. Taxes

The Company is subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. The tax years 2006 through 2012 remain open to examination for U.S. federal income tax matters and 1998 through 2012 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
	2012			2011			2010
	(In thousands)
Current:
Federal	$	(20,022	)	$	(20,164	)	$	34,304
State	575			1,212			2,283
Total current	(19,447		)	(18,952		)	36,587
Deferred:
Federal	(322,104		)	13,214			(18,506		)
State	7,834			(1,851		)	(367		)
Total deferred	(314,270		)	11,363			(18,873		)
	$	(333,717	)	$	(7,589	)	$	17,714

A reconciliation of the statutory federal income tax provision (benefit) at the statutory rate to the actual provision for (benefit from) income taxes follows:



	Year Ended December 31
	2012			2011			2010
	(In thousands)
Income tax provision (benefit) at statutory rate	$	(356,185	)	$	46,933		$	61,800
Percentage depletion allowance	(40,698		)	(61,971		)	(49,152		)
Goodwill	56,916			—			—
State taxes, net of effect of federal taxes	(23,423		)	(3,055		)	2,299
Change in valuation allowance	31,832			2,416			(383		)
Other, net	(2,159		)	8,088			3,150
	$	(333,717	)	$	(7,589	)	$	17,714

In 2012, 2011 and 2010, compensatory stock options and other equity based compensation awards were exercised resulting in a tax expense (benefit) of $0.3 million, $(0.4) million and $(0.8) 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
	2012			2011
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	496,330		$	324,393
Alternative minimum tax credit carryforwards	150,014			151,404
Reclamation and mine closure	104,570			93,914
Goodwill	43,839			—
Acquired sales contracts	38,735			44,717
Workers' compensation	32,241			26,266
Retiree benefit plans	32,087			24,456
Other, primarily accrued liabilities	113,777			120,993
Gross deferred tax assets	1,011,593			786,143
Valuation allowance	(34,663		)	(2,831		)
Total deferred tax assets	976,930			783,312
Deferred tax liabilities:
Plant and equipment	1,411,446			1,566,769
Deferred development	77,013			67,728
Investment in tax partnerships	72,513			66,502
Other	12,780			17,015
Total deferred tax liabilities	1,573,752			1,718,014
Net deferred tax asset (liability)	(596,822		)	(934,702		)
Current asset (liability)	67,360			42,051
Non-current deferred tax asset (liability)	$	(664,182	)	$	(976,753	)

The Company has federal net operating loss carryforwards for regular income tax purposes of $1.3 billion at December 31, 2012 that will expire between 2024 and 2032. The Company has an alternative minimum tax credit carryforward of $150.0 million at December 31, 2012, 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 cash tax benefits accrued to ARCO pursuant to the original purchase agreement, including $0.8 million and $1.3 million paid in 2011 and 2010, 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. This review resulted in increases (decreases) in the valuation allowance of $31.8 million, $2.1 million and $(0.4) million in 2012, 2011 and 2010, 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 follows:



	(In thousands)
Balance at January 1, 2010	$	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
Additions based on tax positions related to the current year	409
Additions for tax positions of prior years	21,943
Balance at December 31, 2012	$	31,150

If recognized, the entire amount of the gross unrecognized tax benefits at December 31, 2012 would affect the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued interest and penalties of $1.0 million and $0.8 million at December 31, 2012 and 2011, respectively, of which $0.2 million was recognized as expense during 2012 and 2011. No gross unrecognized tax benefits are expected to be reduced in the next 12 months due to the expiration of the statute of limitations.