Annual report pursuant to section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2012
INCOME TAXES [Abstract]  
Income Taxes
NOTE 12
INCOME TAXES
 
The components of current and deferred federal and state income tax expense (benefit) for continuing operations for the years ended December 31, consisted of the following (in thousands):

   
2012
    
2011
    
2010
  
Federal income tax (benefit) expense - current
   $ (576 )   $ 2,043     $ 112  
Federal income tax expense (benefit) - deferred
     1,527       (2,692 )     1,717  
State income tax expense (benefit) - current
     196       92       (85 )
State income tax expense (benefit) - deferred
     103       (538 )     102  
Total income tax expense (benefit)
   $ 1,250     $ (1,095 )   $ 1,846  

We had temporary differences and net operating loss carry forwards from both our continuing and discontinued operations, which gave rise to deferred tax assets and liabilities at December 31, as follows (in thousands):

Deferred tax assets:
  
2012
    
2011
  
Net operating losses
   $ 8,621     $ 4,425  
Environmental and closure reserves
     4,740       5,047  
Impairment of assets
     505       7,679  
Investment
     (59 )     197  
Other
     3,798       2,946  
Tax credit
     869       ―  
Deferred tax liabilities:
                
Depreciation and amortization
     (8,124 )     (9,167 )
Prepaid expenses
     (16 )     (46 )
      10,334       11,081  
Valuation allowance
     (5,729 )     (7,360 )
Net deferred income tax asset
     4,605       3,721  
Reserve for uncertain tax positions
     (1,949 )     ―  
Net total deferred income tax asset
   $ 2,656     $ 3,721  
 
An overall reconciliation between the expected tax expense (benefit) using the federal statutory rate of 34% and the provision (benefit) for income taxes from continuing operations as reported in the accompanying consolidated statement of operations is provided below.
 
   
2012
    
2011
    
2010
  
Tax (benefit) expense at statutory rate
   $ (1,847 )   $ 3,557     $ 1,740  
State tax (benefit) expense, net of federal benefit
     (131 )     35       (56 )
Previously unrecorded state tax benefit
     ―       ―       (173 )
Permanent items
     110       150       61  
Other
     (23 )     (377 )     (1,369 )
Reserve for uncertain tax position
     1,949       ―       ―  
Write-off of deferred tax asset
     1,375       ―       ―  
(Decrease) increase in valuation allowance
     (183 )     (4,460 )     1,643  
Income tax expense (benefit)
   $ 1,250     $ (1,095 )   $ 1,846  

The provision for income taxes is determined in accordance with ASC 740, "Income Taxes". Deferred income tax assets and liabilities are recognized for future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company regularly assesses the likelihood that the deferred tax asset will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred income taxes to an amount that is more likely than not to be realized. In 2012, 2011 and 2010, we determined that it was more likely than not that approximately $2,656,000, $3,721,000 and $554,000, respectively, of deferred income tax assets will be realized based, primarily, on profitable historic results and projections of future taxable income. Our valuation allowance (decreased) increased by approximately ($183,000), ($4,460,000) and $1,643,000 for the years ended December 31, 2012, 2011, and 2010, respectively.

We have estimated net operating loss carryforwards (NOLs) for federal and state income tax purposes of approximately $17,877,000 and $46,281,000, respectively, as of December 31, 2012. These net operating losses can be carried forward and applied against future taxable income, if any, and expire in various amounts through 2021. However, as a result of various stock offerings and certain acquisitions, the use of these NOLs will be limited under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended. Additionally, NOLs may be further limited under the provisions of Treasury Regulation 1.1502-21 regarding Separate Return Limitation Years.

Included in the Company's income tax expense for 2012 is approximately $1,375,000 attributed to deferred tax assets that, based upon new information obtained by management, would not be realized by the Company.

The Company accounts for uncertainties in income taxes pursuant to ASC 740 (formerly FASB interpretation No. 48, "Accounting for Uncertainties in Income Taxes – an Interpretation of FASB Statement No, 109") ("FIN 48"). The guidance prescribes a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions. In the first of the two-step process prescribed in the interpretation, the Company evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including the resolution of related appeals or litigation processes, if any. In the second step, the Company measures the tax benefit at the percentage that is cumulatively greater than 50% likely of being realized upon ultimate settlement with the relevant tax authorities. The Company recorded a change to income tax expense of approximately of $1,949,000 related to an uncertain tax position in 2012.
 
A reconciliation of the beginning and ending amount of our unrecognized tax expense is summarized as follows (in thousands):
 
   
2012
    
2011
    
2010
  
Balances at beginning of year
   $ ―     $ ―     $ ―  
Addition related to current year tax position
     1,949       ―       ―  
Balances at end of the year
   $ 1,949     $ ―     $ ―  
 
The Company does not include interest and penalties related to income taxes, including unrecognized tax expenses, within the provision for income taxes.
 
Based on information available as of December 31, 2012, it is reasonably possible that the total amount of unrecognized tax benefit of $1,949,000 could decrease over the next 12 months as the Company completes its final gathering of the necessary documentation required by the taxing authorities to substantiate this income tax deduction and file its 2012 tax returns.
 
In many cases, the Company's unrecognized tax benefits are related to tax years that remain subject to examination by relevant tax authorities. The earliest tax years that remain subject to examination are year 2009 for U.S. Federal and 2008 for other U.S. state and local jurisdictions.