6) INCOME TAXES

Components of income tax expense/(benefit) are as follows (amounts in thousands):


	Year Ended December 31,
	2011		2010		2009
Current
Federal	$	165,409	$	105,077	$	130,798
Foreign		300		2,555		—
State		22,901		16,547		18,976

		188,610		124,179		149,774
Deferred
Federal and foreign		53,056		26,419		18,524
State		5,800		1,704		2,177

		58,856		28,123		20,701

Total	$	247,466	$	152,302	$	170,475

Deferred taxes are required to be classified based on the financial statement classification of the related assets and liabilities which give rise to temporary differences. Deferred taxes result from temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The components of deferred taxes are as follows (amounts in thousands):


	Year Ended December 31,
	2011			2010
Deferred income tax assets:
Self-insurance reserves	$	115,201		$	121,249
Compensation accruals		49,717			53,855
State and foreign net operating loss carryforwards and other state and foreign deferred tax assets		52,506			46,338
Other currently non-deductible accrued liabilities		19,699			19,016
Net pension liability—OCI only		13,959			9,268
Doubtful accounts and other reserves		17,345			31,046
Other combined items—OCI only		17,684			3,196

		286,111			283,968
Less: Valuation Allowance		(42,143	)		(32,352	)

Net deferred income tax assets:		243,968			251,616
Deferred income tax liabilities:
Depreciable and amortizable assets		(342,655	)		(299,566	)
Other deferred tax liabilities		(2,581	)		(4,570	)

Net deferred income tax liabilities	$	(101,268	)	$	(52,520	)

The effective tax rates, as calculated by dividing the provision for income taxes by income before income taxes, were as follows for each of the years ended December 31, 2011, 2010 and 2009 (dollar amounts in thousands):


	2011			2010			2009
Provision for income taxes	$	247,466		$	152,302		$	170,475
Income before income taxes		696,336			428,097			474,722

Effective tax rate		35.5	%		35.6	%		35.9	%

Impacting the effective tax rates during 2011 was approximately $1 million favorable discrete tax item recorded to adjust the estimated liabilities for uncertain tax positions. Impacting the effective tax rates during 2010 were the following items: (i) $5 million unfavorable discrete tax item recorded to adjust the non-deductible portion of certain transaction costs incurred during 2010 in connection with our acquisition of PSI; (ii) a $4 million unfavorable discrete tax item recorded to adjust for the non-deductible, $9 million charge incurred from split-dollar life insurance agreements entered into during 2010 on the lives of our chief executive officer and his wife, partially offset by; (iii) a $4 million favorable discrete tax item recorded during 2010 to adjust the estimated non-deductible portion of the previously disclosed South Texas Health System settlement with the government based upon the final agreement.

A reconciliation between the federal statutory rate and the effective tax rate is as follows:


	Year Ended December 31,
	2011			2010			2009
Federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal income tax benefit		2.9			3.1			3.2
Nondeductible transaction costs		—			1.3			—
Other items		0.4			0.4			1.4
Impact of income attributable to noncontrolling interests		(2.8	)		(4.2	)		(3.7	)

Effective tax rate		35.5	%		35.6	%		35.9	%

Included in "Other current assets" on our Consolidated Balance Sheet are prepaid federal, foreign, and state income taxes amounting to approximately $25 million and $51 million as of December 31, 2011 and 2010, respectively.

The net deferred tax assets and liabilities are comprised as follows (amounts in thousands):


	Year Ended December 31,
	2011			2010
Current deferred taxes
Assets	$	109,297		$	123,362
Liabilities		(973	)		(2,528	)

Total deferred taxes-current		108,324			120,834

Noncurrent deferred taxes
Assets		135,189			128,254
Liabilities		(344,781	)		(301,608	)

Total deferred taxes-noncurrent		(209,592	)		(173,354	)

Total deferred tax liabilities	$	(101,268	)	$	(52,520	)

The assets and liabilities classified as current relate primarily to the allowance for uncollectible patient accounts, compensation-related accruals and the current portion of the temporary differences related to self- insurance reserves. At December 31, 2011, state net operating loss carryforwards (expiring in years 2012 through 2031), and credit carryforwards available to offset future taxable income approximated $881 million, representing approximately $44 million in deferred state tax benefit (net of the federal benefit). At December 31, 2011, related to the acquisition of PSI, there were federal net operating losses of approximately $2 million expiring in 2022 representing approximately $1 million in deferred federal tax benefits and foreign net operating loss carryforwards of approximately $8 million expiring through 2021 representing approximately $3 million in deferred foreign tax benefit.

A valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. Based on available evidence, it is more likely than not that certain of our state tax benefits will not be realized. Therefore, valuation allowances of approximately $39 million and $28 million have been reflected as of December 31, 2011 and 2010, respectively. During 2011, the valuation allowance on these state tax benefits increased by approximately $11 million due to additional net operating losses incurred. In addition, valuation allowances of approximately $3 million and $4 million have been reflected as of December 31, 2011 and 2010, respectively, related to foreign net operating losses.

We adopted the provisions of Accounting for Uncertainty in Income Taxes effective January 1, 2007. During 2011 and 2010, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were increased in the amount of approximately $1 million and $3 million, respectively, due to tax positions taken in the current and prior years. The increase in 2010 is primarily attributable to tax positions taken by PSI on pre-acquisition tax return years. Also during 2011, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were reduced due to the lapse of the statute of limitations resulting in a net income tax benefit of approximately $2 million. The balance at each of December 31, 2011 and 2010, if subsequently recognized, that would favorably affect the effective tax rate and the provision for income taxes is approximately $5 million.

We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2011 and 2010, we have approximately $1 million of accrued interest and penalties. The U.S. federal statute of limitations remains open for the 2008 and subsequent years. Foreign and U.S. state and local jurisdictions have statutes of limitations generally ranging for 3 to 4 years. The statute of limitations on certain jurisdictions could expire within the next twelve months. It is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months however it is anticipated that any such change, if it were to occur, would not have a material impact on our results of operations.

The tabular reconciliation of unrecognized tax benefits for the years ended December 31, 2011, 2010 and 2009 is as follows (amounts in thousands).


	As of December 31,
	2011			2010			2009
Balance at January 1,	$	7,923		$	5,754		$	3,759
Additions based on tax positions related to the current year		750			1,219			750
Additions for tax positions of prior years		419			2,076			1,245
Reductions for tax positions of prior years		(1,628	)		(907	)		—
Settlements		(61	)		(219	)		—

Balance at December 31,	$	7,403		$	7,923		$	5,754