Income Taxes

12 Months Ended

Dec. 31, 2011

Income taxes [Abstract]

INCOME TAXES

16. INCOME TAXES

The income tax (benefit) provision consists of the following:

		September 30,			September 30,			September 30,
	For the Years Ended December 31,
(in thousands)	2011			2010			2009
Current:
Domestic — Luxembourg	$	2,300		$	(1,031	)	$	4,827
Foreign — U.S. Federal		—			—			8,321
Foreign — U.S. State		119			561			—
Foreign — Non U.S.		2,891			1,186			26
	$	5,310		$	716		$	13,174
Deferred:
Domestic — Luxembourg	$	(387	)	$	395		$	(107	)
Foreign — U.S. Federal		3,216			(1,014	)		(1,581	)
Foreign — U.S. State		(22	)		(68	)		(66	)
Foreign — Non U.S.		(174	)		(432	)		185
	$	2,633		$	(1,119	)	$	(1,569	)
Total	$	7,943		$	(403	)	$	11,605

We received a favorable ruling in June 2010 regarding the treatment of certain intangibles that exist for purposes of determining the Company’s taxable income. The ruling is retroactive to the date of Separation. As a result of the ruling, the Company recognized a $3.4 million credit attributable to 2009 in the second quarter of 2010. The impact of this is included above as a component of the current Luxembourg tax benefit. This ruling did not have a material impact on our deferred tax assets or liabilities. Income tax computed by applying the Luxembourg statutory income tax rate of 28.8% differs from income tax computed at the effective tax rate primarily because of the effect of the favorable tax ruling as well as differing tax rates in multiple jurisdictions, including losses recognized in our U.S. operations.

The Company accounts for certain income and expense items differently for financial purposes and income tax purposes. We recognize deferred income tax assets and liabilities for these differences between the financial reporting basis and the tax basis of our assets and liabilities as well as expected benefits of utilizing net operating loss and credit carryforwards. We measure deferred income tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences.

A summary of the tax effects of the temporary differences is as follows:

		September 30,			September 30,
	December 31,
(in thousands)	2011			2010
Current Deferred Tax Assets:
Allowance for Doubtful Accounts and Other Reserves	$	72		$	143
Accrued Expenses		1,294			807
Current Deferred Tax Liabilities:
Prepaid Expense		(233	)		(399	)
Current Deferred Tax Asset, Net:	$	1,133		$	551
Non-current Deferred Tax Assets:
Non Operating Loss Carryforwards — U.S. Federal	$	10,998		$	8,891
Non Operating Loss Carryforwards — U.S. State		2,209			2,058
Depreciation		—			58
Non-U.S. Deferred Tax Asset		1,479			916
Other		564			416
Non-current Deferred Tax Liabilities:
Intangible Assets	$	(8,014	)	$	(9,258	)
Depreciation		(654	)		—
		6,582			3,081
Valuation Allowance	$	(2,209	)	$	(1,875	)
Non-current Deferred Tax Asset, net	$	4,373		$	1,206
Net Deferred Tax Asset	$	5,506		$	1,757

A valuation allowance is provided when it is deemed more-likely-than-not that some portion or all of a deferred tax asset will not be realized. In determining whether a valuation allowance is needed, we considered estimates of future taxable income, future reversals of temporary differences, tax character and the impact of tax planning strategies that can be implemented, if warranted. As of December 31, 2011, we provided a valuation allowance of $2.2 million related to certain state operating losses. This represents an increase of $0.3 million compared to the prior year increase of $0.3 million. The increase in valuation allowance during 2011 relates to additional state losses generated in the current year.

We have not provided Luxembourg deferred taxes on cumulative earnings of non-Luxembourg affiliates as these earnings have been indefinitely reinvested. The earnings relate to ongoing operations and at December 31, 2011, were $16 million.

As of December 31, 2011, the Company had a deferred tax asset of $13.2 million relating to U.S. Federal and State net operating losses. Of this amount, $2.2 million relating to state net operating losses were subject to a valuation allowance. The gross amount of net operating losses available for carryover to future years approximates $33 million. Of this amount, $15.9 million relates to NCI for periods prior to our acquisition and is subject to Section 382 of the Internal Revenue Code (the “Code”) which limits their use to approximately $1.3 million per year. These losses are scheduled to expire between the years 2022 and 2029.

The separation from Ocwen and relocation of certain operations to Luxembourg resulted in changes to deferred tax balances which include amounts charged to stockholders’ equity of approximately $1.0 million. For periods prior to the date of Separation, we are included in Ocwen’s tax returns. Our responsibility with respect to these periods is governed by a tax sharing agreement. In accordance with this agreement, U.S. income taxes were allocated as if they had been calculated on a separate company basis except that benefits for any net operating losses will be provided to the extent such loss is utilized in the consolidated U.S. federal tax return. The provision for income taxes prior to the date of Separation has been determined on a pro-forma basis as if we had filed separate income taxes under our current structure for the periods presented.

The Distribution was intended to be a tax-free transaction under Section 355 of the Code. However, Ocwen recognized, and paid tax on, substantially all of the gain it has in the assets that comprise Altisource as a result of the restructuring. To the extent Ocwen does recognize tax under Section 355 of the Code, Altisource has agreed to indemnify Ocwen. In addition, we have agreed to indemnify Ocwen should the expected tax treatments not be upheld upon review or audit to the extent related to our operating results. The Company does not anticipate a material obligation under this indemnity.

The following table reconciles the Income Tax Provision to the Luxembourg income tax rate:

		September 30,			September 30,			September 30,
	For the Years Ended December 31,
	2011			2010			2009
Statutory Tax Rate		28.80	%		28.60	%		28.60	%
Foreign Rate Differential		(19.27	)		(23.00	)		2.60
Tax Adjustment for Retroactive Ruling		—			(7.00	)		—
Change in Valuation Allowances		—			0.50			(0.90	)
State Tax Expense		0.07			0.30			—
Indefinite Deferral on Earnings of Non - U.S Luxembourg Affiliates		—			—			0.60
Other		0.45			(0.20	)		—
		10.05	%		(0.80	)%		30.90	%

The Company follows ASC Topic 740 which clarifies the accounting and disclosure for uncertainty in tax positions. We analyzed our tax filing positions in all of the domestic and foreign tax jurisdictions where we are required to file income tax returns as well as for all open tax years in these jurisdictions. Based on this review, no reserves for uncertain income tax positions were required to have been recorded pursuant to ASC Topic 740. In addition, we determined that we did not need to record a cumulative effect adjustment related to the adoption of ASC Topic 740.

We recognize accrued interest and penalties related to uncertain tax positions in Selling, General and Administrative Expenses in the Statements of Operations. As of December 31, 2011 and 2010, we did not have a liability recorded for payment of interest and penalties associated with uncertain tax positions.