|12 Months Ended|
Dec. 31, 2020
|Income Tax Disclosure [Abstract]|
|INCOME TAXES||INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carry-forwards. Under this method, deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law making several changes to the Internal Revenue Code. The changes include, but are not limited to: increasing the limitation on the amount of deductible interest expense, allowing companies to carryback certain net operating losses, and increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income.
The income tax provision (benefit) for the years ended December 31, 2020, 2019, and 2018 consists of the following:
The following is a reconciliation of the reported amount of income tax benefit for the years ended December 31, 2020, 2019, and 2018 to the amount of income tax expenses that would result from applying the statutory rate to pretax income (loss).
The Company’s May 15, 2018 closing under an exchange agreement and related transactions triggered an ownership change within the meaning of Section 382 of the Internal Revenue Code (“IRC”) due to the share issuances related thereto. In general, an ownership change, as defined in IRC Section 382, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50% of the outstanding stock of a company by certain stockholders or public groups. Since the Company has experienced an ownership change, utilization of net operating losses (“NOL”) and other tax carryforward attributes including, but are not limited to, interest expense limitations, are subject to an annual limitation. Accordingly, the Company reduced its net operating loss deferred tax asset and related valuation allowance by $63.6 million during 2018. In 2020, the Company further reduced its net operating loss deferred tax asset and related valuation allowance by $12.5 million due to changes from the CARES Act and the finalized IRC regulations, that increased the limitation on the amount of deductible interest expense.
A valuation allowance is established to reduce deferred tax assets if it is determined that it is more likely than not that the related tax benefit will not be realized. On a quarterly basis, management evaluates the need for and adequacy of valuation allowances based on the expected realizability of the deferred tax assets and adjusts the amount of such allowances, if necessary. During 2020, in evaluating whether it was more likely than not that the Company’s net deferred tax assets were realized through future net income, management considered all available positive and negative evidence, including (i) its earnings history, (ii) its ability to recover net operating loss carry-forwards, (iii) the projected future income and results of operations, and (iv) its ability to use tax planning strategies. Based on all the evidence available, management determined it was more likely than not that the net deferred tax assets, other than the deferred tax asset related to the Company’s alternative minimum tax credit, were not realizable. The Company’s valuation allowance at December 31, 2020 was $337.5 million.
At December 31, 2020, the Company had a net operating loss carryforward for federal income tax purposes of $474.5 million, which is net of the IRC Section 382 limitation, and state NOL carryforwards of $649.3 million. The determination of the state NOL carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and that can thereby impact the amount of such carryforwards. If unutilized, all of the federal net operating losses will expire from 2031 to 2037, except for $161.7 million of federal net operating losses that have an indefinite life. If unutilized, all of the state net operating losses will expire from 2020 to 2037, except for $104.6 million of state net operating losses that have an indefinite life.
The significant components of the Company’s deferred tax assets (liabilities) were as follows:
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. The Company has no liabilities for unrecognized tax benefits.
The Company’s policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income tax expense. For the years ended December 31, 2020, 2019 and 2018, the Company did not recognize any interest or
penalties in its statements of operations, nor did it have any interest or penalties accrued in its balance sheet at December 31, 2020 and 2019 relating to unrecognized benefits.
The tax years 2020, 2019, 2018, and 2017 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject. Additionally, NOLs from 2011-2016 could be adjusted in the future when such NOLs are utilized.
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/disclosureRef