(7) Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company includes interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses.

Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s use of its federal net operating loss (“NOL”) carryforwards may be limited if the Company experiences an ownership change, as defined in Section 382. Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization. As of December 31, 2011, the Company had approximately $7,279 of federal NOL carryforwards available to offset future taxable income. Included in this amount is $6,124 of federal NOL carryovers from the Company’s acquisition of Proficient. These carryforwards expire in various years through 2027.

The domestic and foreign components of income before provision for income taxes consist of the following:


	Year Ended December 31,
	2011		2010		2009
United States	$	16,495	$	12,478	$	10,972
Foreign		2,655		1,855		1,828
	$	19,150	$	14,333	$	12,800

No additional provision has been made for U.S. income taxes on the undistributed earnings of its Israeli subsidiary, LivePerson Ltd (formerly HumanClick Ltd.), as such earnings have been taxed in the U.S. and accumulated earnings of the Company’s other foreign subsidiaries are immaterial through December 31, 2011.

The provision for income taxes consists of the following:


	Year Ended December 31,
	2011			2010			2009
Current income taxes:
U.S. Federal	$	5,839		$	3,554		$	1,418
State and local		600			473			516
Foreign		444			215			238
Total current income taxes		6,883			4,242			2,172
Deferred income taxes:
U.S. Federal		232			694			2,719
State and local		(38	)		(60	)		21
Foreign		35			198			125
Total deferred income taxes		229			832			2,865
Total income taxes	$	7,112		$	5,074		$	5,037

The difference between the total income taxes computed at the federal statutory rate and the benefit from income taxes consists of the following:


	Year Ended December 31,
	2011			2010			2009
Federal Statutory Rate		34.48	%		34.30	%		34.00	%
State taxes, net of federal benefit		2.56	%		2.27	%		2.80	%
Non-deductible expenses – ISO		0.47	%		(0.88	)%		2.19	%
Non-deductible expenses – Other		0.51	%		0.43	%		0.26	%
Foreign taxes		(0.13	)%		(0.08	)%		(0.44	)%
Other		(0.76	)%		(0.64	)%		0.54	%
Total provision		37.13	%		35.40	%		39.35	%

The effects of temporary differences and tax loss carryforwards that give rise to significant portions of federal deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010 are presented below:


	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	2,504		$	2,720
Accounts payable and accrued expenses		424			317
Non-cash compensation		2,582			2,177
Goodwill and intangibles amortization		1,462			1,632
Allowance for doubtful accounts		260			208
Net deferred tax assets		7,232			7,054
Deferred tax liabilities:
Plant and equipment		(2,061	)		(1,443	)
Intangibles related to the Kasamba acquisition		—			(206	)
Total deferred tax liabilities		(2,061	)		(1,649	)
Net deferred assets	$	5,171		$	5,405