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 corporations, or entities that are treated as partnerships for federal income tax purposes, 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):



	2012			2011
Deferred tax assets:
Deferred compensation	$	9,271		$	14,544
Impairment charges on securities	2,359			1,727
Impairment charges on water assets	14,036			13,974
Impairment charges on real estate	2,074			2,041
Capitalized expenses	6,719			3,073
Net operating losses, capital losses, and tax credit carryforwards	20,383			4,473
Legal settlement expense	1,298			1,293
Accumulated foreign currency translation adjustments	3,251			3,007
Unearned revenue
Employee benefits, including stock-based compensation	5,113			5,410
Excess tax basis in affiliate	1,975			1,943
Other	2,281			2,016
Total deferred tax assets	68,760			53,501
Deferred tax liabilities:
Unrealized appreciation on securities	(2,736		)	(543		)
Revaluation of real estate and water assets	(5,139		)	(5,118		)
Foreign loan	(5,411		)	(5,088		)
Real estate installment sales	(541		)	(650		)
Other	(1,089		)
Total deferred tax liabilities	(14,916		)	(11,399		)
Valuation allowance	(53,844		)	(42,102		)
Net deferred income tax asset	$	—		$	—

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. Valuation allowances are established and maintained for deferred tax assets on a “more likely than not” threshold. At December 31, 2011, the Company considered it more likely than not that the deferred tax assets would not be realized and a full valuation allowance was provided. At December 31, 2012, after evaluating the positive and negative evidence, management concluded to maintain a full valuation allowance against its deferred tax assets. 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 federal net operating loss carryforwards of $36 million and state net operating loss carryforwards of approximately $65.8 million at December 31, 2012 that will expire at various times beginning in 2016 through 2032, if not utilized. The Company also has federal foreign tax credit carryforwards of approximately $3.3 million, as a result of foreign taxes paid in a foreign jurisdiction. These carryforwards will begin to expire in 2018, if not utilized.

Utilization of the Company's U.S. federal and certain state net operating loss and tax credit carryovers may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss carry-forwards before utilization. As of December 31, 2012, the Company believes that utilization of its federal net operating losses and foreign tax credits are not limited under any ownership change limitations provided under the Internal Revenue Code.

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



	2012			2011			2010
United States	$	(29,578	)	$	(34,657	)	$	(24,959	)
Foreign							(3,696		)
Total pre-tax loss	$	(29,578	)	$	(34,657	)	$	(28,655	)

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



	2012			2011			2010
Current tax expense (benefit):
United States Federal and state	$	(941	)	$	(4,138	)	$	(2,539	)
Foreign							1,045
	(941		)	(4,138		)	(1,494		)
Deferred tax expense (benefit):
United States Federal and state	(128		)	26,289			(11,023		)
Foreign							(1		)
	(128		)	26,289			(11,024		)
Total income tax provision (benefit)	$	(1,069	)	$	22,151		$	(12,518	)

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



	2012			2011			2010
Federal income tax provision at statutory rate	$	(10,352	)	$	(12,130	)	$	(10,029	)
Change in valuation allowance	7,024			38,535			(221		)
State taxes, net of federal benefit	(299		)	(2,936		)	692
Change in liability for uncertain tax positions				(512		)	(1,687		)
Nondeductible compensation	1,357			1,421			815
Tax rate change through OCI				(668		)	(708		)
Equity in loss of unconsolidated affiliate				(1,853		)	(1,301		)
Other	1,201			294			(79		)
Total income tax provision (benefit)	$	(1,069	)	$	22,151		$	(12,518	)

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



	2012		2011			2010
Balance at beginning of year	$	—	$	567		$	2,592
Additions for tax positions related to the current year
Reductions due to expiration of assessment period			(567		)	(2,025		)
Balance at end of year	$	—	$	—		$	567

At December 31, 2012, the Company had no uncertain tax positions or any related accrued interest or penalties.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. As of December 31, 2012, the Company's statute is open from 2008 forward for federal and from 2008 for state tax purposes. The Company's 2008 and 2009 federal income tax returns are 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.