|12 Months Ended|
Dec. 31, 2019
|Income Tax Disclosure [Abstract]|
Income (loss) before income tax provision (benefit) was generated in the following jurisdictions:
The components of the income tax provision (benefit) charged to operations are summarized as follows:
Net deferred tax assets (liabilities) consisted of the following:
In December 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted into United States law. Beginning in 2018, the Tax Act includes the Global Intangible Low-Taxed Income (“GILTI”) and Base-Erosion Anti-abuse Tax (“BEAT”) provisions. The Company elected to account for GILTI tax in the period in which it is incurred. The GILTI provision requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. The Company expects to fully offset any GILTI income with Net Operating Losses (“NOLs”). The Company has reevaluated the entity classification of its Indian entities to a flow-through status. As a result, the Company does not currently expect to be subject to BEAT. Additionally, the two Indian entities also are no longer subject to GILTI.
The deferred tax liability that is not being recorded because of the Company's assertion to permanently reinvest the earnings of its India subsidiaries is $5,207 related to the dividend distribution tax in India, net of an assumed foreign tax deduction for this amount in the U.S.
The valuation allowance for net deferred tax assets as of December 31, 2019 and 2018 was $12,584 and $15,531, respectively. The change in the valuation allowance from 2018 to 2019 was primarily related to the acquisition of PIEtech. 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.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence is the cumulative loss incurred over the three years ended December 31, 2019. Such objective evidence limits the ability to consider other subjective evidence such as the Company's projections for future growth.
On the basis of this evaluation, as of December 31, 2019, a valuation allowance of $12,584 has been recorded to record only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company's projections for growth.
The expected income tax provision (benefit) calculated at the statutory federal rate differs from the actual provision as follows:
At December 31, 2019, the Company had NOL carryforwards, before any uncertain tax position reserves, for federal income tax purposes of approximately $265,000 available to offset future federal taxable income, if any, of which $256,000 expire through 2039 and $9,000 are carried forward indefinitely. In addition, as of December 31, 2019, the Company had NOL carryforwards for state income tax purposes of approximately $208,000 available to reduce future income subject to income taxes. The state NOL carryforwards expire through 2039.
In addition, at December 31, 2019, the Company had AMT credit carryforwards of approximately $727 for Federal purposes. As a result of tax reform, AMT credits are refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50% (100% in the case of taxable years beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability. Thus, the minimum tax credit was reclassified from a deferred tax asset to an income tax receivable. The Company also had AMT credits of $19 for California, which are available to reduce future California income taxes, if any, over an indefinite period. In addition, the Company had research and development (“R&D”) credit carryforwards of approximately $20,841 for federal and $10,785 for California and Illinois, as well as foreign tax credits of $1,253 available to offset federal income tax. Federal R&D credits begin to expire in 2022 through 2039. California R&D credits carryover indefinitely.
A reconciliation of the beginning and ending amount of unrecognized tax benefit follows:
At December 31, 2019, the amount of unrecognized tax benefits that would benefit the Company’s effective tax rate, if recognized, was $18,939. At this time, the Company estimates that the liability for unrecognized tax benefits could decrease in the next twelve months by an estimated $6,150 as it is anticipated that reviews by tax authorities will be completed. In addition, the full amount of related penalties and interest of $7,336 could also be released.
The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense. For the years ended December 31, 2019 and 2018, income tax expense included $1,476 and $126, respectively, of potential interest and penalties related to unrecognized tax benefits. The Company had accrued interest and penalties of $7,336 and $5,977 as of December 31, 2019 and 2018, 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 was notified by the Internal Revenue Service in December 2017 that the calendar year 2015 and 2016 federal income tax returns have been have been selected for audit by the Internal Revenue Service. The Company’s tax returns for the calendar years ended December 31, 2018, 2017, and 2016 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, 2018, 2017, 2016, and 2015 remain open to examination by various state revenue services.
The Company's Indian subsidiaries are currently under examination by the India Tax Authority for the fiscal years ended March 31, 2019, 2018, 2017, 2014, 2013, 2012, 2011, 2010, and 2008. Based on the outcome of examinations of the Company's subsidiaries 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 sheets. It is possible that one or more of these audits may be finalized within the next twelve months.
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://fasb.org/us-gaap/role/ref/legacyRef