|12 Months Ended|
Dec. 31, 2015
10. Income Taxes
Income before income tax provision was generated in the following jurisdictions:
The components of the income tax provision charged to operations are summarized as follows:
Net deferred tax assets (liabilities) consist of the following:
The valuation allowance for net deferred tax assets as of December 31, 2015 and 2014 was $3,493 and $0, respectively. The valuation allowance as of December 31, 2015 was related to state/federal net operating losses and foreign tax credits. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some or all of the deferred tax assets will be realized.
The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which net operating losses and temporary differences are deductible. Management considers the scheduled reversal of deferred tax assets and liabilities (including the impact of available carryback and carryforward periods), projected taxable income, and tax-planning strategies in making this assessment. In order to fully realize the deferred tax assets, the Company will need to generate future taxable income before the expiration of the deferred tax assets governed by the tax code. Based on the level of taxable income and projections for future taxable income over the periods for which the net operating losses are available and deferred tax assets are deductible, management believes that it is more-likely-than-not that, in consideration of its recorded valuation allowance, it will realize the benefits of the net operating losses and any other deferred tax assets. The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.
Upon exercise of stock options, the Company recognizes any difference between GAAP compensation expense and compensation expense for income tax purposes as a tax windfall or shortfall. The difference is charged to equity in the case of a windfall. When the exercise results in a windfall and the windfall results in a net operating loss (“NOL”), or the windfall increases an NOL carryforward, no windfall is recognized until the deduction reduces income taxes payable. For GAAP purposes, the Company has recognized all previously suspended windfall tax benefits because they were utilized on the Company’s 2012 and 2013 tax return to reduce taxes payable. The Company’s current windfall tax benefit is partially being recognized due to certain state NOLs being carried forward. The benefits for the recognized windfall tax benefit were recorded in stockholders’ equity, and as such, do not impact the Company’s effective tax rate.
The expected tax provision calculated at the statutory federal rate differs from the actual provision as follows:
As of December 31, 2015 we had NOL carryforwards for state income tax purposes of $149,893, available to reduce future income subject to income taxes. At December 31, 2015, the Company had NOL carryforwards (before any uncertain tax position reserves) for federal income tax purposes of $272,804 which are available to offset future federal taxable income, if any, and expire through 2035. The state NOL carryforwards expire through 2035.
In addition, the Company has alternative minimum tax credit carryforwards of approximately $943 for federal and $22 for California, which are available to reduce future federal regular income taxes, if any, over an indefinite period. The Company also has research and development credit carryforwards of approximately $6,567 for federal and $5,914 for California. The Company also has foreign tax credits of $1,915.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
At December 31, 2015, the amount of unrecognized tax benefits that would benefit the Company’s effective tax rate, if recognized, was $13,701. The Company estimates it is reasonably possible that there will be not be a material change to the liability for unrecognized tax benefits in the next twelve months.
The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense. For the years ended December 31, 2015, 2014 and 2013, income tax expense includes ($158), ($41) and $33, respectively, of potential interest and penalties related to unrecognized tax benefits. The Company had accrued interest and penalties of $3,448 and $594 as of December 31, 2015 and 2014, respectively.
The Company files a consolidated federal income tax return and separate tax returns with various states. Additionally, foreign subsidiaries of the Company file tax returns in foreign jurisdictions. The Company’s tax returns for the calendar years ended December 31, 2014, 2013, and 2012 remain open to examination by the Internal Revenue Service in their entirety. With respect to state taxing jurisdictions, the Company’s tax returns for calendar years ended December 31, 2010 through 2014 remain open to examination by various state revenue services.
The Company’s Indian subsidiary is currently under examination by the India Tax Authority for the fiscal years ended March 31, 2005 and forward. Based on the outcome of examinations of our subsidiary or the result of the expiration of statutes of limitations it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the consolidated balance sheet.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef