6) INCOME TAXES

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


	Year Ended December 31,
	2012			2011		2010
Current
Federal	$	254,021		$	165,409	$	105,077
Foreign		9,084			300		2,555
State		39,076			22,901		16,547

		302,181			188,610		124,179
Deferred
Federal and foreign		(21,408	)		53,056		26,419
State		(6,157	)		5,800		1,704

		(27,565	)		58,856		28,123

Total	$	274,616		$	247,466	$	152,302

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,
	2012			2011
Deferred income tax assets:
Self-insurance reserves	$	112,587		$	115,201
Compensation accruals		47,571			49,717
State and foreign net operating loss carryforwards and other state and foreign deferred tax assets		54,874			52,506
Other currently non-deductible accrued liabilities		29,934			19,699
Net pension liability—OCI only		12,061			13,959
Doubtful accounts and other reserves		17,562			17,345
Other combined items—OCI only		15,282			17,684

		289,871			286,111
Less: Valuation Allowance		(44,511	)		(42,143	)

Net deferred income tax assets:		245,360			243,968
Deferred income tax liabilities:
Depreciable and amortizable assets		(322,317	)		(342,655	)
Other deferred tax liabilities		(2,329	)		(2,581	)

Net deferred income tax liabilities	$	(79,286	)	$	(101,268	)

There was no material impact of deferred taxes recorded in conjunction with the acquisition of Ascend Health Corporation.

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, 2012, 2011 and 2010 (dollar amounts in thousands):


	2012			2011			2010
Provision for income taxes	$	274,616		$	247,466		$	152,302
Income before income taxes		763,663			696,336			428,097

Effective tax rate		36.0	%		35.5	%		35.6	%

Impacting the effective tax rates during 2012 was approximately $1 million favorable discrete tax item recorded to adjust the estimated liabilities for uncertain tax positions. 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,
	2012			2011			2010
Federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal income tax benefit		3.0			2.9			3.1
Nondeductible transaction costs		0.2			—			1.3
Other items		0.1			0.4			0.4
Impact of income attributable to noncontrolling interests		(2.3	)		(2.8	)		(4.2	)

Effective tax rate		36.0	%		35.5	%		35.6	%

Included in “Other current assets” on our Consolidated Balance Sheet are prepaid federal, foreign, and state income taxes amounting to approximately $7 million and $25 million as of December 31, 2012 and 2011, respectively.

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


	Year Ended December 31,
	2012			2011
Current deferred taxes
Assets	$	105,639		$	109,297
Liabilities		(1,178	)		(973	)

Total deferred taxes-current		104,461			108,324

Noncurrent deferred taxes
Assets		142,065			135,189
Liabilities		(325,812	)		(344,781	)

Total deferred taxes-noncurrent		(183,747	)		(209,592	)

Total deferred tax liabilities	$	(79,286	)	$	(101,268	)

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, 2012, state net operating loss carryforwards (expiring in years 2013 through 2032), and credit carryforwards available to offset future taxable income approximated $959 million, representing approximately $48 million in deferred state tax benefit (net of the federal benefit). At December 31, 2012, related to the acquisition of PSI, there were federal net operating losses of approximately $1 million expiring in 2022 representing approximately $0.4 million in deferred federal tax benefits and foreign net operating loss carryforwards of approximately $9 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 $41 million and $39 million have been reflected as of December 31, 2012 and 2011, respectively. During 2012, the valuation allowance on these state tax benefits increased by approximately $2 million due to additional net operating losses incurred. In addition, valuation allowances of approximately $3 million have been reflected as of December 31, 2012 and 2011 related to foreign net operating losses. There were no significant increases in valuation allowances as a result of the acquisition of Ascend Health Corporation.

We adopted the provisions of Accounting for Uncertainty in Income Taxes effective January 1, 2007. During 2012 and 2011, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were increased in the amount of approximately $1 million due to tax positions taken in the current and prior years. There was no significant increase in 2012 attributable to tax positions taken by Ascend Health Corporation on pre-acquisition tax return years. Also during 2012, 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 $1 million. The balance at each of December 31, 2012 and 2011, if subsequently recognized, that would favorably affect the effective tax rate and the provision for income taxes is approximately $4 million and $5 million respectively.

We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2012 and 2011, we have approximately $1 million of accrued interest and penalties. The U.S. federal statute of limitations remains open for the 2009 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, 2012, 2011 and 2010 is as follows (amounts in thousands).


	As of December 31,
	2012			2011			2010
Balance at January 1,	$	7,403		$	7,923		$	5,754
Additions based on tax positions related to the current year		200			750			1,219
Additions for tax positions of prior years		386			419			2,076
Reductions for tax positions of prior years		(1,165	)		(1,628	)		(907	)
Settlements		—			(61	)		(219	)

Balance at December 31,	$	6,824		$	7,403		$	7,923