7. INCOME TAXES

The components of the Company’s income tax expense (benefit) from operations for the year ended December 31, consisted of (in thousands):

	2012			2011		2010
Current:
Federal	$	192		$	396	$	102
State	204			671		92
Deferred:
Federal	(72		)	181		(1,477		)
State	(7		)	16		(210		)
Income tax expense (benefit)	$	317		$	1,264	$	(1,493	)

A reconciliation of income tax expense (benefit) from operations to the federal statutory rate for the year ended December 31 is as follows (in thousands):

	2012			2011			2010

Income taxes computed at federal statutory rate	$	3,367		$	1,810		$	(7,093	)
State income taxes - net of federal benefit	471			826			(516		)
Other differences:
Federal alternative minimum tax	27			396			102
Book (income) loss for pass-through entities not subject to tax	(5,201		)	(4,397		)	9,771
Change in reserve in uncertain tax positions including related interest	-			-			(1,839		)
Increase (decrease) of valuation allowance	1,743			2,432			(2,069		)
Other	(90		)	197			151
Income tax expense (benefit)	$	317		$	1,264		$	(1,493	)

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 and operating loss and tax credit carryforwards. Significant items comprising the net deferred tax asset at December 31 are (in thousands):

	2012			2011
Deferred tax liabilities:
Accelerated depreciation	$	(1,328	)	$	(1,717	)
Prepaid expenses	(434		)	(287		)
Deferred tax gain	(1,476		)	(1,620		)
Other	(88		)	(84		)
	(3,326		)	(3,708		)

Deferred tax assets:
Investment impairment	30,784			30,784
Gift cards	655			592
Deferred revenues	847			1,008
Accrual for employee benefits and severance	504			444
AMT credit	525			498
Net operating loss carryforward	4,555			2,928
Claims reserves	413			379
Intangible assets	342			358
Deferred book gain	1,866			1,997
Other reserves	2,494			2,556
	42,985			41,544

Valuation allowance	(39,580		)	(37,836		)

Net deferred tax assets	$	79		$	-

Effective January 1, 2006, the Company received approval from the Internal Revenue Service for a change in tax status to an S corporation which included AGHC and all its subsidiaries with the exception of Americas Road and Travel, Inc. and Camping World and its wholly-owned subsidiaries, which are Subchapter C corporations. At December 31, 2012, Camping World and its subsidiaries had a net operating loss carryforward of approximately $12.0 million, which will be able to offset future taxable income. If not used, the net operating loss carryforward will expire in 2029 and 2032. The valuation allowance for deferred taxes increased by $1.7 million as the Company’s net deferred tax assets increased during the year and the Company continues to maintain a full valuation allowance as it was determined that the Company would have insufficient taxable income in the current or carryforward periods under the tax laws to realize the future tax benefits of its deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements on a particular tax position are measured based on the largest benefit that has a greater than a 50% likelihood of being realized upon settlement. The amount of unrecognized tax benefits (“UTBs”) is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. At the date of adoption, the Company had $14.2 million of unrecognized tax benefits. Accounting for the unrecognized tax benefits had no affect on current year earnings or retained earnings as the liability had been previously recorded and was reclassified from long-term deferred tax liabilities to other long-term liabilities.

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

	2012		2011		2010
Balance at January 1st	$	-	$	-	$	1,339
Gross increases in unrecognized tax benefits due to prior year positions	-		-		-
Gross decreases in unrecognized tax benefits due to prior year positions	-		-		-
Gross increases in unrecognized tax benefits due to current year positions	-		-		-
Gross decreases in unrecognized tax benefits due to current year positions	-		-		-
Gross decreases in unrecognized tax benefits due to settlements with taxing authorities	-		-		-
Gross decreases in unrecognized tax benefits due to statute expirations	-		-		(1,339		)
Other	-				-
Unrecognized tax benefits at December 31st	$	-	$	-	$	-

The Company accrues interest and penalties related to unrecognized tax benefits in its income tax provision. The Company reversed accrued interest and penalties of $0.5 million related to decreases in unrecognized tax benefits during 2010 due to statute expirations. The amount was included in Other Long-term Liabilities.

The Company and its subsidiaries file income tax returns in the U.S. and various states. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2007.