11.

INCOME TAXES

Income tax expense is comprised of the following components (in thousands):


	For the Years Ended December 31,
	2012			2011		2010
Current income tax expense
Federal	$	75,940		$	71,230	$	63,056
State		5,885			6,466		5,506

		81,825			77,696		68,562

Deferred income tax expense
Federal		8,576			17,167		24,035
State		(2,815	)		2,154		2,168

		5,761			19,321		26,203

Income tax expense	$	87,586		$	97,017	$	94,765

The current income tax expense for 2012, 2011, and 2010 is net of $0.1 million, $0.9 million, and $0.8 million, respectively, of tax benefits of operating loss carryforwards.

Significant components of CCA’s deferred tax assets and liabilities as of December 31, 2012 and 2011, are as follows (in thousands):


	December 31,
	2012			2011
Current deferred tax assets:
Asset reserves and liabilities not yet deductible for tax	$	12,198		$	14,350

Net current deferred tax assets		12,198			14,350

Current deferred tax liabilities:
Other		(4,176	)		(2,582	)

Net total current deferred tax assets	$	8,022		$	11,768

Noncurrent deferred tax assets:
Asset reserves and liabilities not yet deductible for tax	$	24,392		$	21,145
Tax over book basis of certain assets		13,994			17,347
Net operating loss and tax credit carryforwards		8,843			9,095
Other		261			874

Total noncurrent deferred tax assets		47,490			48,461
Less valuation allowance		(2,655	)		(2,862	)

Net noncurrent deferred tax assets		44,835			45,599

Noncurrent deferred tax liabilities:
Book over tax basis of certain assets		(184,334	)		(182,084	)
Other		(27	)		(18	)

Total noncurrent deferred tax liabilities		(184,361	)		(182,102	)

Net total noncurrent deferred tax liabilities	$	(139,526	)	$	(136,503	)

Deferred income taxes reflect the available net operating losses and tax credit carryforwards and the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including CCA’s past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of its deferred tax assets, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.

The tax benefits associated with equity-based compensation reduced income taxes payable by $2.6 million, $1.8 million, and $3.8 million during 2012, 2011, and 2010, respectively. Such benefits were recorded as increases to stockholders’ equity.

A reconciliation of the income tax provision at the statutory income tax rate and the effective tax rate as a percentage of income from continuing operations before income taxes for the years ended December 31, 2012, 2011, and 2010 is as follows:


	2012			2011			2010
Statutory federal rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal tax benefit		1.0			2.6			2.7
Permanent differences		0.7			0.5			0.7
Change in valuation allowance		0.0			0.1			(0.1	)
Changes in tax contingencies		0.0			(0.1	)		0.0
Other items, net		(0.9	)		(0.9	)		(0.9	)

		35.8	%		37.2	%		37.4	%

CCA has approximately $3.6 million in net operating losses applicable to various states that it expects to carryforward in future years to offset taxable income in such states. CCA has a valuation allowance of $0.6 million for the estimated amount of the net operating losses that will expire unused. In addition, CCA has $5.2 million of state tax credits applicable to various states that it expects to carry forward in future years to offset taxable income in such states. CCA has a $1.6 million valuation allowance related to state tax credits that are expected to expire unused. These net operating losses and state tax credits expire at various dates through 2020. Although CCA’s estimate of future taxable income is based on current assumptions that it believes to be reasonable, CCA’s assumptions may prove inaccurate and could change in the future, which could result in the expiration of additional net operating losses or credits. CCA would be required to establish a valuation allowance at such time that it no longer expected to utilize these net operating losses or credits, which could result in a material impact on its results of operations in the future.

CCA’s effective tax rate was 35.8%, 37.2%, and 37.4% during 2012, 2011, and 2010, respectively. CCA’s effective tax rate was lower in 2012 as a result of the revaluation of certain deferred tax assets and liabilities which resulted in a net tax benefit of $2.9 million caused by the internal reorganization of our corporate structure as of December 31, 2012 to facilitate our ability to qualify as a REIT for federal income tax purposes effective for our taxable year beginning January 1, 2013. CCA’s overall effective tax rate is estimated based on CCA’s current projection of taxable income and could change in the future as a result of changes in these estimates, the implementation of additional tax planning strategies, changes in federal or state tax rates, changes in estimates related to uncertain tax positions, or changes in state apportionment factors, as well as changes in the valuation allowance applied to CCA’s deferred tax assets that are based primarily on the amount of state net operating losses and tax credits that could expire unused.

CCA had no liabilities for uncertain tax positions as of December 31, 2012 and 2011. CCA recognizes interest and penalties related to unrecognized tax positions in income tax expense. CCA does not currently anticipate that the total amount of unrecognized tax positions will significantly increase or decrease in the next twelve months.

CCA’s U.S. federal income tax returns for tax years 2009 and beyond remain subject to examination by the Internal Revenue Service (“IRS”). All states in which CCA files income tax returns follow the same statute of limitations as federal, with the exception of the following states whose open tax years include December 31, 2008 through December 31, 2011: Arizona, California, Colorado, Kentucky, Michigan, Minnesota, New Jersey, Texas, and Wisconsin.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:


Unrecognized Benefit January 1, 2011	$	98
Decreases from Prior Period Tax Positions		—
Increases from Current Period Tax Positions		—
Decreases Related to Settlements of Tax Positions		—
Decreases Due to Lapse of Statute of Limitations		(98	)

Unrecognized Benefit December 31, 2011	$	—
Decreases from Prior Period Tax Positions		—
Increases from Current Period Tax Positions		—
Decreases Related to Settlements of Tax Positions		—
Decreases Due to Lapse of Statute of Limitations		—

Unrecognized Benefit December 31, 2012	$	—

As discussed in Note 1, the Company plans to begin operating as a REIT for federal income tax purposes effective January 1, 2013. The success of such plan remains subject to the payment of the Company’s accumulated earnings and profits (for which to distribute the expected portion in cash is dependent on certain debt modifications) and compliance with general income and asset tests. As a result of CCA’s intention to elect to be taxed as a REIT effective January 1, 2013, it expects to record during 2013 a significant net tax benefit for the revaluation of certain deferred tax assets and liabilities based on the revised expected effective tax rate as a REIT. The tax accounting associated with being taxed as a REIT could also result in a portion of the NOL’s and tax credits being reserved.