred tax assets due to its belief that the continued downturn in the housing market, the uncertainty as to its length and magnitude, the Company's continued recognition of impairment charges, and its operating losses were significant negative evidence of the need for a valuation allowance against its net deferred tax assets.

At October 31, 2012, the Company considered the need for a valuation allowance against its deferred tax assets considering all available and objectively verifiable positive and negative evidence. That evidence principally consisted of (i) an indication that the events and conditions that gave rise to significant losses in prior years were unlikely to recur in the foreseeable future, (ii) a return to profitability in fiscal 2012 together with expectations of continuing profitability in fiscal 2013, supported by existing backlog, and beyond, and (iii) the term of the statutory operating loss carry-forward periods provide evidence that it is more likely than not that these deferred tax assets will be realized. At October 31, 2012, the Company determined that the valuation allowance on its federal deferred tax assets and certain state valuation allowances were no longer needed. Accordingly, in fiscal 2012, the Company reversed a valuation allowance in the amount of $394.7 million; this has been reported as a component of income tax provision (benefit) in the accompanying Consolidated Statements of Operations. During fiscal 2013, the Company continued to re-evaluate the need for its remaining state valuation allowance and updated its fiscal 2012 analysis. Based upon the Company's better than forecasted operating results in fiscal 2013, its significantly higher backlog at October 31, 2013 and improved forecast of results of operations in fiscal 2014, it reversed an additional $4.6 million of state deferred tax asset valuation allowance in fiscal 2013. The Company will continue to review its deferred tax assets in accordance with ASC 740. The remaining valuation allowance at October 31, 2013 of $55.7 million relates to deferred tax assets in states that had not met the “more-likely-than-not” realization threshold criteria.

At October 31, 2013, the Company expects to utilize all prior year federal tax loss carryforwards resulting from losses incurred for federal income tax purposes during fiscal years 2011 and 2012 on its fiscal 2013 federal income tax return.

We file tax returns in the various states in which we do business. Each state has its own statutes regarding the use of tax loss carryforwards. Some of the states in which we do business do not allow for the carryforward of losses while others allow for carryforwards for 5 years to 20 years.