Annual report pursuant to section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Sep. 30, 2011
Income Taxes [Abstract]  
Income Taxes

Note 12. Income Taxes

The provision for income taxes (benefit) for the years ended September 30, 2011, 2010, and 2009 consists of the following:


     Fiscal year ended September 30  
     2011     2010     2009  



Federal income tax

   $ 4,141      $ (74   $ 268   

State income tax

     726        (869     439   











     4,867        (943     707   












Federal income tax

     608        (901     (408

State income tax

     (45     643        (137











     563        (258     (545










Total provision (benefit) for income taxes

   $ 5,430      $ (1,201   $ 162   











Income tax provision (benefit) attributable to income from continuing operations differed from the amount computed by applying the statutory federal income tax rate of 35% to pre-tax income as a result of the following:


     Fiscal year ended September 30  
     2011     2010     2009  

Tax at the statutory federal rate

   $ 4,259      $ (620   $ (1,185

Increase (decrease) resulting from:


State income taxes, net of federal benefit

     460        (66     (54

Nontaxable interest and dividends

     —          (37     (39

Federal impacts from IRS exam and tax return amendments

     713        404        —     

Deferred rate adjustment

     —          —          185   

Tax liability adjustments

     —          —          194   

Change in valuation allowance

     —          (569     651   

Permanent and other reconciling items, net

     (2     (313     410   










Total (benefit from) provision for income taxes

   $ 5,430      $ (1,201   $ 162   










The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of September 30, 2011 and 2010 are presented below:


     2011      2010  

Deferred tax assets:


Contribution carry forward

   $ 112       $ 523   

Deferred retirement benefits

     1,471         1,408   


     159         167   

Restricted stock compensation

     44         44   

Investment in Alico-Agri Limited Partnership

     23,677         23,677   

Net operating losses

     —           1,991   


     211         336   







Total gross deferred tax assets

     25,674         28,146   

Less: Contribution carry forward allowance

     —           (82







Total net deferred tax assets

     25,674         28,064   







Deferred tax liabilities:


Revenue recognized from citrus and sugarcane

     72         235   

Property and Equipment

     16,753         17,957   

Patronage Dividends

     —           619   

Investment in Magnolia

     366         207   







Total gross deferred tax liabilities

     17,191         19,018   







Net deferred income tax asset

   $ 8,483       $ 9,046   







The Company applies a "more likely than not" threshold to the recognition and non-recognition of tax positions. A change in judgment related to prior years' tax positions is recognized in the quarter of such change. The Company had no reserve for uncertain tax positions at September 30, 2011. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and in the liability for uncertain tax positions.

In the fiscal years ended September 30, 2011 and 2010, the Internal Revenue Service ("IRS") issued five Revenue Agent Reports ("RARs") pursuant to its examinations of Alico, Agri-Insurance and Alico-Agri for the tax years 2005 through 2007 (the "Dispute Period"). These RARs principally challenge (i) Agri-Insurance's ability to elect to be treated as a United States taxpayer during the years under examination; and (ii) Alico-Agri's ability to recognize income from two real estate sales under the installment method by asserting that Alico-Agri was a dealer in real estate during the years under examination. Based on the positions taken in the RARs, the IRS claimed additional taxes and penalties due of $31.1 million consisting of $14.5 million in taxes and $16.6 million in penalties. The RARs did not quantify the interest on the taxes.

We contested the positions taken in the RARs and pursued resolution through the IRS Appeals process. On November 22, 2011, we reached an agreement in principle to settle the issues. The settlement provides that Agri-Insurance was eligible to elect to be treated as a United States taxpayer. No determination was made as to whether Alico or Alico-Agri was a dealer in real estate; however, for the two sales transactions at issue, we agreed to treat one-third of the taxable gain as ordinary income taxable in the year of sale with the remaining two-thirds treated as capital gain eligible for installment sale treatment. Federal and state taxes and interest due as a result of the settlement are estimated at approximately $0.9 million and $0.7 million, respectively, and have been accrued at September 30, 2011. However, the estimated effect on income tax expense for the year ended September 30, 2011, is only $0.6 million due to the reversal of temporary differences. Federal penalties of $15.3 million were considered by IRS Appeals and have been waived. The remaining $1.3 million in penalties have not yet been considered by IRS Appeals to date but waiver of these penalties would be consistent with the issues resolved in the settlement. The estimated taxes and interest due are subject to final computation and confirmation by the IRS. The settlement does not preclude Alico from using the installment sale method with respect to future transactions.

The purchasers of the installment sale properties ultimately defaulted on the deferred payment obligations, and Alico-Agri recovered one of the properties through foreclosure and the other by deed in lieu of foreclosure. The Company will eventually recover any taxes due on the deferred portion of the sales as a result of the loss on the purchasers' default. The timing difference that would result from the payment of claimed taxes and the subsequent receipt of refunds or credits against future taxes would be presented in the Company's deferred tax accounts.

The state income tax returns for the years under audit by the IRS have not been audited by the Florida Department of Revenue and other State jurisdictions and are subject to audit for the same tax periods open for federal tax purposes. Additionally, the Company has executed statute extensions with the IRS for the years currently under audit until June 2012.