7.	Income Taxes

The Company's (benefit from) provision for income taxes for the years ended December 31, 2011, 2010 and 2009 consisted of the following (in thousands):


	Year Ended December 31,
	2011			2010			2009
Current tax benefit
Federal	$	(3,652	)	$	(481	)	$	(132,014	)
State		(5,430	)		(5,350	)		-

Total current		(9,082	)		(5,831	)		(132,014	)

Deferred tax expense
Federal		-			-			-
State		-			-			-

Total deferred		-			-			-

Benefit from income taxes	$	(9,082	)	$	(5,831	)	$	(132,014	)

The (benefit from) provision for income taxes differs from the amount that would be computed by applying the statutory federal income tax rate of 35% to income before income taxes as a result of the following (dollars in thousands).


	Year Ended December 31,
	2011			2010			2009
Tax benefit computed at federal statutory rate	$	(37,615	)	$	(24,711	)	$	(37,567	)
State income tax benefit, net of federal benefit		(3,762	)		(2,471	)		(3,757	)
Permanent differences		93			319			(2,720	)
Change in state tax rate on temporary differences		-			-			(2,795	)
Liability for unrecognized tax benefits		(9,173	)		(4,082	)		950
Change in valuation allowance		41,375			25,114			(86,125	)

Benefit from income taxes	$	(9,082	)	$	(5,831	)	$	(132,014	)

Effective tax rate		8.5%			8.3%			123.0%

During 2011, the Company recorded a $9.1 million benefit from income taxes, primarily related to the settlements of various state income tax matters and our settlement with the IRS on its audit of the 2004 and 2005 federal income tax returns.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax asset are as follows (in thousands).


	December 31,
	2011			2010
Deferred tax assets
Federal net operating loss carryforward	$	133,454		$	73,189
State net operating loss carryforward		53,350			47,041
Asset impairment charges		31,137			46,118
Stock-based compensation expense		26,771			22,777
Warranty, litigation and other reserves		18,933			27,635
Accrued liabilities		10,667			9,789
Alternative minimum tax and other tax credit carryforwards		10,296			10,296
Inventory, additional costs capitalized for tax purposes		3,466			5,368
Unrealized loss on marketable securities		2,787			-
Charitable contribution on carryforward		942			938
Deferred revenue		580			326
Property, equipment and other assets		-			1,773

Total deferred tax assets		292,383			245,250
Valuation allowance		(281,178	)		(231,379	)

Total deferred tax assets, net of valuation allowance		11,205			13,871

Deferred tax liabilities
Deferred revenue		5,589			6,401
Property, equipment and other assets		706			-
Inventory, additional costs capitalized for financial statement purposes		542			604
Accrued liabilities		32			713
Unrealized gain on marketable securities		-			1,880
Other, net		4,336			4,273

Total deferred tax liabilities		11,205			13,871

Net deferred tax asset	$	-		$	-

At December 31, 2011, the Company had $133.5 million in tax effected federal net operating loss carryforwards. These operating loss carryforwards, if unused, will begin to expire in 2028. Additionally, the Company had $53.4 million in tax effected state net operating loss carryforwards. These operating loss carryforwards, if unused, will begin to expire in 2012.

The increase in the Company's valuation allowance between December 31, 2011 and 2010 was primarily due to the pre-tax net loss incurred by the Company during 2011 and the inability to carry back any federal net operating losses at December 31, 2011. The Company's future realization of its deferred tax assets ultimately depends on the existence of sufficient taxable income in the carryforward periods under the tax laws. The Company will continue analyzing, in subsequent reporting periods, the positive and negative evidence in determining the expected realization of its deferred tax assets.

The following table summarizes the Company's liability associated with unrecognized tax benefits for the years ended December 31, 2011, 2010 and 2009 (in thousands):


	Year Ended December 31,
	2011			2010			2009
Gross unrecognized tax benefits at beginning of year	$	48,963		$	52,837		$	59,129
Increases related to prior year tax positions		-			13			209
Decreases related to prior year tax positions		(286	)		(2,323	)		(649	)
Increases related to current year tax positions		85			385			1,085
Decreases related to current year tax positions		-			-			(715	)
Settlements with taxing authorities		(38,543	)		(1,414	)		(6,222	)
Lapse of applicable statute of limitations		(7,507	)		(535	)		-

Gross unrecognized tax benefits at end of year	$	2,712		$	48,963		$	52,837

The Company's liability for gross unrecognized tax benefits was $2.7 million and $49.0 million at December 31, 2011 and 2010, respectively. This decrease resulted primarily from the Company's settlement with the IRS on the audit of its 2004 and 2005 federal income tax returns and settlement of various state income tax matters.

In addition to the above, the Company's 2011 first quarter settlement with the IRS resulted in an increase of $13.0 million to additional paid-in-capital in the Company's Consolidated Statements of Stockholders' Equity. An additional $5.4 million increase to additional paid-in-capital occurred during the 2011 third quarter due to the expiration of various statutes of limitations. Finally, since the Company settled for an amount less than the $35.6 million deposit the Company made with the IRS during 2008, the settlement resulted in an increase of $11.1 million to income taxes receivable in the Company's Consolidated Balance Sheets. The Company received payment from the IRS during the 2011 second quarter.

The total liabilities associated with unrecognized tax benefits that, if recognized, would impact the effective tax rates in the Company's Consolidated Statements of Operations is $1.0 million, $5.0 million and $7.6 million at December 31, 2011, 2010 and 2009, respectively.

The Company accrues interest and penalties associated with unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations, and the corresponding liability in accrued liabilities in the Consolidated Balance Sheets. The expense (benefit) for interest and penalties reflected in the Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009 was approximately ($4.8) million, ($1.8) million and $0.8 million (interest net of related tax benefits), respectively. The corresponding liabilities in the Consolidated Balance Sheets were $0.8 million and $10.7 million at December 31, 2011 and 2010, respectively.

The Company has taken positions in certain taxing jurisdictions for which it is reasonably possible that the total amounts of unrecognized tax benefits may decrease within the next twelve months. The possible decrease could result from the expiration of various statutes of limitation and the finalization of various state income tax matters. The estimated range of the reasonably possible decrease is $0 to $2.0 million.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is subject to U.S. federal income tax examination for calendar tax years ending 2008 through 2011. Additionally, the Company is subject to various state income tax examinations for the 2001 through 2011 calendar tax years. The Company currently is under state income tax examination in the states of California and Utah for various tax years.