INCOME TAXES

3 Months Ended

Apr. 30, 2022

INCOME TAXES

INCOME TAXES

NOTE 10 – INCOME TAXES

Income Tax Expense Reconciliations

The Company’s income tax amounts for the three months ended April 30, 2022 and 2021 differed from corresponding amounts computed by applying the federal corporate income tax rate of 21%to the income before income taxes for the periods as presented below:

	Three Months Ended April 30,
	2022		2021
Computed expected income tax expense	$	(2,049)	$	(3,052)
Difference resulting from:
State income taxes, net of federal tax effect		(134)		(334)
Deferred tax asset adjustments		(66)		(284)
Other permanent differences and adjustments, net		(24)		(98)
Income tax expense	$	(2,273)	$	(3,768)

Foreign income tax expense amounts for the three months ended April 30, 2022 and 2021 were not material.      

Net Operating Loss (“NOL”) Carryback

In an effort to combat the adverse economic impacts of the COVID-19 crisis, the U.S. Congress passed the Coronavirus, Aid, Relief, and Economic Security Act ( the “CARES Act”) that was signed into law on March 27, 2020. This wide-ranging legislation was an emergency economic stimulus package that included spending and tax breaks aimed at strengthening the U.S. economy and funding a nationwide effort to curtail the effects of the outbreak of COVID-19.

The tax changes of the CARES Act included a temporary suspension of the limitations on the future utilization of certain NOLs and re-established a carryback period for certain losses to five years. The NOLs eligible for carryback under the CARES Act include the Company’s domestic NOL for the year ended January 31, 2020 (“Fiscal 2020”), which was approximately $39.5 million. The Company made the appropriate filing with the Internal Revenue Service (the “IRS”) requesting carryback refunds of income taxes paid for the years ended January 31, 2017 (“Fiscal 2017”), 2016 (“Fiscal 2016”) and 2015 in the total amount of approximately $12.7 million.

Research and Development Tax Credits

During the year ended January 31, 2019 (“Fiscal 2019”), the Company completed a detailed review of the activities of its engineering staff on major EPC services projects in order to identify and quantify the amounts of research and development tax credits that may have been available to reduce prior year income taxes. This study focused on project costs incurred during the three-year period ended January 31, 2018. Based on the results of the study, management identified and estimated significant amounts of income tax benefits that were not previously recognized in the Company’s operating results for any prior year reporting period. The net amount of research and development tax credit benefit recognized in Fiscal 2019 was $16.6 million. During Fiscal 2020, deferred tax assets related to the research and development tax credits were reduced by $0.4 million. The Company recorded a corresponding liability for uncertain income tax return positions related to identified but unrecognized research and development tax credit benefits in the amount of $5.0 million. Most this liability was included in accrued expenses as of April 30, 2022 and January 31, 2022.

The research and development credits claimed by the Company in its federal income tax returns were examined by the IRS. The conclusions of the IRS were formally protested by the Company and the results of the appeals hearing that occurred in May 2022 are described in Note 15.

Income Tax Refunds

As of April 30, 2022 and January 31, 2022, the balances of other current assets in the condensed consolidated balance sheet included income tax refunds receivable and prepaid income taxes in the total amounts of approximately $27.7 million and $29.5 million, respectively. The income tax refunds included the amounts that were expected to be received from the IRS upon completion of the tax return examination appeals process described in Note 15 and the amount expected to be received from the IRS upon its processing of the Company’s NOL carryback refund request discussed above. The Company has also formally protested the conclusions reached by two states, where the Company filed tax returns reflecting the benefits of certain research and development credits, that the credits are not allowable. The Company expects that the ultimate settlement of the income tax disputes with the states will be resolved on bases favorable to the Company.

Income Tax Returns

The Company is subject to federal and state income taxes in the U.S., and income taxes in Ireland and the U.K. Tax treatments within each jurisdiction are subject to the interpretation of the related tax laws and regulations which require significant judgment to apply. The Company is no longer subject to income tax examinations by authorities for its fiscal years ended on or before January 31, 2018 (“Fiscal 2018”) except for several notable exceptions including Ireland, the U.K. and several states where the open periods are one year longer.

Solar Energy Projects

The Company has invested in limited liability companies that make equity investments in solar energy projects that are eligible to receive energy tax credits. The passive investments have been accounted for under the equity method and the balances are included in other assets in our condensed consolidated balance sheets. Each tax credit, when recognized, is recorded as a reduction of the corresponding investment balance with an offsetting reduction in the balance of accrued taxes payable in accordance with the deferral method. At April 30, 2022 and January 31, 2022, the investment account balances were $0.8 million and $0.2 million, respectively. These investments are expected to provide positive overall returns over their six-year expected lives.

For the three-month period ended April 30, 2022, the investment balance was adjusted to reflect its share of the income of the investment entities in the amount of approximately $0.6 million, which has been included as other income in the Company’s condensed consolidated statement of earnings. Other than the Company making initial payments to a solar energy investment company in the amount of approximately $3.5 million during the three-month period ended April 30, 2021, the activities related to these projects during this prior period were not meaningful.  

The Company has also established deferred taxes related to the difference in the book and tax bases of the investments.

Supplemental Cash Flow Information

The Company was not required to make any income tax payments during the three months ended April 30, 2022 or 2021. During the three months ended April 30, 2022 and 2021, the Company did not receive any income tax refunds that were material.