11. INCOME TAXES

The income tax provision consists of the following:


(In millions)	For the Years Ended December 31,
	2012		2011			2010
Income before provision for income taxes:	$	343.1	$	296.4		$	253.5

Current provision for income taxes:
Federal	$	94.9	$	87.7		$	66.2
State		3.5		6.3			3.7
		98.4		94.0			69.9
Deferred provision for income taxes:
Federal		23.6		13.3			16.7
State		1.4		2.0			(2.8	)
		25.0		15.3			13.9
Interest and penalties benefit:
Interest		-		(0.7	)		(0.2	)
Penalties		-		(0.2	)		(0.2	)
		-		(0.9	)		(0.4	)
Provision for income taxes	$	123.4	$	108.4		$	83.4

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities consist of the following:


(In millions)	As of December 31,
	2012		2011
Deferred tax assets:
Allowance for credit losses	$	64.2	$	56.3
Stock-based compensation		10.0		5.9
Deferred state net operating loss		1.9		2.7
Other, net		6.6		4.9
Total deferred tax assets		82.7		69.8

Deferred tax liabilities:
Valuation of Loans receivable		220.5		184.4
Deferred Loan origination costs		3.7		3.4
Other, net		6.9		5.4
Total deferred tax liabilities		231.1		193.2
Net deferred tax liability	$	148.4	$	123.4

The deferred state net operating loss tax asset arising from the operating loss carry forward for state income tax purposes is expected to expire at various times beginning in 2019, if not utilized. We do not anticipate expiration of the net operating loss carry forwards prior to their utilization.

A reconciliation of the U.S. federal statutory rate to our effective tax rate is as follows:


	For the Years Ended December 31,
	2012			2011			2010
U.S. federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes		1.4	%		2.1	%		0.2	%
Changes in reserve for uncertain tax positions as a result of settlements and lapsed statutes and related interest		-0.6	%		-0.5	%		-2.4	%
Other		0.2	%		-	%		0.1	%
Effective tax rate		36.0	%		36.6	%		32.9	%

The differences between the U.S. federal statutory rate and our effective tax rates for 2012, 2011 and 2010 are primarily due to state income taxes and reserves for uncertain tax positions and related interest and penalties that are included in the provision for income taxes. The decrease in the effective tax rate for the year ended December 31, 2010, as compared to 2012 and 2011, is primarily due to a settlement of the Internal Revenue Service (“IRS”) examination detailed below and related adjustments to accrued tax reserves and interest as well as adjustments to our state tax liability.

The state income taxes for the years ended December 31, 2012, 2011 and 2010 fluctuate due to variability in the amount of income taxable in various state tax jurisdictions with differing statutory tax rates and changes in state statutory tax rates. As a result of an adjustment to the deferred tax liability arising from changes in the effective state income tax rate, the effective tax rate for 2012 decreased by 50 basis points and the effective tax rate for 2011 increased by 10 basis points. There were no such adjustments recorded for 2010.

On June 7, 2010, we reached a settlement with the IRS which concluded the examination of our federal income tax returns for 2004 through 2008 and closed the respective tax years. As a result of the settlement, we agreed to pay a total of $7.6 million in federal and state taxes and interest related to these years. The settlement includes $6.2 million of taxes that represent an acceleration of taxes already provided for in prior periods and the payment did not have an impact on our net income during the reporting periods. We also concluded that all 2004 through 2008 uncertain federal jurisdiction tax positions taken in previous periods are effectively settled and we recorded a reversal of corresponding accrued reserves and interest. This reversal had a favorable impact of $6.2 million (after-tax) on our net income for the year ended December 31, 2010.

The following table is a summary of changes in gross unrecognized tax benefits:


(In millions)	For the Years Ended December 31,
	2012			2011			2010
Unrecognized tax benefits at January 1,	$	10.0		$	7.8		$	11.8
Additions based on tax positions related to current year		3.1			2.7			2.3
Additions in tax positions of prior years		-			0.4			0.1
Reductions for tax positions of prior years		(0.4	)		-			(0.1	)
Settlements		(0.2	)		-			(5.8	)
Reductions as a result of a lapse of the statute of limitations		(1.5	)		(0.9	)		(0.5	)
Unrecognized tax benefits at December 31,	$	11.0		$	10.0		$	7.8

The total amount of gross unrecognized tax benefit that, if recognized, would favorably affect our effective income tax rate in future periods, was $11.0 million as of December 31, 2012. Accrued interest related to uncertain tax positions was $2.1 million and $1.9 million as of December 31, 2012 and 2011, respectively.

We are subject to income tax in multiple federal and state jurisdictions. For state returns, we are generally no longer subject to tax examinations for years prior to 2006.