Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

13. Income Taxes

The Company recorded an income tax benefit of $13 for the nine months ended September 30, 2011. The tax benefit for the nine months ended September 30, 2011 differs from the statutory rate of 34% by approximately 30% primarily because of the noncontrolling interest in PCTEL Secure, as well as a rate change for deferred taxes recorded as a discrete item in the first quarter of 2011.

The Company recorded an income tax benefit of $1.6 million for the nine months ended September 30, 2010. This tax benefit for the nine months ended September 30, 2010 differs from the statutory rate of 34% by approximately 2% because of permanent tax differences and state and foreign taxes.

The Company’s valuation allowance against its deferred tax assets was $0.7 million at September 30, 2011 and December 31, 2010. On a regular basis, management evaluates the recoverability of deferred tax assets and the need for a valuation allowance. Such evaluations involve the application of significant judgment. Management considers multiple factors in its evaluation of the need for a valuation allowance. The Company has incurred a cumulative taxable loss from continuing operations exclusive of reversing temporary differences over the three years ended December 31, 2010. However, this period includes the effect of a worldwide economic recession, which in the Company’s judgment is an unusual event. Since a majority of the Company’s deferred tax assets relate to tax over book basis in intangibles, the Company’s deferred tax assets have a ratable reversal pattern over the asset’s 15 year tax life. The carryforward rules allow for up to a 20 year carry forward of net operating losses (“NOL”) to future income that is available to realize the deferred tax assets. And, the Company’s estimate of future income over the reversal period and subsequent carry forward period is sufficient to realize the deferred tax assets. Based on the evaluation of these factors taken as a whole, the Company believes that the positive evidence in the form of the ratable 15 year reversal pattern, 20 year NOL carryforward period, and its estimate of future income, outweigh the negative evidence of a cumulative taxable loss from continuing operations exclusive of reversing temporary differences over the last three years, which includes a worldwide recession. Therefore, the Company believes that the net deferred tax asset exclusive of the credits and state net operating losses is more likely than not to be realized.

The Company’s gross unrecognized tax benefit was $1.2 million both at September 30, 2011 and December 31, 2010.

The Company files a consolidated federal income tax return, income tax returns with various states, and foreign income tax returns in various foreign jurisdictions. The Company’s federal and state income tax years, with limited exceptions, are closed through 2007. The Company does not believe that any of its tax positions will significantly change within the next twelve months.

PCTEL Secure is a pass-through entity for income tax purposes. The Company will recognize its share of PCTEL Secure’s taxable income or loss based on its ownership interest. The Company has not recorded a tax benefit relating to the noncontrolling interest in PCTEL Secure.

The Company classifies interest and penalties associated with the uncertain tax positions as a component of income tax expense. There was no interest or penalties related to income taxes recorded in the condensed consolidated financial statements.