|12 Months Ended|
Dec. 31, 2020
|Income Tax Disclosure [Abstract]|
|Income Taxes||INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized. Investment tax credits are recognized on the flow through method.
The provision (benefit) for income taxes at December 31 consists of the following:
The effective tax rates differ from the statutory federal income tax rate as follows:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities at December 31, are as follows:
The net deferred tax assets and liabilities presented in the Consolidated Balance Sheets are as follows at December 31:
At December 31, 2020, gross federal NOLs, amounted to approximately $26.4 million. In the current year, the Company generated approximately $20.1 million, of which approximately $6.6 million were capital losses, and expects to carry these back to prior tax years. The remaining federal NOLs of approximately $6.3 million will be carried forward and are subject to annual limitations under Internal Revenue Code Section 382. Given that the Company has experienced recent losses and is in a three-year cumulative loss position primarily due to the pandemic, a valuation allowance has been recorded on these NOLs. Of these remaining NOLs, $5.9 million will expire at various dates between 2039 and 2040 and the remaining $0.4 million will carryforward indefinitely.
At December 31, 2020, gross state net operating loss carryforwards, which the Company expects to utilize, amounted to approximately $5.7 million. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in certain states in the future and utilize certain of the Company’s state operating loss carryforwards before they expire, the Company has recorded a valuation allowance accordingly. These state net operating loss carryforwards amount to approximately $132.9 million and expire at various dates from 2021 through 2040.
At December 31, 2020, the estimated federal R&D tax credit for the current year amounted to approximately $1.8 million. The Company expects to carry back these credits to the 2019 tax year.
During the year ended December 31, 2020, the Company determined that a revised state filing position could be taken which would reduce the taxable income apportioned for state income tax purposes and recorded a state income tax receivable of approximately $2.9 million as a component of Prepaid Expenses and Other Current Assets. The company intends to file amended state income tax returns for tax years 2015 through 2019 in order to claim these refunds.
During the year ended December 31, 2018, the Company, determined that a revised state filing position could be taken which would reduce the taxable income apportioned for state income tax purposes. Based on the assessment performed, the Company concluded that amended state income tax returns would be filed for the open tax years of 2014 through 2017 to reflect this revised tax position and claim the associated tax benefits. The Company is also claiming the benefit of the revised filing position for 2018 and subsequent tax years. In addition, the revised state tax filing position resulted in a deferred tax benefit due to the revaluation of deferred tax liabilities. Accordingly, the Company recognized the tax benefits, and related tax reserves, for the revised state filing position during year ended December 31, 2018 and thereafter. The statute of limitations expired on various dates in 2020 for the amended returns for tax years 2014 and 2015, and approximately $0.8 million of the unrecognized tax benefits were recognized during 2020. Absent a state tax audit notice related to the refund claims, the statute of limitations will expire in November of 2021 for the amended return for tax year 2016, at which time approximately $0.5 million of the unrecognized tax benefit is expected to be recognized. Absent a state tax audit notice related to the refund claim, the statute of limitations will expire one year from the date the refund check is issued for the amended return for tax year 2017. The statue of limitations will expire in 2022, 2023, and 2024 for tax years 2018, 2019 and 2020, respectively.
The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. Should the Company need to accrue a liability for uncertain tax benefits, any interest associated with that liability would be recorded as interest expense. Penalties, if any, would be recorded as operating expenses. During the year ended December 31, 2020, reserves for uncertain tax positions were recorded in association with a revised state income tax filing positions pursuant to ASC Topic 740-10. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:
The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate amounted to $1.9 million, $2.6 million and $2.2 million at December 31, 2020, 2019, and 2018, respectively. There are no material penalties or interest liabilities accrued as of December 31, 2020, 2019, or 2018, nor are any material penalties or interest costs included in expense
for each of the years ended December 31, 2020, 2019 and 2018. The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2017 through 2020 for federal purposes and 2016 through 2020 for state purposes.
Pretax (loss) income from the Company’s foreign subsidiaries amounted to $(7.0) million, $12.2 million and $7.3 million for 2020, 2019 and 2018, respectively. The balance of pretax earnings or loss for each of those years were domestic.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”). The legislation significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Act permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a 21% rate, effective January 1, 2018.
The Tax Cuts and Jobs Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Company had an estimated $10.3 million of undistributed foreign E&P subject to the deemed mandatory repatriation and recognized a provisional $1.4 million of income tax expense in the Company’s consolidated statement of income for the year ended December 31, 2017. The Company made an adjustment to its provisional amounts included in its consolidated financial statements for the year ended December 31, 2017 resulting in a benefit of approximately $0.4 million recorded during the year ended December 31, 2018. No additional provision for U.S. federal or foreign taxes has been made as the foreign subsidiaries’ undistributed earnings (approximately $23.2 million at December 31, 2020) are considered to be permanently reinvested. It is not practicable to determine the amount of outside basis differences related to the investment in foreign subsidiaries and other taxes that would be payable if these amounts were repatriated to the U.S.
While the Tax Cuts and Jobs Act provides for a territorial tax system, beginning in 2018, it includes the foreign-derived intangible income (“FDII”) and global intangible low-taxed income (“GILTI”) provisions. The Company elected to account for GILTI tax in the period in which it is incurred. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings from its Controlled Foreign Corporations (“CFCs”) in excess of an allowable return on the foreign subsidiary’s tangible assets. The GILTI tax expense resulted from excess net tested income over net deemed tangible income return from the CFCs. The GILTI expense would have been completely offset by a foreign tax credit absent the required allocations of interest expense to the GILTI income, which created a U.S. foreign tax credit limitation. The FDII provisions allow for a deduction equal to a percentage of the foreign-derived intangible income of a domestic corporation. As a result of these provisions, net, the Company recorded a tax benefit of less than $0.1 million during the year ended December 31, 2020 and tax benefit of approximately $0.8 million during the year ended December 31, 2019, and tax expense of approximately $0.2 million during the year ended December 31, 2018.
The Base Erosion and Anti-Abuse Tax (“BEAT”) provisions in the Tax Cuts and Jobs Act eliminates the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company does not expect it will be subject to this tax and therefore has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2020, 2019, and 2018.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. The Company had recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The accounting for these income tax effects of the Tax Cuts and Jobs Act was completed during the fourth quarter of 2018 and the provisional tax impacts were adjusted for the year ended December 31, 2018.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the economic uncertainty resulting from the COVID-19 pandemic. The CARES Act includes many measures to assist companies, including temporary changes to income and non-income based laws, some of which were enacted as part of the Tax Cuts and Jobs Act of 2017 (“TCJA”). Some of the key changes include eliminating the 80% of taxable income limitation by allowing corporate entities to fully utilize NOLs to offset taxable income in 2018, 2019 and 2020, allowing NOLs originating in 2018, 2019 and 2020 to be carried back five years, enhanced interest deductibility, and retroactively clarifying the immediate recovery of qualified improvement property costs rather than over a 39-year recovery period. During the year ended December 31, 2020, the Company recorded an approximate $1.5 million benefit relating to the NOL carryback provisions and the technical correction for qualified improvement property provided for in the CARES Act. The Company will continue to monitor additional guidance issued and assess the impact that various provisions will have on its business.
As a result of the COVID-19 pandemic and its adverse effects on the global economy and aerospace industry that began to take shape in the first quarter of fiscal 2020, the Company generated a significant tax loss for the year ended December 31, 2020,which can be carried back under the CARES Act to recover previously paid income taxes. The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Company weights all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. Losses in recent periods and cumulative pre-tax losses in the three-year period ending with the current year, combined with the significant uncertainty brought about by the COVID-19 pandemic, is collectively considered significant negative evidence under ASC 740 when assessing whether an entity can use projected income as a basis for concluding that deferred tax assets are realizable on a more-likely-than not basis. For purposes of assessing the recoverability of deferred tax assets, the Company determined that it could not include future projected earnings in the analysis due to recent history of losses and therefore had insufficient objective positive evidence that the Company will generate sufficient future pre-tax income to overcome the negative evidence of cumulative losses. Accordingly, during the year ended December 31, 2020, the Company determined that a portion of its deferred tax assets are not expected to be realizable in the future. As a result, the Company recorded a partial valuation allowance of approximately $23.3 million during the year ended December 31, 2020 against its U.S. federal deferred tax assets.
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