Income Taxes

Income tax expense attributable to continuing operations consists of the following components:



	Years Ended December 31,
	2012			2011		2010
Current expense:
Federal	$	148,495		$	2,333	$	—
State and foreign	18,836			6,489		4,360
	167,331			8,822		4,360
Deferred (benefit) expense:
Federal	(77,360		)	62,131		62,078
State	(11,154		)	7,029		18,666
	(88,514		)	69,160		80,744
Tax expense relating to uncertain tax positions, including accrued interest	7,241			6,266		2,969
Income tax expense	$	86,058		$	84,248	$	88,073

Income tax expense attributable to discontinued operations is classified as current income tax expense for the year ended December 31, 2012 and deferred income tax expense for the years ended December 31, 2011 and 2010.

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:



	Years Ended December 31,
	2012		2011		2010
U.S. federal statutory income tax rate	35	%	35	%	35	%
State and local income taxes, net of federal benefit	2		4		5
Changes in the valuation allowance	(1	)	(1	)	1
Change in the state rate used to measure deferred taxes, net of federal benefit	—		—		1
Tax expense relating to uncertain tax positions, including accrued interest, net of deferred tax benefits	2		2		1
Other	1		—		—
Effective income tax rate	39	%	40	%	43	%

The tax effects of temporary differences that give rise to significant components of deferred tax assets or liabilities at December 31, 2012 and 2011 are as follows:



	December 31,
	2012			2011
Deferred Tax Asset (Liability)
Current
NOLs and tax credit carry forwards	$	687		$	55,322
Compensation and benefit plans	10,230			7,323
Allowance for doubtful accounts	392			1,029
Deferred litigation settlement proceeds	114,210			—
Other liabilities	1			127
Deferred tax asset	125,520			63,801
Valuation allowance	(4,117		)	(4,529		)
Net deferred tax asset, current	121,403			59,272
Noncurrent
NOLs and tax credit carry forwards	25,625			22,737
Compensation and benefit plans	13,768			10,944
Fixed assets and intangible assets	7,480			14,771
Interest rate swap contracts	4,971			7,064
Other liabilities	7,537			4,377
Deferred tax asset	59,381			59,893
Valuation allowance	(1,947		)	(4,252		)
Net deferred tax asset, noncurrent	57,434			55,641
Prepaid liabilities	(668		)	—
Investments in partnerships	(85,907		)	(107,546		)
Deferred tax liability, noncurrent	(86,575		)	(107,546		)
Net deferred tax liability, noncurrent	(29,141		)	(51,905		)
Total net deferred tax asset	$	92,262		$	7,367

As of December 31, 2012, the Company recorded a current tax liability and a deferred tax asset of $114,210 for the estimated 2012 taxes payable on the VOOM HD litigation settlement proceeds. Although the allocation of such proceeds between the Company and Cablevision was not determined by December 31, 2012, the income taxes payable by the Company on such proceeds for 2012 were estimated based upon the cash received by the Company during 2012 from such settlement.

At December 31, 2012, the Company had foreign tax credit carry forwards of approximately $18,000, expiring on various dates from 2014 through 2022. For the year ended December 31, 2012, the utilization of the remaining federal net operating loss carry forwards (“NOLs”) and alternative minimum tax credit carry forwards reduced current deferred income tax assets by $50,000 and $2,100, respectively. In addition, for the year ended December 31, 2012, excess tax benefits of $7,484 relating to share-based compensation awards and $2,433 relating to amortization of tax deductible second component goodwill were realized as a reduction in tax liability (as determined on a 'with-and-without' approach).

At December 31, 2012, the liability for uncertain tax positions was $16,721, excluding the related accrued interest liability of $3,201 and deferred tax assets of $7,041. All of such unrecognized tax benefits, if recognized, would reduce the Company's income tax expense and effective tax rate.

A reconciliation of the beginning to ending amount of the liability for uncertain tax positions (excluding related accrued interest and deferred tax benefit) is as follows:



Balance at December 31, 2011	$	10,465
Increases related to prior year tax positions	43
Increases related to current year tax positions	6,213
Balance at December 31, 2012	$	16,721

Interest expense (net of the related deferred tax benefit) of $617 was recognized during the year ended December 31, 2012 and is included in income tax expense in the consolidated statement of income. At December 31, 2012 and 2011, the liability for uncertain tax positions and related accrued interest noted above are included in other liabilities in the consolidated balance sheets.

Under the Company's Tax Disaffiliation Agreement with Cablevision, Cablevision is liable for all income taxes of the Company for periods prior to the Distribution except for New York City Unincorporated Business Tax. The City of New York is currently auditing the Company's Unincorporated Business Tax Returns for the years 2006 through 2008.

We estimate that The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, will reduce the Company's current income tax liability and net deferred tax asset from the amounts reported at December 31, 2012 by approximately $28,000, primarily as a result of the extension of the provision allowing a current tax deduction for the costs of certain television productions.

For periods prior to the Distribution, the Company’s taxable income or loss was included in the consolidated federal and certain state and local income tax returns of Cablevision. Consequently, income tax expense for such periods is based on the taxable income of the Company on a separate tax return basis. The reductions in taxes payable during such periods realized by the Company through the utilization of Cablevision’s NOLs or by Cablevision through the utilization of the Company’s NOLs or credits are reflected as deemed capital contributions or distributions, respectively, in the periods of utilization and are adjusted for true-ups in subsequent periods. Accordingly, deemed capital contributions, net of $36,867 and $52,824 were recorded in the consolidated statement of stockholders’ (deficiency) equity for the years ended December 31, 2011 and 2010, respectively, to reflect the estimated NOLs of Cablevision used by the Company. In addition, deemed capital distributions, net of $2,942 and $2,586 were recorded in the consolidated statements of stockholders’ (deficiency) equity for the years ended December 31, 2012 and 2011, respectively, to reflect true-ups as of the Distribution date for utilization of Cablevision's NOLs and for adjustments to liabilities for uncertain tax positions and net deferred tax assets as a result of the Distribution and the estimated New York City Unincorporated Business Tax credits of the Company used by Cablevision, respectively.

As a result of the Distribution, the following adjustments to the deferred tax assets and liabilities were recorded as a deemed capital distribution, net in the consolidated statement of stockholders’ deficiency for the year ended December 31, 2011: (i) a decrease in the net deferred tax assets of $2,302 to reflect the lower stand-alone estimated applicable corporate tax rates, (ii) a decrease in the deferred tax asset for share-based awards of $7,292 to eliminate the portion of the deferred tax asset relating to share-based compensation expense attributable to Cablevision corporate employees that was allocated to the Company prior to the Distribution, and (iii) a decrease in the deferred tax asset of $1,314 to reflect that certain compensation awards are no longer anticipated to be realized as a tax deduction pursuant to Internal Revenue Code Section 162(m). In addition, as of the Distribution date, liabilities for uncertain tax positions of $56,409, accrued interest of $1,284, and the related deferred tax assets of $2,358 were eliminated and recorded as a deemed capital contribution, net in the consolidated statement of stockholders’ (deficiency) equity as the liability for such uncertain tax positions became an obligation of Cablevision.