INCOME TAXES

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

20. INCOME TAXES:

The Company is subject to income taxes in both the United States and foreign jurisdictions. The effective income tax rate was 4.4% and 23.7% for the three months ended September 30, 2023 and 2022, respectively and 16.8% and 22.7% for the nine months ended September 30, 2023 and 2022, respectively. The discrepancy between the statutory tax rate and the effective tax rate is primarily due to nondeductible employee compensation and U.S. international tax (GILTI and Subpart F). The reduction in the income tax rate for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022, was primarily due to the change in IRS regulations, issued in July 2023, that permit withholding taxes to be credited against U.S. taxable income for the tax years 2022 and 2023, recorded as a discrete tax adjustment in the three months ended September 30, 2023. The Company recorded an income tax expense of $2.4 million and $16.6 million for the three months ended September 30, 2023 and 2022, respectively, and $28.5 million and $42.7 million for the nine months ended September 30, 2023 and 2022, respectively.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the Company's ability to generate future taxable income to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credits. Included in other current assets as of September 30, 2023 is $18.0 million of income tax receivable, which was previously classified as a deferred tax asset. This was the result of a change in guidance issued under IRS Notice 2023-63 which clarified that certain research and development costs do not need to be capitalized and amortized over future periods. As part of its assessment, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. At this time there is not sufficient evidence to release the valuation allowance that has been recorded for the New Jersey research and development credit and unrealized loss on investments, and no indicators against the realizability of the remaining net deferred tax asset.

The U.S.-Korean Mutual Agreement Procedure (MAP) for the years ended December 31, 2010 to December 31, 2017 was closed in September 2022, resulting in a refund of the Korean withholding taxes previously withheld. In July 2023, the Company amended its U.S. federal tax returns to reflect the refund and to redetermine the foreign tax credit amount. In November 2022, the Company prepaid $18.8 million to the IRS under Rev. Proc. 2005-18 to offset the tax payable amount.

On December 27, 2018, regarding the withholding taxes for the years 2018 to 2022, the Korean Supreme Court, citing prior cases, held that only royalties paid with respect to Korean registered patents are considered Korean source income and subject to Korean withholding tax under the applicable law and interpretation of the Korea-U.S. Tax Treaty. The Company has incurred Korean withholding tax of $14.9 million for the years ended December 31, 2018 to December 31, 2022. Based on the Korean Supreme Court decision, a tax refund request on behalf of the Company was filed with the Korean National Tax Service (KNTS) for the entire period from January 1, 2018 to December 31, 2022. The Company received a formal rejection from the KNTS and has filed a petition to the Korean Tax Tribunal to reverse the decision of the tax office. The Company has been advised by a prominent Korean law firm that there is a more-likely-than-not chance of success. As a result, the Company has recorded a long-term asset of $57.6 million and $60.9 million as of September 30, 2023 and December 31, 2022, respectively. The Company also recorded foreign exchange loss of $1.5 million during the three months ended September 30, 2023 and $3.3 million during the nine months ended September 30, 2023 due to the fluctuation of the Korean Won to the U.S. Dollar and resulting remeasurement of this Won-denominated receivable.

The Company will also amend U.S. federal tax returns for the 2018 to 2020 years when the anticipated refund from KNTS is received to offset the additional tax liability and to redetermine the research and development credit utilization. In November 2022, the Company prepaid $16.0 million to the IRS under Rev. Proc. 2005-18 that relates to the anticipated tax payable. The Company has recorded a long-term liability of $15.7 million and $14.6 million as of September 30, 2023 and December 31, 2022, respectively, for the estimated amounts due to the U.S. federal government based on the amendment of the Company's U.S. tax returns indicating that lower withholding amounts were required.

The Company’s federal income tax returns for the years 2018 to 2021 are open and subject to examination. The Company's state and foreign tax returns are open for a period of generally three to four years.

The above estimates may change in the future and upon settlement.