Income Taxes

For 2012, an income tax benefit of $2,221,000 was recorded as a result of the change of the Company's valuation allowance related to deferred tax liabilities that arose in the acquisition of Affinity. This income tax benefit had no impact on cash flows from operations for the year ended December 31, 2012. For 2013, an income tax benefit of $30,000 was recorded related to an income tax refund. Our effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2013 and 2012 as shown in the following table (in thousands):



	December 31,
	2013			2012
U.S. federal income taxes at the statutory rate	$	(1,372	)	$	(378	)
State taxes, net of federal effects	(297		)	(57		)
Nondeductible expenses	14			23
State tax credits, net	—			(171		)
Acquisition costs	37			224
Stock-based compensation	294			18
Debt cancellation	(35		)	—
Expired net operating loss carry-forwards	1,635			—
Other	14			(46		)
Change in valuation allowance	(320		)	(1,834		)
Income tax benefit	$	(30	)	$	(2,221	)

The tax effect of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2013 and 2012 is presented below (in thousands):



	December 31,
	2013			2012
Deferred tax assets:
Tax benefit of operating loss carry forward	$	15,490		$	16,304
Reserves and allowances	232			67
Accrued expenses	263			355
Charitable contributions	196			—
Goodwill	192			262
Equity based compensation	650			734
Fixed assets	306			230
Texas margin tax temporary credit	260			260
Total deferred tax assets	17,589			18,212
Valuation allowance	(15,568		)	(15,888		)
Net deferred tax assets	$	2,021		$	2,324

Deferred tax liabilities:
Intangible amortization	$	2,021		$	2,324
Total deferred tax liabilities	$	2,021		$	2,324

Net deferred tax assets	$	—		$	—

The ending balances of the deferred tax asset have been fully reserved, reflecting the uncertainties as to realizability evidenced by the Company’s historical results.

We and our subsidiaries file federal and state tax returns on a consolidated basis. During 2013, we determined that an “ownership change” occurred in 2013 (as defined under Section 382 of the Internal Revenue Code of 1986, as amended) which places an annual limitation on the utilization of the net operating loss (“NOL”) carryforwards accumulated before the ownership change. As a result of this annual limitation and the limited carryforward life of the accumulated NOLs, we determined that the ownership change resulted in the permanent loss of approximately $1.9 million of tax benefit associated with the NOL carryforwards. At December 31, 2013 we had accumulated NOL carryforwards of $37,165,000 available to offset future federal taxable income which expire in various amounts from 2017 through 2033. If it is determined that there is a subsequent ownership change in the future, the utilization of the Company’s NOL carryforwards may be further limited. This would result in a reduction in equal amounts to the deferred tax assets and the related valuation reserves.

There were no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ACS Topic 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statement, that have been recorded on the Company’s consolidated financial statements for the years ended December 31, 2013 and 2012. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.

Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2013 and 2012.

The federal and state tax returns for the years ending December 31, 2012, 2011, 2010 and 2009 are currently open and the tax return for the year ended December 31, 2013 will be filed by September 2014.