FEDERAL, FOREIGN AND STATE CURRENT AND DEFERRED INCOME TAX:

The Company and its U.S. subsidiaries file a consolidated federal income tax return. Companies that are less than 80% owned file separate federal income tax returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The significant components of deferred income tax assets and liabilities are as follows (in thousands):



	2011			2010
Deferred tax assets:
Deferred compensation	$	14,544		$	15,633
Basis difference on investment	194			127
Impairment charges on securities	4,410			8,149
Impairment charges on water assets	13,974			8,425
Impairment charges on real estate	2,041
Capitalized expenses	3,073			2,542
Net operating losses and tax credit carryforwards (primarily state attributes)	4,486			1,998
Legal settlement expense	1,293			1,337
Accumulated foreign currency translation adjustments	2,813			2,154
Unearned revenue	710			597
Employee benefits, including stock-based compensation	5,433			4,927
Excess tax basis in affiliate	1,943
Other	2,302			3,814
Total deferred tax assets	57,216			49,703
Deferred tax liabilities:
Unrealized appreciation on securities	2,544			10,826
Revaluation of real estate and water assets	5,118			5,493
Foreign receivables	5,088			5,024
Real estate installment sales	647			1,589
Excess tax basis in affiliate	—			1,795
Other	153			1,322
Total deferred tax liabilities	13,550			26,049
Valuation allowance	(43,666		)	(3,615		)
Net deferred income tax asset	$	—		$	20,039

Deferred tax assets and liabilities and federal income tax expense in future years can be significantly affected by changes in circumstances that would influence management's conclusions as to the ultimate realization of deferred tax assets.

The increase in valuation allowance at December 31, 2011 is primarily attributed to the establishment of a full valuation allowance against the Company's net federal deferred tax assets. Valuation allowances are established and maintained for deferred tax assets on a “more likely than not” threshold. The Company has considered the following possible sources of taxable income when assessing the realization of the deferred tax assets: (1) future reversals of existing taxable temporary differences; (2) taxable income in prior carryback years; (3) tax planning strategies; and (4) future taxable income exclusive of reversing temporary differences and carryforwards. Reliance on future U.S. taxable income as an indicator that a valuation allowance is not required is difficult when there is negative evidence such as the Company's cumulative losses in recent years. In considering the evidence as to whether a valuation allowance is needed, the existence of cumulative losses in recent years is a factor that is accorded significant weight in the Company's assessment. As a result, a determination was made that there was not sufficient positive evidence to enable the Company to conclude that it was “more likely than not” that these deferred tax assets would be realized. Therefore, the Company has provided a full valuation allowance against the Company's net deferred tax assets. This assessment will continue to be undertaken in the future. The Company's results of operations may be impacted in the future by the Company's inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax assets. The Company's results of operations might be favorably impacted in the future by reversals of valuation allowances if the Company is able to demonstrate sufficient positive evidence that the Company's deferred tax assets will be realized. Furthermore, any income reported in future periods from the sale of assets or the operations of Northstar, would represent objective positive evidence and may result in a full or partial reversal of the valuation allowance.

The Company has state net operating loss carryforwards of approximately $58 million at December 31, 2011 that will expire at various times beginning in 2016 through 2031, if not utilized. The Company also has federal foreign tax credit carryforwards of approximately $1.1 million, as a result of foreign taxes paid in the foreign jurisdiction. These carryforwards will begin to expire in 2020, if not utilized.

Pre-tax income or loss from continuing operations for the years ended December 31, was under the following jurisdictions (in thousands):



	2011			2010			2009
United States	$	(15,685	)	$	(16,142	)	$	(40,523	)
Foreign				(3,696		)	(219		)
Total pre-tax loss	$	(15,685	)	$	(19,838	)	$	(40,742	)

Income tax expense or benefit from continuing operations for each of the years ended December 31 consists of the following (in thousands):



	2011		2010			2009
Current tax expense (benefit):
United States Federal and state	$	791	$	(1,277	)	$	(20,634	)
Foreign			1,045			(92		)
	791		(232		)	(20,726		)
Deferred tax expense (benefit):
United States Federal and state	28,033		(9,250		)	704
Foreign			(1		)	762
	28,033		(9,251		)	1,466
Total income tax provision (benefit)	$	28,824	$	(9,483	)	$	(19,260	)

The difference between income taxes provided at the Company’s federal statutory rate and effective tax rate is as follows (in thousands):



	2011			2010			2009
Federal income tax provision at statutory rate	$	(5,490	)	$	(6,943	)	$	(14,260	)
Change in valuation allowance	40,051			(221		)	3,249
State taxes, net of federal benefit	(2,882		)	692			(5,209		)
Change in liability for uncertain tax positions	(512		)	(1,687		)	(2,476		)
Nondeductible compensation	1,421			815			311
Previously untaxed earnings and profits from foreign subsidiaries							(1,710		)
Tax rate change through OCI	(668		)	(708		)	(350		)
Equity in loss of unconsolidated affiliate	(1,853		)	(1,301		)	(97		)
Basis difference on sale of subsidiary							2,402
Deferred Compensation – amounts no longer subject to §162(m)							(2,000		)
Other	(1,243		)	(130		)	880
Total income tax provision (benefit)	$	28,824		$	(9,483	)	$	(19,260	)

The following table summarizes the activity related to the unrecognized tax benefits (in thousands):



	2011			2010			2009
Balance at beginning of year	$	567		$	2,592		$	12,608
Additions for tax positions related to the current year
Reductions due to expiration of assessment period	(567		)	(2,025		)	(10,016		)
Balance at end of year	$	0		$	567		$	2,592

The decrease in balance on unrecognized tax benefits was primarily as a result to the closure of an open tax year for various state income tax issues. Consequently, at December 31, 2011, the Company had no uncertain tax positions or any related accrued interest.

The Company is subject to taxation in the U.S. and various states jurisdictions. As of December 31, 2011, the Company's statute is open from 2008 forward for federal and from 2007 for state tax purposes. The Company's 2008 and 2009 federal income tax return is under examination by the U.S. Internal Revenue Service and the Company's 2006 through 2008 California income tax returns are under examination by the California Franchise Tax Board. Although the outcome of tax audits is always uncertain, the Company believes that the results of the examination will not materially affect its financial position or results of operations.