9. Income Taxes

For the nine months ended September 30, 2013, our effective tax rate was 71.7% compared to (5.9%) for the nine months ended September 30, 2012. The effective tax rates for each period differ from the expected federal statutory rate of 35.0% as a result of state and foreign income taxes, federal and foreign tax credits, certain non-deductible expenses, an adjustment for an uncertain tax position and, for the 2012 period, the recording of a valuation allowance against our federal net operating loss carryforwards (“NOLs”). For 2012, the vast majority of the goodwill impairment charge was not deductible for income tax purposes.

For the nine months ended September 30, 2013 and 2012, our income tax expense differs from the amount that would result from applying the federal statutory rate to our income or loss before income taxes as follows (dollars in thousands):

	Nine Months Ended September 30,
	2013			2012
Federal statutory tax rate	35		%	35		%
Expected tax expense (benefit)	$	747		$	(72,029	)
State and foreign income taxes, net of federal benefit	(463		)	(1,787		)
Non-deductible compensation	440			549
Non-deductible goodwill impairment	—			62,421
Change in uncertain tax positions	1,002			—
Change in valuation allowance	(50		)	23,000
Other	(146		)	(20		)
Provision for income taxes	$	1,530		$	12,134

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than not sustain the position following an audit. For tax positions meeting the more-likely-than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. During the nine months ended September 30, 2013, we recognized a liability for an uncertain tax position in the amount of $1.0 million. Interest and penalties related to uncertain tax positions are recognized in income tax expense. For the nine months ended September 30, 2013, we recognized $0.3 million of interest or penalties related to uncertain tax positions in our financial statements compared to zero for the nine months ended September 30, 2012.

The changes in uncertain tax positions for the nine months ended September 30, 2013 and 2012 were as follows (in thousands):

	Nine Months Ended September 30,
	2013		2012
Balance at beginning of period	$	3,797	$	100
Additions for tax positions related to prior periods	1,002		—
Balance at end of period	$	4,799	$	100

If we reduced our reserve for uncertain tax positions it would result in us recognizing a tax benefit.

As of September 30, 2013, we had NOL carryforwards with a tax-effected carrying value of approximately $32.2 million and $5.3 million for federal and state purposes, respectively, available to offset future taxable income. As of September 30, 2013, we provided a valuation allowance against substantially all of these NOL carryforwards as ultimate realization of the NOLs was not determined to be more-likely-than not. Accordingly, we have NOL carryforwards available to us (should we have sufficient future taxable income to utilize them) that are not reflected in our consolidated balance sheets at September 30, 2013 and December 31, 2012.

We are subject to U.S. federal income tax, income tax from multiple foreign jurisdictions including Israel and the United Kingdom, and income taxes of multiple state jurisdictions. U.S. federal, state and local income tax returns for 2009 through 2012 remain open to examination. Israeli and United Kingdom income tax returns remain open to examination for 2007 through 2011, and 2006 through 2011, respectively.