14.	Income Taxes

Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

As shown with respect to our continuing operations, the current and deferred portions (in thousands) of federal and state income tax benefit or expense as the case may be are as follows:

	For the Year Ended December 31,
	2011			2010
Federal income tax benefit (expense):
Current tax benefit (expense)	$	767		$	(1,053	)
Deferred tax benefit (expense)		272			1,782
Total federal income tax benefit (expense)		1,039			729
Foreign income tax benefit (expense):
Current tax benefit (expense)		(5	)		1,167
Deferred tax benefit (expense)		2			2
Total foreign income tax benefit (expense)		(3	)		1,169
State and other income tax benefit (expense):
Current tax benefit (expense)		(111	)		8
Deferred tax benefit (expense)		(648	)		1
Total state and other income tax benefit (expense)		(759	)		9
Total income tax benefit	$	277		$	1,907

Computed considering results for only our continuing operations before income taxes, our effective income tax expense rate was a negative 1.8% for the year ended December 31, 2011, versus our effective income tax benefit rate of a positive 1.8% for the year ended December 31, 2010. We have experienced no material changes in effective tax rates associated with differences in filing jurisdictions, and the variations in our effective tax rates between the periods principally bear the effects of (1) changes in valuation allowances against income statement-oriented federal, foreign and state deferred tax assets and (2) variations in the level of our pre-tax income among the different reporting periods relative to the level of our permanent differences within such periods. Computed without regard to the effects of the valuation allowance changes, it is more likely than not that our effective tax rates would have been a 88.1% expense rate and 31.9% benefit rate, in the years ended December 31, 2011 and 2010, respectively.

Income tax benefits in 2011 and 2010 differed from amounts computed by applying the statutory federal income tax benefit rate to pretax income or loss from consolidated operations principally as a result of the impact of changes in valuation allowances on certain federal and state deferred tax assets, foreign tax expense, and unfavorable permanent differences, including the effects of accruals for uncertain tax positions. The following table reconciles our effective tax expense (for 2011) and benefit (for 2010) rates to the federal statutory rate:

	For the Year Ended December 31,
	2011			2010
Statutory tax expense or benefit rate		35.0	%		35.0	%
Decrease (Increase) in statutory tax expense or benefit rate resulting from:
Changes in valuation allowances		(48.9	)		(36.7	)
Interest and penalties related to uncertain tax positions		(4.6	)		(1.9	)
Foreign income taxes, including indefinitely invested earnings of foreign subsidiaries		2.1			0.1
State and other income taxes and other differences, net		14.6			5.3
(Negative) positive effective tax expense or benefit rate		(1.8	)%		1.8	%

As of December 31, 2011 and December 31, 2010, the significant components (in thousands) of our deferred tax assets and liabilities were:

	As of December 31,
	2011			2010
Deferred tax assets:
Software development costs/fixed assets	$	6,133		$	6,457
Equity in income of equity-method investees		3,961			10,469
Goodwill and intangible assets		8,246			32,238
Deferred costs		627			1,761
Provision for loan loss		5,085			13,252
Equity based compensation		3,223			7,798
Charitable contributions		2,712			5,303
Other		4,271			5,203
Accruals for state taxes and interest associated with unrecognized tax benefits		5,550			5,807
Federal net operating loss carry-forward		130,534			166,422
Federal credit carry-forward		1,073			571
Foreign net operating loss carry-forward		1,725			2,087
State tax benefits		37,644			38,543
		210,784			295,911
Valuation allowances		(70,999	)		(136,263	)
		139,785			159,648
Deferred tax liabilities:
Prepaid expenses		(369	)		(844	)
Mark-to-market		(3,075	)		(5,318	)
Credit card fair value election and Securitization-related differences		(33,993	)		(45,046	)
Interest on debentures		(26,511	)		(29,799	)
Convertible senior notes		(16,653	)		(19,885	)
Cancellation of indebtedness income		(66,082	)		(65,543	)
		(146,683	)		(166,435	)
Net deferred tax liability	$	(6,898	)	$	(6,787	)

The amounts reported for both 2011 and 2010 have been adjusted to account for the reclassification of unrecognized tax benefits as required by applicable accounting literature.

Certain of our deferred tax assets relate to federal, foreign and state net operating losses as noted in the above table, and we have no other net operating losses or credit carry-forwards other than those noted herein. Our $71.0 million of deferred tax asset valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits, principally net operating losses and credits from operations in the U.S. (both federal and state) and foreign jurisdictions, and it is more likely than not that these recorded tax benefits will not be utilized to reduce future federal, foreign and state tax liabilities in these jurisdictions.

We conduct business globally, and as a result, one or more of our subsidiaries files federal, state and/or foreign income tax returns. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the U.S., the U.K., and the Netherlands. With a few exceptions, we are no longer subject to federal, state, local, or foreign income tax examinations for years prior to 2008. Currently, we are under audit by various jurisdictions for various years, including by the Internal Revenue Service for the 2007 and 2008 tax years. Although the audits have not been concluded, we do not expect any changes to our reported tax positions in those years that would have a material effect on our consolidated financial statements. Moreover, if any material payments are ultimately determined to be owed as a result of ongoing audits (e.g., through settlement or litigation with taxing authorities), we do not anticipate having to make such payments, if any, for several more years.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized $2.1 million and $3.5 million in potential interest and penalties associated with uncertain tax positions during the years ended December 31, 2011 and 2010, respectively. To the extent such interest and penalties are not assessed as a result of a resolution of the underlying tax position, amounts accrued are reduced and reflected as a reduction of income tax expense. We recognized such reductions in the amounts of $1.0 million and $3.5 million in the years ended December 31, 2011 and 2010, respectively.

Reconciliation (in thousands) of unrecognized tax benefits from the beginning to the end of 2011 and 2010 is as follows:

	2011			2010
Balance at January 1,	$	(54,011	)	$	(53,210	)
Reductions based on tax positions related to the prior year		2,890			284
Additions based on tax positions related to the current year		(879	)		(613	)
Interest and penalties accrued		(2,146	)		(3,543	)
Reductions for tax positions of prior years for lapses of applicable statute of limitations		-			3,071
Balance at December 31,	$	(54,146	)	$	(54,011	)

Unrecognized tax benefits that, if recognized, would affect the effective tax rate totaled $16.8 million and $16.7 million at December 31, 2011 and 2010, respectively.

Absent the effects of potential agreements to extend statutes of limitations periods (as we recently did with respect to our 2007 and 2008 federal income tax returns), the total amount of unrecognized tax benefits with respect to certain of our unrecognized tax positions will significantly change as a result of the lapse of applicable limitations periods in the next 12 months. However, it is not reasonably possible to determine which (if any) limitations periods will lapse in the next 12 months due to the effect of existing and new tax audits and tax agency determinations. Moreover, the net amount of such change cannot be reasonably estimated because our operations over the next 12 months may cause other changes to the total amount of unrecognized tax benefits. Due to the complexity of the tax rules underlying our uncertain tax position liabilities, and the unclear timing of tax audits, tax agency determinations, and other events (such as the outcomes of tax controversies involving related issues with unrelated taxpayers), we cannot establish reasonably reliable estimates for the periods in which the cash settlement of our uncertain tax position liabilities will occur.