16. INCOME TAXES

For the years ended September 30, the income tax provision was comprised of the following (in thousands):


	2011		2010			2009
Current provision	$	10,307	$	13,315		$	5,262
Deferred provision (benefit)		2,679		(2,062	)		1,318

	$	12,986	$	11,253		$	6,580

Federal provision	$	12,047	$	8,769		$	5,416
State provision		924		2,484			1,164
Foreign provision		15		—			—

	$	12,986	$	11,253		$	6,580

The reconciliations of the statutory federal tax rate to the Company's effective income tax rates for the years ended September 30 were as follows:


	2011			2010			2009
Statutory federal tax rate		35.0	%		35.0	%		(35.0	)%
State tax rate, net of federal benefit		3.3	%		2.4			1.7
Impact of goodwill impairment		—			—			51.7
(Benefit from) provision for uncertain income tax positions, net of federal effect		(1.5	)		3.1			0.7
Other		(0.7	)		(0.4	)		0.2

		36.1	%		40.1	%		19.3	%

The deferred tax effects of temporary differences giving rise to the Company's net deferred tax assets as of September 30 were as follows (in thousands):


	2011			2010
Deferred tax assets:
Depreciation and amortization	$	1,156		$	2,529
Deferred rent		8,656			9,309
Inventory reserves		685			594
Employee benefit accruals		2,509			2,456
Pension benefits		336			2,157
Stock-based compensation		652			1,420
Other accruals		2,897			2,738
Other		1,378			1,626

		18,269			22,829
Deferred tax liability:
Prepaid expenses		(564	)		(506	)

	$	17,705		$	22,323

No valuation allowance has been provided for the net deferred tax assets. Based on the Company's historical and projected levels of taxable income, management believes it is more likely than not that the Company will realize the net deferred tax assets as of September 30, 2011. There can be no assurance that the Company will generate taxable earnings or any specific level of earnings in the future.

The Company does not record state tax benefits associated with temporary differences for certain states in which it is operating, given the continued historical uncertainty related to realizing such state tax benefits. Had the state tax benefits been reflected for these states, the deferred tax assets (excluding state net operating loss carryforwards) as of September 30, 2011 would be approximately $702,000 higher.

The accounting standard for uncertain income tax positions clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements and also contains guidance on the measurement of uncertain tax positions.

A reconciliation of gross unrecognized tax benefits for uncertain tax positions follows (in thousands):


	2011			2010			2009
Balance at beginning of year	$	3,830		$	2,600		$	2,279
Additions for current year tax positions		203			1,147			257
Additions for prior year tax positions		154			485			143
Reductions of prior year tax positions		(1,104	)		(402	)		(79	)
Settlements		(492	)		—			—

Balance at end of year	$	2,591		$	3,830		$	2,600

As of September 30, 2011, gross unrecognized tax benefits included accrued interest and penalties of $1,244,000. During fiscal 2011, 2010 and 2009, interest and penalties of $(386,000), $605,000, and $188,000, respectively, related to unrecognized tax benefits, were included in income tax provision. If recognized, the portion of the liability for unrecognized tax benefits that would impact the Company's effective tax rate was $1,827,000, net of federal tax benefit.

During the twelve months subsequent to September 30, 2011, it is reasonably possible that the gross unrecognized tax benefits could potentially increase by approximately $605,000 (of which approximately $419,000 would affect the effective tax rate, net of federal benefit) for uncertain tax positions, including the continued effect of interest on unrecognized tax benefits and limitations on certain potential tax credits, partially offset by the effect of expiring statutes of limitations and settlements.

The Company's United States Federal income tax returns for the years ended September 30, 2008 and thereafter remain subject to examination by the United States Internal Revenue Service. The Company also files returns in Canada, India and numerous state jurisdictions, which have varying statutes of limitations. Generally, Canadian tax returns for tax years ended September 30, 2007 and thereafter, Indian tax returns for tax years ended March 31, 2009 and thereafter, and state tax returns for tax years ended September 30, 2007 and thereafter, depending upon the jurisdiction, remain subject to examination. However, the statutes of limitations on certain of the Company's state returns remain open for tax years prior to fiscal 2007.