Support.com 2011 Annual Report Download - page 63

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ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Based on
management’s review of both the positive and negative evidence, which includes our historical operating performance, reported cumulative net losses
since inception and difficulty in accurately forecasting its results, the Company has concluded that it is not more likely than not that the Company will
be able to realize all of the Company’s U.S. deferred tax assets. Therefore, the Company has provided a full valuation allowance against our U.S.
deferred tax assets.
Based on management’s review of both positive and negative evidence, which includes the historical operating performance of our Canadian
subsidiary, the Company has concluded that it is more likely than not that the Company will be able to realize a portion of the Company’s Canadian
deferred tax assets. Therefore, the Company has released $118,000 of the related valuation allowance. There is no valuation allowance against the
Company’s India deferred tax assets primarily relating to Minimum Alternative Tax (MAT). The Company reassesses the need for its valuation
allowance on a quarterly basis.
Based on management’s review discussed above, the realization of deferred tax assets is dependent on improvements over present levels of
consolidated pre-tax income. Until the Company reaches profitability in the U.S., it will not realize its deferred tax assets. When the Company
reaches Federal taxable income, the Company may be subject to alternative minimum tax.
The net valuation allowance increased by approximately $5.6 million, and $6.0 million, during the years ended December 31, 2011 and 2010,
respectively. The increase in the Company’s net operating losses for the year ended December 31, 2011 is primarily due to the addition of Federal net
operating losses of $5.0 million.
As of December 31, 2011, the Company had Federal and state net operating loss carryforwards of approximately $114.7 million and
$83.5 million, respectively. The Company also had Federal and state research and development credit carryforwards of approximately $2.1 million and
$1.9 million, respectively. Of these amounts, approximately $6.5 million of Federal net operating loss carryforwards are related to stock option
deductions which, if utilized, will be accounted for as an addition to equity rather than as a reduction of the provision for income taxes. The Federal
net operating loss and credit carryforwards will expire at various dates beginning in 2019 through 2031, if not utilized. The state net operating loss
carryforwards will expire at various dates beginning in 2013 through 2031, if not utilized. The state research and development credit carryforwards do
not have an expiration date.
Utilization of net operating loss carryforwards and credits may be subject to substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration
of net operating losses and credits before utilization.
ASC 740 clarifies the accounting for uncertainties in income taxes by prescribing guidance for the recognition, de-recognition and measurement
in financial statements of income tax positions taken in previously filed tax returns or tax positions expected to be taken in tax returns, including a
decision whether to file or not to file in a particular jurisdiction. ASC 740 requires the disclosure of any liability created for unrecognized tax
benefits. The application of ASC 740 may also affect the tax bases of assets and liabilities and therefore may change or create deferred tax liabilities or
assets.
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