NOTE 13. INCOME TAXES

        The provision for income taxes attributable to continuing operations for the years ended December 31, 2012 and December 31, 2011 is presented below.

        The income tax expense applicable to continuing and discontinued operations is presented below.

        At December 31, 2012 and 2011, the tax effect of significant temporary differences representing deferred tax assets and liabilities are as follows:

        The items accounting for the differences between income taxes computed at the federal statutory rate and the provision for income taxes are as follows:

        As of December 31, 2012 AdCare had consolidated federal net operating loss ("NOL") carry forwards of $14.2 million. These NOLs begin to expire in 2018 through 2032 and currently are offset by a full valuation allowance.

        Given the Company's historical net operating losses, a full valuation allowance has been established on the Company's net deferred tax assets. The Company has generated additional deferred tax liabilities related to its tax amortization of certain acquired indefinite lived intangible assets because these assets are not amortized for book purposes. The tax amortization in current and future years gives rise to a deferred tax liability which will only reverse at the time of ultimate sale or book impairment. Due to the uncertain timing of this reversal, the temporary differences associated with indefinite lived intangibles cannot be considered a source of future taxable income for purposes of determining a valuation allowance. As such, the deferred tax liability cannot be used to support an equal amount of the deferred tax asset related to the NOL carry forward ("naked credit"). This resulted in recognizing deferred Federal tax expense of $0.1 million for each of the years ended December 31, 2012 and 2011, and a deferred tax liability of $0.1 million as of both December 31, 2012 and 2011.