6. INCOME TAXES

Income tax provision (benefit) related to continuing operations consist of:

	Years Ended

(in thousands)	December 30, 2012			December 25, 2011			December 26, 2010
Current:
Federal	$	4,701		$	28,913		$	26,625
State		(16,535	)		(1,553	)		4,999
Deferred:
Federal		(4,701	)		(3,316	)		(16,672	)
State		(4,847	)		(15,648	)		(9,351	)

Income tax provision	$	(21,382	)	$	8,396		$	5,601

The effective tax rate expense (benefit) for continuing operations and the statutory federal income tax rate are reconciled as follows:

	Years Ended

(in thousands)	December 30, 2012			December 25, 2011			December 26, 2010
Statutory rate		(35.0	)%		35.0%			35.0%
State taxes, net of federal benefit		7.7			0.3			0.5
Changes in estimates		0.2			0.6			2.9
Changes in unrecognized tax benefits		(56.3	)		(13.6	)		(7.6	)
Settlements		(32.6	)		(10.4	)		(19.5	)
Other		4.0			1.5			3.2
Stock compensation		12.7			–			–

Effective tax rate		(99.3	)%		13.4%			14.5%

The components of deferred tax assets and liabilities consisted of the following:

(in thousands)	December 30, 2012			December 25, 2011

Deferred tax assets:
Compensation benefits	$	308,392		$	228,367
State taxes		4,984			17,500
State loss carryovers		5,815			10,759
Other		5,280			6,065

Total deferred tax assets		324,471			262,691
Valuation allowance		(4,110	)		(9,514	)

Net deferred tax assets		320,361			253,177
Deferred tax liabilities:
Depreciation and amortization		233,214			258,957
Investments in unconsolidated subsidiaries		64,317			65,604
Debt discount		15,059			18,114
Deferred gain on debt		33,084			33,193

Total deferred tax liabilities		345,674			375,868

Net deferred tax liabilities	$	25,313		$	122,691

The valuation allowance relates to state net operating loss and capital carryovers. It decreased by $5.4 million in fiscal year 2012 and decreased by $5.2 million during 2011.

We have varying amounts of net operating loss totaling approximately $264.2 million and capital loss carryovers totaling approximately $1.7 million in several states. The net operating losses expire in various years between 2020 and 2032 if not used. The capital loss carryovers will expire in 2013 if not used prior to that time. We have approximately $1.3 million of state tax credit carryovers which do not expire.

As of December 30, 2012, we had approximately $12.1 million of long-term liabilities relating to uncertain tax positions consisting of approximately $8.6 million in gross unrecognized tax benefits (primarily state tax positions before the offsetting effect of federal income tax) and $3.5 million in gross accrued interest and penalties. If recognized, substantially all of the net unrecognized tax benefits would impact the effective tax rate. It is reasonably possible that a reduction of up to $5.8 million of unrecognized tax benefits and related interest may occur within the next 12 months as a result of the closure of certain audits and the expiration of statutes of limitations. Net accrued interest and penalties at December 30, 2012, December 25, 2011, and December 26, 2010, were approximately $2.5 million, $15.5 million and $21.0 million, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits consists of the following:

	Years Ended

(in thousands)	December 30, 2012			December 25, 2011			December 26, 2010
Balance at beginning of fiscal year	$	30,463		$	51,992		$	53,359
Increases based on tax positions in prior year		–			1,409			7,529
Decreases based on tax positions in prior year		(9,933	)		(13,475	)		(1,148	)
Increases based on tax positions in current year		745			2,213			1,811
Settlements		(643	)		–			(784	)
Lapse of statute of limitations		(11,983	)		(11,676	)		(8,775	)

Balance at end of fiscal year	$	8,649		$	30,463		$	51,992

As of December 30, 2012, the following tax years and related taxing jurisdictions were open:

Taxing Jurisdiction	Open Tax Year	Years Under Exam

Federal	2009-2012
Oregon	2006-2012	2006-2008
Florida	2009-2012	2009-2010
Washington, D.C.	2006, 2009-2012	2006
New York	2008-2012	2008-2011
Illinois	2008-2012	2008-2009
California	2008-2012	2009-2010
Other States	2006-2012