12. Taxes

The Company is subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. The tax years 2005 through 2011 remain open to examination for U.S. federal income tax matters and 1998 through 2011 remain open to examination for various state income tax matters.

Significant components of the provision for (benefit from) income taxes are as follows:


	Year Ended December 31
	2011	2010	2009
	(In thousands)
Current:
Federal	$ (20,164)	$ 34,304	$ 21,295
State	1,212	2,283	864
Total current	(18,952)	36,587	22,159
Deferred:
Federal	13,214	(18,506)	(39,492)
State	(1,851)	(367)	558
Total deferred	11,363	(18,873)	(38,934)
	$ (7,589)	$ 17,714	$ (16,775)

A reconciliation of the statutory federal income tax expense on the Company's pretax income to the actual provision for (benefit from) income taxes follows:


	Year Ended December 31
	2011	2010	2009
	(In thousands)
Income tax expense at statutory rate	$ 46,933	$ 61,800	$ 8,888
Percentage depletion allowance	(61,971)	(49,152)	(29,463)
State taxes, net of effect of federal taxes	(3,055)	2,299	(61)
Change in valuation allowance	2,416	(383)	725
Other, net	8,088	3,150	3,136
	$ (7,589)	$ 17,714	$ (16,775)

In 2011, 2010 and 2009, compensatory stock options and other equity based compensation awards were exercised resulting in a tax expense (benefit) of $(0.4) million, $(0.8) million and $0.2 million, respectively. The tax benefit will be recorded in paid-in capital at such point in time when a cash tax benefit is recognized.

Significant components of the Company's deferred tax assets and liabilities that result from carryforwards and temporary differences between the financial statement basis and tax basis of assets and liabilities are summarized as follows:


	December 31
	2011	2010
	(In thousands)
Deferred tax assets:
Alternative minimum tax credit carryforwards	$ 151,404	$ 170,592
Net operating loss carryforwards	324,393	102,355
Reclamation and mine closure	93,914	71,533
Advance royalties	—	38,557
Plant and equipment	—	19,846
Acquired sales contracts	44,717	20,120
Other, primarily accrued liabilities	171,715	90,412
Gross deferred tax assets	786,143	513,415
Valuation allowance	(2,831)	(737)
Total deferred tax assets	783,312	512,678
Deferred tax liabilities
Plant and equipment	1,566,769	—
Deferred development	67,728	76,690
Investment in tax partnerships	66,502	68,538
Other	17,015	13,669
Total deferred tax liabilities	1,718,014	158,897
Net deferred tax asset (liability)	(934,702)	353,781
Current asset (liability)	42,051	(7,775)
Non-current deferred tax asset (liability)	$ (976,753)	$ 361,556

The Company has federal net operating loss carryforwards for regular income tax purposes of $779.1 million at December 31, 2011 that will expire between 2012 and 2031. The Company has an alternative minimum tax credit carryforward of $151.4 million at December 31, 2011, which has no expiration date and can be used to offset future regular tax in excess of the alternative minimum tax.

During 2008, the Company reached a settlement with the IRS regarding the Company's treatment of the acquisition of the coal operations of Atlantic Richfield Company ("ARCO") and the simultaneous combination of the acquired ARCO operations and the Company's Wyoming operations into the Arch Western joint venture. The settlement did not result in a net change in deferred tax assets, but involved a re-characterization of deferred tax assets, including an increase in net operating loss carryforwards of $145.1 million and other amortizable assets which will provide additional tax deductions through 2013. A portion of these future cash tax benefits accrue to ARCO pursuant to the original purchase agreement, including $0.8 million, $1.3 million and $4.8 million paid in 2011, 2010 and 2009, respectively, that was recorded as goodwill.

The Company has recorded a valuation allowance for a portion of its deferred tax assets that management believes, more likely than not, will not be realized. Management reassesses the ability to realize its deferred tax assets annually in the fourth quarter or when circumstances indicate that the ability to realize deferred tax assets has changed. In determining the appropriate valuation allowance, the assessment takes into account expected future taxable income and available tax planning strategies. This review resulted in increases (decreases) in the valuation allowance of $2.1 million, $(0.4) million and $0.7 million in 2011, 2010 and 2009, respectively. The valuation allowance relates to certain state and foreign net operating loss benefits.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows (in thousands):

Balance at January 1, 2009	$ 4,878
Additions based on tax positions related to the current year	1,593
Additions for tax positions of prior years	205
Reductions for tax positions of prior years	(6)
Balance at December 31, 2009	6,670
Additions based on tax positions related to the current year	1,493
Additions for tax positions of prior years	85
Reductions for tax positions of prior years	(3,830)
Balance at December 31, 2010	4,418
Additions based on tax positions related to the current year	1,626
Additions for tax positions of prior years	2,754
Balance at December 31, 2011	$ 8,798

If recognized, the entire amount of the gross unrecognized tax benefits at December 31, 2011 would affect the effective tax rate.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The Company had accrued interest and penalties of $0.8 million and $0.6 million at December 31, 2011 and 2010, respectively, of which $0.2 million and $0.1 million was recognized as expense during 2011 and 2010, respectively. No gross unrecognized tax benefits are expected to be reduced in the next 12 months due to the expiration of the statute of limitations.