Note 10 - Income Taxes

The components of income tax expense (benefit) are as follows:

(in thousands)	Year Ended December 31, 2014			Year Ended December 31, 2013
Federal - current	$	(19,179	)	$	750
State - current		(16,683	)		1,394
Total current		(35,862	)		2,144
Federal - deferred		(10,200	)		(1,270	)
State - deferred		(324	)		(165,000	)
Change in valuation allowance		10,524			1,435
Total deferred		-			-
Income tax expense (benefit)	$	(35,862	)	$	2,144

The components of pretax income (loss) and the difference between income taxes computed at the statutory federal rate and the provision for income taxes are as follows:

(in thousands)	Year Ended December 31, 2014			Year Ended December 31, 2013

Income (loss) before income taxes	$	(21,441	) )	$	(3,874	) )
Tax expense (benefit) :
Tax at statutory federal rate	$	(7,504	) )	$	(1,356	) )
State income taxes		183			256
Federal uncertain tax position reversal		(19,179	) )		-
State uncertain tax position reversal		(16,866	) )		-
Federal interest		-			750
State interest		-			1,138
Permanent items		(3,020	)		(79	) )
Other		-			-
Change in valuation allowance		10,524			1,435
Income tax expense (benefit)	$	(35,862	) )	$	2,144

A reconciliation of the United States federal statutory rate to the Company's effective income tax rate is as follows:

	Year Ended December 31, 2014			Year Ended December 31, 2013
Tax at statutory federal rate	35.0		%	35.0		%
State income taxes	(0.9)	)		(6.6)	)
Federal uncertain tax position reversal	89.5			-
State uncertain tax position reversal	78.7			-
Federal interest	-			(19.4)	)
State interest	-			(29.4)	)
Permanent difference, tax credits and other adjustments	14.1			2.1
Other	-			-
Change in valuation allowance	(49.1)	)		(37.0)	)
Effective income tax rate	167.3		%	(55.3)	)	%

The Company's federal income tax returns for the years subsequent to 1992 have not been examined by the Internal Revenue Service ("IRS") or state authorities, except for tax years 2007 and 2012, which were examined by the IRS and have been concluded. In connection with the IRS's examination of the Company's 2012 federal income tax return, the IRS accepted the Company's federal NOL loss carryforward deductions from 1997 through 2006 which were utilized as part of the Company's 2012 federal income tax return to reduce the Company's 2012 federal taxable income. The Company has not been notified of any other potential tax audits by any federal, state or local tax authorities. As such, the Company believes the statutes of limitations for the assessment of additional federal and state tax liabilities are generally closed for tax years prior to 2011. Interest and/or penalties related to underpayments of income taxes, or if applicable on uncertain tax positions, would be included as a component of income tax expense (benefit). The accompanying financial statements do not include any amounts for penalties.

State income tax amounts for the year ended December 31, 2014 reflects a provision for a minimum tax on capital imposed by the state jurisdictions. State income tax amounts for the year ended December 31, 2013 includes accrued state interest expense for uncertain tax positions and a provision for a minimum tax on capital imposed by the state jurisdictions.

As part of the Company's 2012 federal income tax ("FIT") return, the Company recognized a worthless stock deduction for the Company's remaining tax basis related to its investment in Carteret (the "Carteret Worthless Stock Deduction" or "Carteret Tax Basis") in the computation of the Company's 2012 taxable income. The Company further reduced its 2012 federal taxable income through the utilization of its previously available federal tax net operating loss ("NOL") carryforward deductions in the computation of the Company's 2012 federal tax liability. The federal NOL carryforwards were required to be utilized in tax year 2012 as a result of the Internal Revenue Code ("IRC") regulations that require NOLs to be utilized in the first year in which the Company has taxable income; otherwise, use of the NOL carryforwards would be lost. The Carteret Worthless Stock Deduction was required to be recognized in the year of worthlessness, i.e. 2012.

The Company believes that pursuant to the terms of the Settlement Agreement, the Company could seek to recover the value of its federal NOL carryforwards and/or Carteret Tax Basis previously utilized by the Company to reduce its 2012 federal taxable income in connection with the filing of the Company's 2012 federal income tax return. Any such recovery, however, would be dependent on numerous factors and circumstances, including but not limited to, whether or not the Company generated future federal taxable income, the timing and amount of future federal taxable income generated by the Company, if any, the expiration of current and previously utilized NOL carryforwards, the United States Court of Federal Claims (the "Court of Claims") interpretation of the Settlement Agreement and other legal and factual interpretations. As a result, the Company can give no assurances as to the realization, the amount or the timing of any such recovery, if any.

The Carteret Tax Basis and federal NOL carryforward deductions utilized as part of the Company's 2012 federal income tax return as filed were as follows:

(in thousands)
Carteret Tax Basis	$	152,000
Federal NOL carryforwards utilized	$	25,000

Pursuant to the accounting principles with regard to recognition of uncertain tax positions, (ASC 740-10, Accounting for Income Taxes), the Company was required to record an aggregate uncertain tax position reserve as of December 31, 2013, to reflect the net tax effect plus accrued interest for potential tax audit and uncertainty that the Carteret Worthless Stock Tax Deduction (uncertain tax position), could have been disallowed in whole or in part by the tax authorities. The Company believes that if any additional federal tax had been owed as a result of any adjustments, these potential amounts would be reimbursable to the Company pursuant to the tax gross-up provision of the Settlement Agreement. As a result, the Company recorded an indemnification asset – federal tax gross-up to reflect the net amount (excluding accrued interest) of the federal uncertain tax position reserve recognized. A portion of the uncertain tax position reserve as of December 31, 2013 was attributable to certain state taxes on the Settlement Amount which were not reimbursable to the Company as part of the Settlement Agreement. In December 2014, the IRS completed their review of the examination of the Company's 2012 federal income tax return with no change to the tax return as filed, as a result the Company, as of December 31, 2014, recorded a reversal of the indemnification asset – federal tax gross-up and the reversal of the uncertain tax position reserve, as noted in the tables herein below. For additional information including a discussion of the Supervisory Goodwill Settlement Agreement – Tax Gross-up see Note 11.

In connection with the uncertain tax position reserve in 2013, the Company had accrued federal and state interest expense for the potential underpayment of 2012 taxes. The interest expense was included as a component of income tax expense (benefit) in the consolidated statement of operations and as a component of the uncertain tax position reserve in the consolidated balance sheets.

A roll forward of the uncertain tax positions reserve, excluding accrued federal and state interest is as follows:

(in thousands)	December 31, 2014			December 31, 2013
Uncertain tax position reserve excluding accrued interest, at beginning of period	$	34,157		$	34,157
Federal uncertain tax position reserve excluding accrued interest		(18,429	)		-
State uncertain tax position reserve excluding accrued interest		(15,728	)		-
Uncertain tax position reserve excluding accrued interest, at end of period	$	-		$	34,157

The Company's uncertain tax positions tax reserve, including accrued interest is as follows:

(in thousands)	December 31, 2014		December 31, 2013
Federal uncertain tax positions reserve, including accrued federal interest	$	-	$	19,179
State uncertain tax positions reserve, including accrued state interest		-		16,866
Total uncertain tax positions reserve, including accrued federal and state interest	$	-	$	36,045

The interest expense related to the uncertain tax positions is as follows:

(in thousands)	Year Ended December 31, 2014		Year Ended December 31, 2013
Federal	$	-	$	750
State jurisdictions		-		1,138

Interest expense - taxes	$	-	$	1,888

The Company's indemnification asset which reflects the potential amounts reimbursable pursuant to the tax gross-up provision of the Settlement Agreement for the federal uncertain tax position reserve recognized, is as follows:

(in thousands)	December 31, 2014				December 31, 2013
Indemnification asset – federal tax gross-up		$	-			$	18,429

The utilization of certain carryforwards and carrybacks is subject to limitations under U.S. federal income tax laws. The Company has not yet filed its 2014 Federal income tax return, however, based on the Company's current analysis along with consultation with tax advisors, the Company expects that it will elect to not carryback and thus only carryforward any federal tax loss, if and when generated, for tax year 2014. For tax year 2013, the Company elected not to carryback and thus only carryforward the Company's 2013 tax loss carryforward. Based on the Company's federal tax returns filed or to be filed, the Company estimates it has federal NOL carryforwards available to reduce future federal taxable income or which would expire if unused, as indicated below.

The federal NOL carryforwards as of December 31, 2014 are as follows:

Tax Year Originating	Tax Year Expiring	Amount

2006	2026	$	500,000
2007	2027		12,700,000
2008	2028		4,600,000
2009	2029		2,400,000
2010	2030		1,900,000
2011	2031		1,900,000
2013	2033		3,700,000
2014	2034		4,900,000
		$	32,600,000

In addition, the Company has alternate minimum tax credit carryforwards ("AMT Credits"), which are not subject to expiration, as follows:

		Amount
AMT Credits		$	21,000,000

Based on the Company's State of Connecticut tax returns filed or to be filed, the Company estimates it has state NOL carryforwards to reduce future State of Connecticut taxable income, which would expire if unused, as indicated below.

The state NOL carryforwards as of December 31, 2014 are as follows:

Tax Year Originating	Tax Year Expiring	Amount

2011	2031	$	1,900,000
2013	2033		3,400,000
2014	2034		4,700,000
		$	10,000,000

The Company has calculated a net deferred tax asset arising primarily from NOL carryforwards as follows.

	December 31, 2014			December 31, 2013
Net deferred tax asset	$	11,900,000		$	1,400,000
Valuation allowance		(11,900,000	)		(1,400,000	)
Net deferred tax asset recognized	$	-		$	-

A valuation allowance has been established for the entire net deferred tax asset, as management, at the current time, has no basis to conclude that realization is more likely than not. At the current time management does not believe that any significant changes in unrecognized income tax benefits are currently expected to occur over the next year. The net deferred tax asset amounts noted above for December 31, 2013, do not include the NOL's utilized in connection with the calculation of the uncertain tax position reserve as noted herein.