10.

INCOME TAXES

The Company accounts for income taxes using ASC 740, “Income Taxes” which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized differently in the financial statements and the tax returns. The provision (benefit) for income taxes consists of the following at December 31:


($ in thousands)	2011			2010		2009
Total provision (benefit):	$	7,367		$	2,852	$	(2,354	)

Federal:
Current	$	6,812			169		(923	)
Deferred		(1,233	)		2,055		(909	)

		5,579			2,224		(1,832	)
State:
Current		2,133			112		71
Deferred		(345	)		516		(593	)

		1,788			628		(522	)

	$	7,367		$	2,852	$	(2,354	)

The reasons for the difference between total income tax expense and the amount computed by applying the statutory Federal income tax rate (34%) to income before taxes are as follows for the years ended December 31:


($ in thousands)	2011			2010			2009
Income tax (benefit) at statutory rate	$	7,909		$	2,389		$	(1,968	)
State income taxes, net of Federal benefit		1,180			384			(351	)
Oil and mineral depletion		(552	)		(275	)		(250	)
Land contribution		—			—			750
Valuation allowance - land contribution		(595	)		—			(750	)
Other, net		(575	)		354			215

Total provision (benefit)	$	7,367		$	2,852		$	(2,354	)

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. Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31:


($ in thousands)	2011		2010
Deferred income tax assets:
Accrued expenses	$	222	$	226
Deferred revenues		829		271
Capitalization of costs		1,746		1,424
Pension adjustment		3,660		1,494
Stock grant expense		6,955		5,554
State deferred taxes		761		—
Book deferred gains		963		963
Provision for additional capitalized costs		1,210		1,003
Charitable contributions carryforward		—		892
Other		382		922

Total deferred income tax assets		16,728		12,749

Deferred income tax liabilities:
Deferred gains		1,390		1,390
Depreciation		2,504		2,469
Cost of sales allocations		1,252		1,252
Joint venture allocations		1,054		560
Straight line rent		1,117		1,142
Prepaid expenses		189		98
State deferred taxes		574		406
Other		704		697

Total deferred income tax liabilities		8,784		8,014

Net deferred income tax asset		7,944		4,735

Allowance for deferred tax assets		—		(750	)

Net deferred taxes	$	7,944	$	3,985

The net current and non-current deferred tax assets for 2011 and 2010 are included separately on the face of the balance sheet. Due to the nature of most of our deferred tax assets, the Company believes they will be used through operations in future years and an allowance is not necessary.

During 2011 and 2010, the Company recognized certain net tax benefits related to stock option plans in the amount of $634,000 and $204,000, respectively. Such benefits were recorded as a reduction of income taxes payable and an increase in additional paid in capital.

The Company made total income tax payments of $6,600,000 in 2011 and $875,000 during 2010 that was related primarily to the settlement of a tax audit. The Company received $1,598,000 federal refund in 2011. The Company made no income tax payments during 2009, but received combined federal and state tax refunds related to 2008 in the amount of $661,000.

The Company classifies interest and penalties incurred on tax payments as income tax expenses. During 2010, the Company paid approximately $137,000 in interest costs related to the settlement of a tax audit. The Company recognized accrued interest of $71,000 related to unrecognized tax benefits during year ended December 31, 2009 and penalties of $8,000 during the year.

The Company evaluates its tax positions for all income tax items based on their technical merits to determine whether each position satisfies the “more likely than not to be sustained upon examination” test. The tax benefits are then measured as the largest amount of benefit, determined on a cumulative basis, that is “more likely than not” to be realized upon ultimate settlement. At December 31, 2009, there were $490,000 of unrecognized tax benefits that relate to tax positions of prior years. During 2010, the Internal Revenue Service, or “IRS,” concluded an examination of the Company’s federal income tax returns for 2005, 2006 and 2007. The IRS proposed certain adjustments stemming from the timing of deductions taken for certain costs which the Company expensed when incurred and which the IRS contends should be capitalized and deducted in a later tax period. Management evaluated the proposed adjustments and disagreed with the position taken by the IRS. During October 2010, the Company reached a settlement with the IRS San Francisco Appeals Office. The settlement resulted in the capitalization of costs in 2005 and 2006 to our development projects. Settlement costs of approximately $875,000 related to increased tax payments for 2006 and 2005 were made during the fourth quarter of 2010. Tax years from 2006 to 2010 remain subject to examination by the Federal and California State taxing authorities.