Stamps.com 2011 Annual Report Download - page 69

STAMPS.COM INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During 2009 no discrete event occurred to support an additional release of our valuation allowance. During the second quarter of 2010, we
recorded an income tax benefit of approximately $4.0 million when we determined that a release of a portion of our valuation allowance was
appropriate as a result of the following discrete events: (1) the attainment of over five consecutive years of taxable income, (2) the material
decline of our Section 382 ownership under the Internal Revenue Code from approximately 34% as of March 31, 2010 to approximately 24% as
of June 30, 2010, and (3) the settlement of our outstanding patent infringement litigation with Kara Technology, which improved our confidence
in our short-
term taxable income projection by eliminating the uncertainty of a potential large negative judgment against us and eliminating the
related on-
going third party litigation expenses. During the fourth quarter of 2011 we released a portion of our valuation allowance totaling
approximately $8.5 million as a result of an increase in our projected taxable income.
In making these determinations, we considered the available positive and negative evidence, including our recent earnings trend and expected
future taxable income. As of December 31, 2011, we continued to maintain a valuation allowance for the remainder of our gross deferred tax
assets.
In September 2008, the State of California passed legislation temporarily suspending the use of NOLs to offset current state income tax expense
for the tax years 2008 and 2009. In October 2010, the State of California passed legislation extending this suspension for tax years 2010 and
2011. As a result of not being able to use our state NOLs, we incurred approximately $370,000 and $523,000 of additional California state
income tax expense during the years ended December 31, 2009 and 2008, respectively. We did not incur any additional California state income
tax as a result of the state NOL suspension during the year ended December 31, 2010 as we were able to offset 100% of our state income tax
liability through the use of our research and development tax credits. During 2011 we were in a taxable loss position for tax reporting purposes
and as a result we did not use any tax credits. We recorded a current tax provision for corporate alternative minimum federal taxes and state
taxes of approximately $0, $34,000 and $554,000 during the years ended December 31, 2011, 2010 and 2009, respectively. Total tax (benefit)
provision was approximately ($8.5) million, ($3.9) and $554,000 during the years ended December 31, 2011, 2010 and 2009, respectively.
Under the guidance related to uncertain tax positions, we are required to determine whether it is more likely than not that a tax position will be
sustained upon examination based on the technical merits of the position. A tax position that meets the more likely than not recognition threshold
is measured to determine the amount of benefit to recognize in the financial statements.
In accordance with the guidance we have evaluated our research and development tax credits for uncertain tax positions. As of December 31,
2011 we have research and development tax credits totaling $4.8 million for Federal and California purposes. In addition, we had $1.7 million of
unrecognized federal tax benefits which is subject to examination by the taxing authorities and upon further examination, we may increase or
decrease our unrecognized tax benefit based on the results of the examination.
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