|12 Months Ended|
Dec. 31, 2016
|Income Tax Disclosure [Abstract]|
19. Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The significant components of the Company’s deferred taxes consist of the following:
A reconciliation of the statutory tax rates and the effective tax rates is as follows:
ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of all positive and negative evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Realization of the deferred tax assets is substantially dependent on the Company’s ability to generate sufficient taxable income within certain future periods. Management has considered the Company’s history of cumulative tax and book losses incurred since inception, and the other positive and negative evidence, and has concluded that it is more likely than not that the Company will not realize the benefits of the net deferred tax assets as of December 31, 2015 and December 31, 2016. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2015 and December 31, 2016. The valuation allowance increased by a net $28.0 million during the current year.
The Company has incurred net operating losses (“NOLs”) since inception. At December 31, 2016, the Company had federal NOLs of $197.5 million, which will begin to expire in the year 2020, state NOLs of $189.5 million, which will begin to expire in 2022, and federal income tax credits of $6.3 million, which will begin to expire in 2028. The utilization of the Company’s NOLs and tax credit carryovers are subject to annual Internal Revenue Code Section 382 limitations (382 Limitations) due to the ownership changes incurred by the Company on April 26, 2010 and June 27, 2012 (similar state provisions apply to state loss carryovers). Based on the analysis of the NOLs and tax credit carryovers subject to the 382 Limitations, the Company has concluded that the 382 Limitations would not prevent the Company from utilizing all of its NOLs and tax credit carryovers before expiration.
As of December 31, 2016, the Company had no unrecognized tax benefits and does not anticipate any significant change to the unrecognized tax benefit balance. The Company would classify interest and penalties related to uncertain tax positions as income tax expense, if applicable. There was no interest expense or penalties related to unrecognized tax benefits recorded through December 31, 2016. The NOLs from tax years 2006 through 2016 remain open to examination (and adjustment) by the Internal Revenue Service and state taxing authorities.
In 2016, as a result of the acquisition of National, the Company acquired $0.4 million of current income tax payable and $8.8 million in net deferred tax assets. Management determined that it was more likely than not that the Company will not realize the benefit of National’s deferred tax assets. Therefore, the Company established a valuation allowance of $8.8 million against the acquired net deferred tax assets, with a corresponding adjustment to goodwill. National is not consolidated with the Company for federal income tax purposes; therefore, its federal NOLs (and other federal tax attributes) are not available to offset the federal taxable income or federal tax liability of the Company or other members of the Company’s consolidated group. Upon the acquisition of National by the Company, National experienced an ownership change which resulted in a write-off of deferred income tax assets of approximately $3.2 million due to the applicable 382 Limitations.
Checkpoint is not consolidated with the Company for federal income tax purposes; therefore, its federal NOLs (and other federal tax attributes) are not available to offset the federal taxable income or federal tax liability of the Company or other members of the Company’s consolidated group. In December 2015, Checkpoint experienced an ownership change as a result of an issuance of its common stock and its NOLs (and other tax attributes) are subject to applicable 382 Limitations (and similar state provisions).
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