8. Income Taxes

Income tax expense for the two and eight months ended March 23, 2013 is $10 thousand and $1.4 million, respectively. Income tax expense for the three and nine months ended April 28, 2012 is $80 thousand and $0.3 million, respectively. The tax expense is allocated between components of continuing operations, discontinued operations and gain on sale of discontinued operations in accordance with the provisions of Accounting Standards Codification (“ASC”) 740:


	Two months ended March 23, 2013			Three months ended April 28, 2012			Eight months ended March 23, 2013			Nine months ended April 28, 2012
Tax benefit included in continuing operations	$	(4,511	)	$	(220	)	$	(4,356	)	$	(2,444	)
Tax expense included in discontinued operations		134			300			1,385			2,710
Tax expense included in gain on sale of discontinued operations		4,387			—			4,387

Total tax expense continuing and discontinued operations	$	10		$	80		$	1,416		$	266

The $4.5 million and $4.4 million of tax benefits from continuing operations for the two and eight months ended March 23, 2013, respectively, are attributable to the intraperiod allocation of losses from continuing operations to income generated from discontinued operations, for which the losses would not have otherwise been benefitted under ASC 740.

As of April 27, 2013 and July 31, 2012, the Company had a liability of $1.7 million for taxes, interest and penalties for unrecognized tax benefits related to various foreign income tax matters. If recognized, the entire amount would impact the Company’s effective tax rate. During fiscal 2013, it is possible that we may recognize up to $0.2 million of previously unrecognized tax benefits related to various foreign tax positions.

As of April 27, 2013 and July 31, 2012, the Company had $0.5 million accrued for interest and penalties related to uncertain tax positions. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal, international and state income taxes.

The Company is currently open to audit under statutes of limitation by the Internal Revenue Service, various foreign jurisdictions and various state jurisdictions for the fiscal years ended July 31, 2005 through July 31, 2012. However, limited audit adjustments could be made to federal and state tax returns in earlier years resulting in a reduction of net operating loss carryforwards.

As a result of having substantial accumulated net operating losses, the Company determined that it is more likely than not that our deferred tax assets will not be realized. Therefore, we maintain a valuation allowance on the full amount of our net deferred tax assets. If the Company generates future taxable income against which these tax attributes may be applied, the net operating loss carryforwards may be utilized and some or all of the valuation allowance reversed. If the valuation allowance is reversed, portions would be recorded as an increase to paid-in capital and the remainder would be recorded as a reduction in income tax expense.

The occurrence of ownership changes, as defined in Section 382 of the Internal Revenue Code, as amended (the “Code”), is not controlled by the Company, and could significantly limit the amount of net operating loss carryforwards and research and development credits that could be utilized annually to offset future taxable income. The Company completed an updated Section 382 study for the period April 2006 through July 31, 2011 and the results of this study showed that no ownership change within the meaning of the Code had occurred from April 2006 through July 31, 2011.